Starmer announces ground rent cap for leaseholders

Ground rents for leaseholders are set to be capped at £250 a year under measures set out in draft legislation this morning.

The draft Commonhold and Leasehold Reform Bill changes the structure of homeowning across England and Wales, banning new leasehold flats and introducing a cap to ground rent, which will be reduced to a “peppercorn” rate after 40 years.

The leasehold system, which dates back to medieval times, is the most common type of property ownership for flats and apartments in the UK.

Under the system, a leaseholder owns the right to use a property for a set period of time (which can range from a few years to 999 years) and is typically required to pay ground rent, service charges and maintenance fees to the property’s freeholder.

However, the high rates demanded by some freeholders in recent years, and the perceived lack of a clear service in exchange, has invited criticism of the system.

The Leasehold Reform (Ground Rent) Act 2022 already ended ground rents for most new long residential leases going forward, with today’s announcement focusing on older leases.

The government said that more than five million leaseholders and future homeowners would benefit from the latest measures. The legislation still has to clear the parliamentary process, but the government hopes the ground rent cap could come into force in late 2028.

Prime minister Keir Starmer announced the proposed changes in a TikTok video published on Tuesday morning. 

“I’ve spoken to so many people who say this will make a difference to them of hundreds of pounds,” said Starmer in the video.

“That’s really important because the cost of living is the single most important thing across the country. So this is a promise that we said we’d deliver and I’m really pleased that we’re delivering on that promise.”

The legislation will also see the abolition of forfeiture, whereby leaseholders can lose their home and the equity they built up by defaulting on a debt as low as £350.

A new process will be introduced under which existing leaseholders can convert to commonhold as part of a revamp of the latter system, which will give homeowners a greater say over the management and budgeting of their buildings.

Liam Spender, the lawyer behind a major claim against freeholders and insurance brokers by Leaseholder Action, said some would be disappointed that ground rents were not being eliminated immediately. 

But he said the cap would “make it cheaper for people to buy the freehold and to extend their leases” and would “also make flats easier to sell and mortgage”.

Gary Scott, property litigation partner at Spector Constant & Williams, said the measure would “materially affect a relatively small minority of leaseholders”.

He said government estimates indicated that no more than 900,000 leaseholders pay more than the cap, out of roughly 3.8 million leasehold properties with a ground‑rent charge.

“While this means the vast majority of leaseholders will see no direct financial change from this measure, for the much smaller group of leaseholders still burdened by onerous, doubling, or investment‑linked ground rents, the impact will be substantial,” he said.

Scott said the 40-year transition period represented “a measured and balanced transition which is to the benefit of both leaseholder and landlord.”

Anna Favre, partner at law firm Cripps, said the change “quite rightly” helped leaseholders “enduring the injustice of unusually onerous escalating ground rents”, but would also “retrospectively alter long established contractual income streams relied upon by other landlords and institutional investors”.

She warned that the reforms should be implemented “in a way that preserves confidence in UK as a stable investment class while delivering fair outcomes for homeowners.”

Danny Pinder, director of policy at the British Property Federation, said the cap would “interfere with investments made by pension funds and institutional investors over many years and undermine the Government’s pursuit of investment in this country”.

He insisted that “adequate compensation” should be provided for those who had “invested in good faith”.

Pinder said there were elements in the commonhold proposals that “responsible freeholders will support” but said its introduction needed to be “carefully phased”.