Government announces cap to ground rent

On Tuesday 27 January 2026, the British Government announced their planned changes to the leasehold system in England and Wales.

One key part of the announcements which has been taking all the headlines is the plan to cap ground rent for all leasehold properties to £250 a year.

The cap will be valid for 40 years before being changed to a “peppercorn” rate. The peppercorn rate would mean that leaseholders would effectively pay £0 thereafter.

What is ground rent?

Ground rent is a charge that is applicable to leasehold properties. In the UK, a person may own a property, but in some cases, they may not own the land it sits upon. This is known as a leasehold.

The person who owns the land (the freeholder) can charge the homeowner (the leaseholder) a ground rent each year. Previously, there was no cap on this limit and theoretically, the freeholder could charge whatever they wanted.

In the United Kingdom, there are around 5 million leasehold properties on freehold estates, with 70% being flats or apartments and the remaining 30% being houses.

What else was announced?

As well as a cap on ground rent, the Government also announced that it will be banning the sale of new flats with a leasehold. This move will ensure that any newbuild flats will be sold under commonhold, giving the owners joint ownership of the building in which they live. The ban on leasehold for newbuild residential homes was previously introduced in 2024. Current flat owners will also be able to easily convert their leasehold to commonhold.

Another change that was announced was that homeowners would be given greater control over how their buildings are managed. This includes a greater transparency for leaseholders to see their service charges, challenge unfair costs and reduce unexplained fees and price hikes.

All these changes are currently being drafted to form part of the Leasehold and Commonhold Reform Bill, which will need to be scrutinised in Parliament and currently does not have a date for publication. However, the Government has indicated that the ground rent cap will likely come into effect in 2028.

How have people reacted to the announcement?

The move, which may not come as a surprise to some, as the Government pledged to make commonhold and leasehold reforms as part of their manifesto, has generally been welcomed by campaigners against ground rent. They have long argued that ground rent is an “archaic system” dating back to the UK's feudal period.

On the other hand, the move has opened the Government up to criticism from leaseholders who, understandably, are unhappy that their potential incomes are being capped.

The Residential Freehold Association (RFA) issued a statement in which they argued that “The inclusion of a ground rent cap in the draft Leasehold and Commonhold Reform Bill represents a wholly unjustified interference with existing property rights which if enacted, would seriously damage investor confidence in the UK housing market and send a dangerous and unprecedented signal to the wider institutional investment sector.”

They also have called upon the Government to “focus on the reforms that would achieve real world benefits for leaseholders which they care most about, such as regulating managing agents, improving transparency and raising professional standards.”

My thoughts

I welcome the Government’s announcement of a statutory cap on residential ground rents, confirming a transition to a peppercorn rent over a 40-year period and the rejection of proposals to index ground rents to inflation. The policy is a material step towards restoring fairness in long residential leases and is a progressive step for tenants stuck in unsaleable properties.

The decision not to index ground rents to inflation is particularly significant. It avoids escalating burdens on leaseholders and reduces the risk of unpredictable long-term liabilities that have historically impeded mortgage affordability assessments. By committing to a clear glidepath to a peppercorn, the policy should improve mortgageability and smooth conveyancing, with fewer referrals to specialist lenders and less reliance on complex deed-of-variation workarounds. In practical terms, this should allow leaseholders to sell their properties more easily.

Notwithstanding these positives, we are concerned that the current implementation date in late 2028 is too slow. The market distortions caused by onerous and rising ground rents are immediate. A prolonged runway will leave many leaseholders exposed to avoidable expense, transactional delay and valuation uncertainty.

We ask the Government to start quickly. They should introduce temporary protections to limit collection and enforcement actions. It is also important to give clear guidance to lenders, conveyancers, and managing agents. This way, the intended benefits can be achieved without further delays.

While this reform is meaningful, it does not go far enough. Ground rent is only one part of the problem. Ongoing issues arising under the Building Safety Act continue to trap leaseholders, with unresolved liabilities, complex certificate regimes and extended sale-blocking uncertainty. We call for a coordinated programme to complete the remediation of building safety obstacles, simplify certification, and ensure that ordinary homeowners are not left bearing systemic risks beyond their control.

Contact us

If you have any questions about a leasehold or freehold property. Do not hesitate to contact the property law team at Holden Smith Law. Contact our team by calling one of our offices or by completing our online enquiry form.