The government’s latest announcement on leasehold reform marks a significant moment for long leaseholders affected by high and escalating ground rents. For the first time, there is a clear proposal to introduce a ground rent cap of £250 per year, aimed squarely at tackling the most problematic forms of modern ground rent clauses.
While the detail is still emerging and the implementation date is some way off, the direction of travel is now clear and we have finally moved beyond the endless consultations. It is a concrete intervention designed to stop excessive ground rents distorting placing leaseholders at a disadvantage when selling, remortgaging or extending their leases. This also follows hot on the heels of the removal of the AST ground rent trap.
In this article, we look at what the proposed ground rent cap means in practice, who it will help, who it will not help, and how it may influence negotiations with freeholders.
What is the proposed ground rent cap
The proposal is to cap ground rents at £250 per year for existing long residential leases for a transition period of 40 years. From 40 years all ground rents will become a nominal peppercorn rent.
The cap is not expected to apply until late 2028.
This differs rom the 0.1% ground rent cap (0.1% of flat value) that has been discussed and proposed within the Leasehold and Freehold Reform Act 2024, which would cap ground rents only when calculating a lease extension or collective enfranchisement premium. The 0.1% cap wouldn't affect the annual payments to the freeholder until that ground rent is removed.
The £250 ground rent cap by contrast will cap the annual payment to the freeholder. It is also far simpler to apply, without having a valuation in each case. It goes without saying that the £250 cap will also massively affect lease extension premiums, as well as altering the contractual payments due under the lease.
For many leaseholders, particularly those who bought new build flats in the 2000s and 2010s, ground rent clauses were not only set high from the outset but also designed to increase over time. In some cases they double every ten years. In others they rise in line with the retail prices index at intervals of 5, 10 or 15 years..
The proposed ground rent cap would override these clauses, preventing ground rents from exceeding £250 regardless of what the lease currently says. There is little precedent for this level of intervention by the government, but it will be welcomed by much of the population.
Why doubling ground rent clauses are a problem
Doubling ground rent clauses have become one of the most widely criticised features of modern residential leases, sometimes seen as a historical token payment that has got out of hand due its change into a form of investment for third parties. A ground rent that starts at £250 or £300 may not look excessive on day one, but when it doubles every ten years the numbers quickly become unmanageable.
One of our most popular articles covers the topic in depth here.
A leaseholder can find themselves paying thousands of pounds per year in ground rent alone, with no corresponding service or benefit. More importantly, these clauses have a serious impact on marketability. Many lenders will not lend where ground rent doubles frequently, and buyers are understandably wary of taking on a long term liability that grows exponentially.
The proposed ground rent cap would effectively neutralise these clauses in the long term, making an affected flat saleable again.
RPI ground rent and why it is also under scrutiny
RPI ground rent clauses are often presented as more reasonable than doubling clauses, but they can still produce aggressive increases over time. We do not need to look too far into past to find double digit inflation levels, which many did not see coming, and which are now pushing rent reviews up as a result.
From a valuation perspective, RPI linked ground rents are often treated harshly by freeholders when calculating lease extension premiums. The higher and faster the rent grows, the more valuable it is to the freeholder.
Capping ground rent at £250 would remove much of the uncertainty and future escalation that makes RPI ground rents so problematic.
Our view on the 2026 leasehold changes
Founding solicitor Ricky Coleman has welcomed the announcement but with a note of realism about timing and impact:
“The proposed changes are the first concrete leasehold reforms that will mean less money flowing from leaseholders and into the pockets of freeholders.
The reforms are a positive step forward for those with doubling ground rents, onerous ground rents over £250 and aggressive RPI ground rents however the changes will only benefit those that can wait until late 2028 when ground rent cap is predicted to kick in.
Will this affect the negotiation position of freeholders in the meantime though? Almost certainly.”
Will the ground rent cap affect lease extension negotiations now
We would ague that it should. Even before reforms are enacted, proposed legislation can influence behaviour. Freeholders are commercial actors. If a future cap is likely to reduce the value of ground rent income, that risk may already be factored into negotiations. A leaseholder can simply state that they will wait for cap to come in, and at this point a lease extension will become cheaper once ground rent is capitalised at the lower £250 rate.
We are already seeing situations where leaseholders are questioning whether it makes sense to pay a premium based on the current law when we now know change is more certain (though some way off still). Equally, some freeholders may push to conclude deals sooner rather than later and offer incentives, such as lower legal costs or lower premiums.
If you are considering extending your lease, it is essential to understand how ground rent feeds into the premium calculation. Our detailed lease extension guidance explains how ground rent affects the valuation.
What if your ground rent is already low?
Not all leaseholders will benefit from the proposed ground rent cap. If your ground rent is already modest, for example £10 per year such as is usually the case for a local authority lease, the cap will not benefit you.
For these leaseholders, the bigger unanswered questions remain. In particular, when will marriage value be abolished, and when will freeholders legal and valuation costs be removed from the statutory lease extension process.
Until then, leaseholders with low ground rents may see little benefit in waiting and may decide to proceed under the current law. We offer a fixed fee lease extension service if you need to get this process underway now.
Selling or remortgaging before 2028
One of the most difficult realities for leaseholders is that life does not always wait for legislative reform. People need to move for work, families grow and mortgage terms expire.
If you need to sell or remortgage before the ground rent cap comes into force, you may have no choice but to deal with the lease as it stands today. That could mean extending your lease now to remove a doubling or RPI ground rent, even if future reforms might have improved your position.
In these cases, taking early advice is critical. Our fixed fee lease extension service is designed to give leaseholders clarity, transparency and a clear strategy from the outset.
A positive step forward with realistic expectations
There is no doubt that the proposed ground rent cap of £250 is a solid step forward. It directly addresses some of the most unfair features of the leasehold system and will help many leaseholders escape the trap of escalating ground rents.
For those with onerous ground rents, the reforms should make flats easier to sell, easier to mortgage and less vulnerable to excessive lease extension premiums demanded by speculative third party investors.
That said, patience will be required. The predicted implementation date of late 2028 is a long way off for anyone dealing with an urgent sale or remortgage. Some leaseholders will inevitably have to proceed under the current law, which very must applies as things stand.
At Peppercorn Law, we see these reforms as progress but it is clear that some of wider issues of reform will take years to be dealt with. Each change shifts the balance a little further back towards fairness. In the meantime, understanding your options and taking informed advice remains the best way to protect your position.