The UK government’s planned cap on ground rents at £250 annually, before reducing them to a peppercorn after 40 years, is set to affect millions of leaseholders but faces questions over implementation timelines and market impact.
The draft Commonhold and Leasehold Reform Bill, published in January 2026, has completed pre-legislative scrutiny with final legislation awaited. The government’s impact assessment estimates that approximately 3.8 million residential leasehold properties in England and Wales are subject to ground rent, with 770,000 to 900,000 paying more than £250 annually.
Market impact and mortgage concerns
Research conducted by ALEP, which represents solicitors and valuers working within leasehold reform, found that 80% of its membership agreed that ground rents can have a negative impact on the sale of leasehold properties. Additionally, 70% reported that some ground rents cause problems in agreeing mortgages.
The reforms sit within a broader programme of change following the Leasehold and Freehold Reform Act 2024, aimed at making leasehold less punitive for consumers while preparing for wider use of commonhold. However, the changes will not benefit all leaseholders equally, with some already paying peppercorn or very low rents seeing little immediate benefit.
Shabnam Ali-Khan, a partner at Russell-Cooke and ALEP member, noted that leaseholders who have already paid significant sums to extend leases or acquire freeholds under current rules may feel aggrieved when neighbours benefit from the new cap. ALEP’s survey found that 43% of respondents identified problems arising because full ground rent terms had not been made clear at the point of purchase, while a third said leaseholders often do not understand how much ground rent will increase.
Freeholder concerns and valuation impact
The policy will transfer value from freeholders to leaseholders, with ground rent portfolios valued relative to the income they produce. Freeholders include not only private individuals but also pension funds, charities and local authorities, all of which may see income reduced.
The government rejected an immediate peppercorn cap for existing leases, instead opting for a £250 cap moving to peppercorn after 40 years. However, the Housing, Communities and Local Government Committee has recommended shortening the transition period from 40 years to 20 years.
Freeholders are advised to review portfolios to identify leases with rents above or approaching the proposed cap, particularly where escalation clauses are onerous. The likely impact on valuation, income forecasting and financing arrangements should be assessed before the proposals become law.
Implementation timeline and legal challenges
The government has indicated that the cap could come into force in late 2028, though the HCLG Committee recommended bringing this forward to late 2027. Legal uncertainty remains following the High Court’s rejection of a human rights challenge to separate enfranchisement valuation reforms in LAFRA, with the Court of Appeal having since granted permission to appeal.
A current consultation on quid pro quo leases is examining a narrow exemption where higher ground rent was agreed in return for a corresponding reduction in premium. The final Bill has yet to pass through Parliament, followed by secondary legislation and implementation.
Development sector implications
Industry stakeholders have raised concerns about potential unintended consequences on housing development economics. Some argue that ground rent income provides compensation for developers with Section 106 obligations to provide affordable housing. Removing this long-term income stream while development viability is already under pressure could require rebalancing elsewhere, potentially affecting land values, pricing structures or affordable housing provision.
The reform may also create fresh distortions, with some leaseholders gaining immediately while those who regularised their position under old rules may feel disadvantaged. Some share of freehold arrangements may face internal tensions if earlier decisions relied on continuing ground rent income.
The success of the ground rent cap reform will depend on implementation details and whether it can address the genuine problems faced by leaseholders without creating new areas of resentment or undermining market stability.
