What are the recent changes to ground rent?

The government have recently announced the cap on ground rent for leasehold properties. This new system will benefit millions of leaseholders across England and Wales, with the cap being set at £250 and changing to a “peppercorn” cap after 40 years.

This change aims to replace an outdated system, helping people save hundreds of pounds. Additionally, new leasehold flats will be banned, and new homeownership will be strengthened.

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‍What is a leasehold?

Millions of people own leasehold properties, and this type of ownership can become complex and expensive. Having been viewed negatively over the years, the government is making a change. But who is a leaseholder?

A leaseholder owns the property but not the land it sits on; the land is owned by the freeholder. You own the lease to be able to occupy the property, but the length of the leasehold is only for a set period of time.

There are an estimated 5 million leasehold properties in England and Wales, of which 70% are flats. The freeholder would typically own the building and the land beneath it.

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‍Ground rent and its recent change

Ground rent is a payment made by the leaseholder (owner/tenant) to the freeholder (landowner) for the right to live on the land the property is built on. 

The new draft of the Commonhold and Leasehold Reform Bill, published on the 27th January, however, now means ground rent will be capped at £250 a year before it becomes a “peppercorn” rate (effectively nothing) after 40 years.

Previously, under the old terms, the amount could change in line with inflation at fixed intervals, which would make it difficult for people to sell their homes or secure a mortgage on a property.

The bill will be put through a series of challenges from MPs before it passes to Parliament, with the cap potentially being brought in towards the end of 2028. 

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‍The introduction of Commonhold

The capping of ground rent has been introduced as part of a scheme to encourage better ownership and overall management of apartment buildings. 

With that, leasehold ownership of new flats will be banned under the new bill (except for limited cases), and the government plans to introduce a system where new flats are sold as commonhold.

Commonhold is where the neighbours of the same building collectively own the ground the building sits on, as well as the building itself. Giving owners better control over how their property is set up.

Spiralling service charges have also caused concern in the past, with a bill passed in 2024 to tighten up restrictions; however, the government has said it will build on this and help challenge unfair costs.

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‍What this means going forward

This policy change represents a significant step forward in the management of leasehold properties and is expected to have a positive impact on millions of people in the years to come. 

With the capping of ground rents, owners will have greater transparency and increased confidence when selling or buying leasehold properties.

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