The UK government has announced a cap on ground rents for leaseholders in England and Wales, setting a limit of £250 annually. Prime Minister Sir Keir Starmer unveiled the cap in a TikTok video, highlighting its potential to save leaseholders hundreds of pounds. This announcement is part of broader reforms detailed in the draft Leasehold and Commonhold Reform Bill, set to be introduced on Tuesday.
Ground rents, which are fees paid annually by leaseholders to freeholders, were abolished for most new residential leasehold properties in 2022 but continued for existing homes. Under the new reforms, ground rents will reduce to a 'peppercorn', effectively zero, after 40 years, and new leasehold flats will be banned. The reforms also aim to abolish forfeiture, a process that can result in leaseholders losing their homes over minor financial defaults, and will make transitioning to commonhold ownership easier for leaseholders.
Labour's manifesto for the 2024 election had promised to tackle unregulated and unaffordable ground rent charges, and this move is seen as a fulfillment of that pledge. However, the Residential Freehold Association (RFA) has criticized the cap as "wholly unjustified", warning it could damage the UK's reputation with investors by undermining long-standing property rights.
Despite some calls for ground rents to be reduced to a zero-cost 'peppercorn' rate, the cap at £250 has been accepted by some as a compromise to avoid legal challenges. In response to tensions within government departments regarding the economic implications of the cap, former Labour minister Justin Madders noted the potential for significant opposition but acknowledged the £250 cap as a viable interim solution.
The change affects the approximately five million leasehold homes in England and Wales, which are predominantly privately-owned flats. With leasehold being the default tenure for these dwellings, the Land Registry projects that by 2024, nearly all flat sales in England will involve leaseholds. Recent data from the English Housing Survey suggests that leasehold owner-occupiers pay an average ground rent of £304 annually, underscoring the potential relief the new cap could bring.