UK leasehold reform 2026 – Ground rent cap explained

In a recent update to the draft Leasehold and Commonhold Reform Bill, the UK Government has proposed capping ground rent for leasehold properties at £250 a year. For homebuyers, investors and landlords, it’s important to understand what this proposal could mean and how it may affect leasehold property in the future.

Ground rent is something that leasehold property owners in the UK have to deal with, and if the laws around this feudal landholding arrangement aren’t regulated, it can become a financial burden. With almost five million homes in England and Wales under leasehold ownership, the UK Government has finally published its draft Commonhold and Leasehold Reform Bill, which aims to modernise the sector and strengthen the rights of leasehold property owners. Enforcing a limit on ground rent is one of the most important things this Bill will do, along with a number of other changes.

First, let’s understand what ground rent is and look at how these regulatory changes will benefit millions of property owners.

What is ground rent?

Ground rent is a recurring payment, which was introduced centuries ago by wealthy families who wanted to keep ownership of their land while still earning money from it. In modern times, this payment is made usually once a year, by a leasehold property owner to the landlord (freeholder) who owns the land on which the property is built. Ground rent is different from other leasehold fees because it is paid even when no services are being provided. This is because ground rent does not cover service charges, maintenance, and repairs.

How is ground rent different from other leasehold costs?

Here’s more on what buyers should know about the leasehold system in the UK.

Why does ground rent matter to leasehold property owners?

Since ground rent is a charge for land ownership, it must be nominal and not significantly impact the finances of leasehold owners. However, some leases have escalating ground rent clauses that can have the following negative effects on ownership.

i. Higher ground rents can make it difficult to sell a property, as it directly affects buyer confidence.

ii. Lenders closely scrutinise lease terms for higher ground rents, as they can make properties unaffordable.

iii. Sellers may have to compromise on resale value when looking for a quick sale.

Learn more about how to sell a leasehold property in London.

What’s changing under the Leasehold and Commonhold Reform Bill?

1. Cap on ground rent

Under proposals currently outlined in the draft Bill, one initiative is to cap ground rents at £250 a year, reducing them to a peppercorn rate after 40 years. This measure is aimed at tackling unregulated and unaffordable ground rent charges, with government estimates suggesting leaseholders could save up to £12.7 billion over the life of a leasehold.

2. Ban on new leaseholds

The proposed Bill also includes a ban on leaseholds for new flats and provisions that make it easier for existing leaseholders to convert to commonhold if they wish.

3. Registration of Commonhold

The Bill simplifies the process of registering a commonhold development with HM Land Registry by introducing new provisions for registering commonholds in both new developments and conversion cases for existing developments.

Why the reform matters (who benefits and how)

While leasehold property owners are the direct beneficiaries of this Bill, even prospective buyers, investors, and landlords stand to benefit.

Leasehold homeowners

With ground rents capped at £250 a year, leasehold homeowners who pay a higher ground rent can save thousands of pounds over the term of their lease.

Prospective buyers

Buyers will be able to make clearer comparisons between freehold and commonhold property options. It also makes people less afraid of hidden or rising expenses and boosts confidence in the market as a whole.

Investors and landlords

Investors and landlords have less reputational risk from bad leases and easier ways to get out of them now that agreements are clearer.

While this reform addresses a long-standing imbalance in leasehold ownership, it removes or limits a cost that provides minimal practical value to homeowners.

What does it mean for buyers and owners today?

Whether you are an existing leaseholder, a new buyer, or a seller, it’s important to understand how this bill will affect your decision.

Practical implications for current leaseholders: While there is no immediate action required, as the Bill is still in its early proposal stage and ground rent rules won’t change anytime in the coming few months, the proposed cap will reduce long-term exposure to unfair or escalated ground rents.

Considerations for leasehold buyers in 2026: New buyers must carefully review lease terms to understand all service charge obligations and confirm that the ground rent complies with the new rules.

Impact on pricing and valuation sentiment: With lower frictions, such as value depreciation associated with an expiring lease term and the need to offer larger discounts due to concerns about ambiguous ground-rent clauses, sellers will be able to price their properties more freely, under less pressure.

We can also help you get a free sales and rental valuation for your London property today.

Why this isn’t a market shock?

Policy reforms to the property market are introduced after years of deliberation and discussion about industry practices and their impact on various stakeholders. Therefore, unlike the disruption caused by the introduction of a new tax or other socio-economic changes, policy reforms only aim to provide a fairer and more transparent market.

Fundamentals stay unchanged

London’s property market continues to be a dominant force, driven largely by supply to demand ratios, interest rates, mortgage availability, location, employment, affordability, infrastructure and other broader geopolitical forces.

Conclusion: A fair and transparent property ownership system

The proposed changes to leasehold are meant to make owning property in the UK simpler, fairer, and more open. By tackling ground rent directly, the reforms reduce unnecessary costs while preserving the fundamentals of the housing market.

If you own, are buying, or are investing in leasehold property, understanding these changes early puts you in a stronger position.

Do you still have doubts about leasehold property or how these changes affect you?

Speak to our team for up-to-date local insight, valuation advice and practical guidance tailored to your situation.