The Government has yesterday (27th January) published a draft Commonhold and Leasehold Reform Bill that will fundamentally reshape the Residential Property leasehold landscape in England and Wales. Central to the announcement is the introduction of a £250 per year cap on ground rents, with a guaranteed move to a peppercorn (zero) ground rent after a 40-year transition period. Alongside a ban on new leasehold houses and strengthened routes into commonhold, this represents the most significant shift in residential property law in a generation.
At Prosperity Law, we’ve analysed the key elements of the reforms and what they mean for leaseholders, freeholders, investors and landlords. Here’s our assessment and advice.
What Is Ground Rent?
Ground rent is a financial obligation that some leaseholders pay to the freeholder (landowner) under the terms of a lease. Historically, ground rents have ranged from modest sums to highly inflated figures, especially where they are escalating, compound or linked to market indices.
While ground rent started as a nominal payment, in many long leases taken out over the past few decades it became a significant ongoing cost with no additional service provided. This has caused particular problems where:
- Ground rent doubles every 10 or 15 years;
- It makes a property harder to sell; and
- Mortgage lenders will not lend against properties with high or escalating ground rents.
In essence, ground rent has been a hidden cost of homeownership for millions of leaseholders — until now.
According to government data, there are approximately 3.8 million leasehold properties with a ground rent obligation across England and Wales. The average ground rent is around £304 per year, though amounts vary significantly. Some ground rents are fixed, while others escalate over time, sometimes doubling every 10 or 20 years.
The New £250 Ground Rent Cap: Key Details
Who Will Benefit?
The reforms will benefit existing leaseholders of residential properties in England and Wales whose leases include ground rents. According to the government’s policy statement Addressing unregulated and unaffordable ground rent (January 2026), between 770,000 and 900,000 leaseholders currently pay more than £250 per year in ground rent. These individuals will see immediate savings once the cap comes into force.
This includes:
- Leaseholders of flats;
- Owners of leasehold houses; and
- Investors or landlords with leasehold interests in residential property.
These measures are aimed at anyone with a lease that imposes a financial burden purely for the right to occupy a home.
Importantly, the Government has stated that over 5 million leaseholders and future homeowners will see improved protections, with many saving thousands of pounds over the term of their leases.
In total, leaseholders paid over £600 million in ground rents in 2025. The government projects that leaseholders will save between £10 billion and £12.7 billion over the lifetime of their leases as a result of these reforms.
When Will It Take Effect?
The draft Bill will now undergo pre-legislative scrutiny by the Housing, Communities and Local Government Select Committee. Subject to parliamentary approval and implementation timelines, the ground rent cap could come into force in late 2028.
While some changes — such as those introduced in the Leasehold and Freehold Reform Act 2024 — are already rolling out, the ground rent cap itself will take effect once the new Bill is enacted.
The 40-Year Transition to Peppercorn Rent
Crucially, the reforms will not simply cap ground rents at £250. They go further:
- Ground rents start capped at £250 per year; and
- After 40 years from implementation, all qualifying ground rents will automatically reduce to a peppercorn — effectively zero.
This transition approach recognises that:
- There are existing contractual and valuation consequences that need managing; but
- All leaseholders should ultimately benefit from the removal of ground rents.
For those concerned about the value of their leasehold interest or the impact on freeholders, the extended transitional period gives time to adjust.
Why Does This Matter?
Mortgage and Property Sale Issues
One of the biggest practical issues for leaseholders has been the retention of mortgage finance and property marketability.
Mortgage lenders typically impose strict criteria on leases , including ground rent amounts and escalation clauses. Where ground rents are high or escalate dramatically, lenders may:
- Decline to lend on the property, or
- Apply higher risk pricing.
Consequently, many leaseholders found their homes harder to sell, particularly where their leases contained onerous ground rent terms. The Government’s new cap — and future peppercorn rent — will remove a major barrier for lenders and buyers alike.
This should:
- Improve marketability of existing leasehold homes; and
- Boost equity realisation for sellers.
However, until the cap takes effect in law, leaseholders with problematic ground rents may still encounter difficulty placing properties on the market.
The End of the Assured Shorthold Tenancy (AST) Trap?
The reforms — when coupled with broader leasehold changes that are already in force — also address what has been called the “AST trap.”
Many leasehold homes are rented privately under Assured Shorthold Tenancies. Historically:
- Private landlords holding leasehold interests would pass on ground rent increases to tenants; and
- Tenants had limited control or awareness of leasehold terms affecting their landlord’s ability to manage the building.
