28/01/2026
ValuationsThe government has announced a significant shake-up of the leasehold system in England and Wales, with ground rents set to be capped at £250 per year. The reforms, published in the draft Commonhold and Leasehold Reform Bill, represent arguably the most substantial change to leasehold ownership following new Acts in 2022 and 2024, which will affect millions of property owners across the country.
Whether you own residential or commercial leasehold property, understanding these changes and how they may impact your portfolio is essential. Our guide breaks down the key announcements and what they could mean for you.
What has been announced?
On 27 January 2025, Housing Secretary Steve Reed confirmed that ground rents for existing leaseholders will be capped at £250 per year. After 40 years, this cap will reduce further to a peppercorn rent, effectively bringing almost all ground rent payments to zero
The reforms are expected to come into force in late 2028 and will apply to the estimated five million leasehold properties in England and Wales. The government has stated that nearly one million leaseholders will see their ground rents reduced immediately upon implementation, while all leaseholders will benefit from the certainty that their ground rent will never exceed £250 per annum.
Ground rents were abolished for most new residential leasehold properties in 2022, but existing leaseholders have continued to pay fees that can escalate significantly over time. Many leases contain clauses that double ground rents or increase them in line with RPI inflation at fixed intervals, which can make properties difficult to sell or remortgage.
What other reforms are included in the Bill?
The draft Commonhold and Leasehold Reform Bill introduces several additional measures designed to strengthen the position of leaseholders and bring an end to what the government has described as a "feudal" system.
Abolition of forfeiture
Forfeiture, whereby leaseholders can lose their home and the equity they have built up by defaulting on a debt as low as £350, will be abolished. This change removes a significant risk that has left some leaseholders vulnerable to losing their properties over relatively minor arrears. This has also created no end of problems for leaseholders in the past with some on fixed ground rents over £250 per annum having to extend leases due to issues with mortgage funding. Other than lease length, lack of mortgageability has been the key driver as to why leases are extended.
A new commonhold model
The Bill will make it easier for existing leaseholders to convert to commonhold, a system where occupants jointly own the freehold of their building without an expiring lease. Under commonhold, homeowners receive a stake in the ownership of their building and gain greater control over how it is managed, including input into annual budgets and decision-making on repairs and maintenance.
The government has stated that current leaseholders will be allowed to switch to commonhold, where the majority of residents agree to do so.
New leasehold flats banned
New leasehold flats will be banned under the reforms, meaning future buyers of newly built flats will own their properties outright under commonhold arrangements rather than through a lease.
What does this mean for commercial property owners?
While much of the public discussion has focused on residential leaseholders, the reforms may also have implications for those with mixed-use portfolios or commercial interests tied to leasehold structures. Landlords and investors with leasehold properties in the private rented sector will benefit from greater certainty when planning future expenditure and business costs.
Currently, there is no plans to make any changes to ground rent payments on commercial leases as this is a further measure by the government on residential leasehold reform.
The cap on ground rents could also affect property valuations, investment yields and the attractiveness of certain assets. If you own or manage leasehold property, now is the time to review your portfolio and understand how these changes may impact your position.
Adam Smylie, Partner/Head of Professional Services, comments:
It is interesting to see the Government committing to this decision so soon after the freeholder collectives have appealed the High Court decision to overturn the Leasehold and Freehold Reform Act 2024 on Human rights grounds.
The introduction of a ground rent cap will come as no surprise to practitioners in the sector, with the Law Commission consulting on ground rents and most of us expecting a cap of 0.1% of value to be agreed. This has been rejected due to the amount of effort required to agree on rents, which is reasonable to go with the simpler option.
What is frustrating, not just for me as a valuer, but more so, is that the countless clients I have acted for to buy out rising ground rents, is that they would have been better off doing nothing. For example, I had a client who had to pay out circa £50,000 on a lease they had signed 5 years to buy out an onerous ground rent that didn’t increase for some 10 years. Whilst this is an extreme example, lots of leaseholders have put their life savings at stake to extend leases that, with hindsight, they could have done nothing and ended up better off as the premiums will hopefully in term become modest.
As I pull out my crystal ball, so where to next. First, the Bill needs to be enacted, which then means certainty is ensured.
As a valuer, more clarity is required, as we have been in a minefield since the introduction of LAFRA 2024, and this has now thrown a grenade into the mix. We need to understand whether a ground rent cap will be agreed in lease extension calculations prior to 2028, seeing premiums become cheaper for those affected. This is already proposed in LAFRA, but supplemental legislation is required.
Moving onto the markets, in practice, us valuers tend to have standard yields we adopt when we value these assets for lease extension purposes. I expect this to continue, but perhaps move back to the default position of 7% most standard ground rents. It is too soon to see a reaction from the market, but obvious concerns exist as to pension funds' exposure to these assets (something, if you know me personally, I have been banging on about to everyone and anyone since at least 2020). The great unknown is the wider implications of foreign investors. The government, in effect, overturning contract law, may make investors more cautious of investing in UK businesses and institutions as a result
Will there be further freeholder challenges to this legislation in addition to those already ongoing? Likely.
Time will tell what will happen; luckily, being at the forefront of Leasehold Reform, you are in safe hands with us.
Get in touch for expert support in line with these reforms
Navigating changes to leasehold legislation can be complex, particularly when they affect your property investments or management responsibilities. Our team is here to provide practical advice and support as these reforms progress through Parliament and come into force.
We offer a range of services that may be relevant to you, including leasehold reform valuations to help you understand how the reforms may affect your assets, and property management services to ensure your buildings continue to meet your requirements.
If you have questions about how the ground rent cap or wider leasehold reforms could affect your property, please complete the form below to speak with one of our specialists.
