Ground Rent Reform: What Is Changing and Why It Matters

The government’s decision to cap ground rents on existing leasehold homes at £250 per year marks a significant moment in the evolution of leasehold policy in England and Wales. Combined with the effective removal of ground rents on new developments and a longer-term push toward commonhold, the direction of travel is clear: the traditional economics of freehold ownership are being fundamentally altered. One may ask: how is this lawful, for the government to effectively legislate to change thousands of leases which are contracts between willing buyer and willing seller? Will legal challenges follow?

While the reform is framed as a consumer-protection measure, its implications extend well beyond affordability. It changes the modus operandi that underpins the leasehold system and raises important questions about governance, responsibility, and long-term management of residential buildings.

A Market Already in Transition: New Builds and Peppercorn Ground Rents

It’s arguable that the market has been moving in this direction for some time. New residential developments have only been able to be sold with peppercorn ground rents since the Leasehold Reform (Ground Rent) Act, which came into force on 30 June 2022. Some larger well-capitalised housebuilders - such as Berkeley Homes - have issued 999-year leases with nominal ground rents for years.

Some developers can afford to operate without ground rent income - they plan in freehold oversight as a cost of sales (to ensure happy repeat business). They have the scale and balance sheet to self-fund in-house teams the role of building governance, monitoring managing agents, and intervening when standards slip. That model works for a small number of major players. It does not translate easily to the wider freehold market which is made up of many smaller landlords.

For many freeholders, ground rent has been a key component of the economic rationale for staying engaged in the long-term stewardship of buildings. Removing or materially reducing it changes that calculation. Whilst it is a small mercy that the cap is currently set at £250, the government’s ongoing plans to reduce the cap to £0 over 40 years should be a source of concern for institutional investors - and anyone with an interest in retaining a functional property sector. At the very point the government wants more housing built, it is disincentivising would be long term investors from doing so!

Fewer Freeholders, Faster Move to Commonhold?

One likely consequence of the ground rent cap is that many freeholders will see little reason to remain in the sector. With income streams eroded and regulatory obligations unchanged, exit becomes a rational response.

This accelerates what already appears to be an implicit policy objective: pushing the market toward commonhold or leaseholder-controlled ownership structures. While this may be attractive in principle, it is not without risk.

The absence of a professional, economically incentivised freeholder is not always a positive outcome. Where freeholders disappear, responsibility does not disappear with them - it transfers to leaseholders, often through resident-led companies or volunteer directors. The question is whether those individuals are equipped for what follows.

Lease Extensions, Valuations and a Two-Tier Leasehold Market

For individual leaseholders, the changes are great and will have immediate beneficial valuation consequences. Lease extensions become cheaper when ground rent is lower or zero. Under the established valuation framework, the capitalised value of the ground rent (rent x yield) disappears, leaving mainly the reversionary value of the diminishing lease.

Many leaseholders who have already extended their leases under the Housing and Urban Development Act 1993 will have seen their ground rent reduced to a peppercorn as part of a 90-year extension. For them, the reform changes little.

However, the market is likely to split. A two-tier system will emerge between properties with historic ground rent obligations and those without. That distinction will affect pricing, mortgageability, and buyer perception, at least in the short to medium term.

Who Governs the Building When the Freeholder Is Gone?

One of the least discussed consequences of ground rent reform is governance capability. Running a residential block requires a working knowledge of landlord and tenant law, company law, health and safety regulation, leaseholders'>building safety requirements, and financial management.

When freeholders step away, these responsibilities often fall to leaseholders who did not actively choose to become ersatz landlords. There is little indication that widespread training or support will accompany this shift.

Our long-held view is that getting rid of freeholders is not automatically a good thing. Leasehold without a freeholder (which is what commonhold is) does not remove complexity; it redistributes it to a collective body of leaseholders - or commonholders as they will be called. Without expertise and structure, buildings can quickly fall into dispute, under-maintenance, or regulatory non-compliance - outcomes that ultimately harm residents themselves.

Why a £250 Ground Rent Cap May Be the Least-Bad Outcome

Against this backdrop, a £250 ground rent cap may represent a pragmatic compromise. It curbs excessive and escalating rents while preserving enough economic incentive for freeholders to remain engaged in the system, for now!

Keeping freeholders “interested in the game” matters. Professional oversight, enforcement of lease covenants, and the ability to intervene where managing standards slip all have value - value that needs to be recognised somewhere in the system.

Policy that removes income without replacing governance capacity risks creating more problems than it solves.

As ground rent reform reshapes the leasehold landscape, the real challenge will be managing transition. Whether buildings remain leasehold, move toward commonhold, or adopt hybrid structures, the legal and operational burden of residential management is only increasing.

The Ringley Group works across this changing landscape every day - supporting leaseholders, freeholders, and institutional owners through governance, servicechargesorted.co.uk/blogs/what-are-duties-under-right-to-manage'>block management, and compliance. With decades of experience managing complex residential assets, Ringley helps ensure that buildings remain well-run, legally compliant, and financially sustainable, regardless of ownership structure.

Ground rent reform may change incentives, but it does not remove the need for expertise. For those navigating the consequences of this policy shift, Ringley can help ensure that good intentions translate into well-managed homes.