By capping ground rents and supporting pathways into commonhold, tenants — whether occupiers or future buyers — benefit from a more stable, transparent and equitable system.
What Leases Are Covered?
The ground rent cap applies to residential leases in England and Wales that include a ground rent obligation. This will typically include:
- Flat leases;
- House leases with ground rent provisions; and
- Mixed-use leases with residential components.
Importantly, leases granted after the Leasehold Reform (Ground Rent) Act 2022 already have ground rents effectively abolished for most new long residential leases. The new cap focuses on tackling unfair or unaffordable ground rents in existing older leases.
Certain specialised lease types — such as commercial or agricultural leases — are not within scope.
Other Key Reforms in the Bill
In addition to the ground rent cap, the draft Commonhold and Leasehold Reform Bill includes several major changes:
Ban on New Leasehold Flats
The Government plans to prohibit the future sale of residential leasehold flats, meaning:
- Developers cannot create new leasehold flats for sale; and
- New homebuyers will have greater clarity and control over how they own their home.
This applies to residential homes and supports the long-term shift away from traditional leasehold.
Reforming Forfeiture and Debt Enforcement
The Bill will abolish forfeiture for relatively low debts, a practice that has previously allowed freeholders to:
- Reclaim homes for arrears as small as £350; and
- Leave leaseholders at risk of losing their equity over minor defaults.
A new enforcement regime will replace this with fairer protections.
Easier Pathways to Commonhold
Commonhold — where homeowners collectively own and manage their building without a landlord — has long been proposed as the ideal alternative to leasehold. The Bill:
- Introduces a revamped commonhold framework;
- Makes it easier for existing leaseholders to convert where a majority agree; and
- Strengthens rights over building management, budgets and repairs.
This signals a shift towards genuine ownership and democratic control of residential buildings.
Changes Already in Place Since the 2024 Act
Some leasehold reforms are already being rolled out under the Leasehold and Freehold Reform Act 2024, including:
- Greater transparency over service charges, giving leaseholders stronger ability to challenge unfair costs;
- Mandatory disclosure requirements for landlords; and
- Early steps to improve accountability in building management.
These reforms lay the groundwork for the broader changes now brought forward in the draft Bill.
What Should Leaseholders Do Now?
Here’s our practical advice for leaseholders and their advisors:
Review Your Lease Terms
Understand:
- Your current ground rent provisions;
- Any escalation clauses; and
- How close you are to breaching mortgage lender criteria.
Consider Timing of Sales or Refinance
If you are considering selling or refinancing:
- Act now if your current lease terms may be problematic before the reforms take effect;
- Use expert advice to navigate lender requirements; and
- Prepare evidence of how the new reforms will benefit future valuation.
Engage on Commonhold Opportunities
If you live in a building with multiple owners:
- Explore whether commonhold conversion may be beneficial;
- Understand the majority support required; and
- Get professional advice on costs and governance arrangements.
Seek Legal Assistance Early
Leasehold reform is complex. Professional guidance can help you:
- Interpret how the new Bill affects your specific lease;
- Assess timing of legal strategies; and
- Maximise the financial and legal benefits of reform.
Conclusion
The Government’s announcement marks a landmark moment for residential property law. By capping ground rents at £250 and ultimately abolishing them, banning new leasehold homes, and empowering leaseholders with better protections and routes into commonhold, this reform addresses decades of imbalance in the leasehold system.
At Prosperity Law, we welcome this shift towards fairness and control for homeowners. But active management of existing interests — including lease reviews and strategic planning — remains essential.
If you’re a leaseholder, landlord or investor with questions about how the reforms affect you, contact us for tailored advice.
Contact Our Property Solicitors
For any queries please fill out the form below and a member of our highly experienced property team will get back you.
About the author
Warren Kaye | Solicitor & Head of Residential Property
Admitted: 16 January 2006 | SRA ID: 42683
Warren is a solicitor with over 25 years of experience in residential property, with a particular specialism in volume conveyancing operations. He joined Prosperity Law in November 2021 as Head of the Manchester residential conveyancing department, having previously spent his career at two of the UK’s largest residential conveyancing firms.
His dedication to customer service and passion for property law has earned Warren a strong reputation among clients, mortgage brokers, and estate agents throughout the country. He is known for his proactive and commercially practical approach to the sale and purchase of property.
