The issue of ground rent has been a contentious topic for leaseholders across the UK, with many calling for its abolition due to rising costs and the difficulty it poses in selling or remortgaging leasehold properties. While ground rent has already been abolished for new leases under the Leasehold Reform (Ground Rent) Act 2022, the situation for existing leases remains uncertain but under active discussion.
The Leasehold Reform (Ground Rent) Act 2022, which came into effect on 30 June 2022, abolished ground rents for all new residential long leases. Under this law, landlords can no longer charge ground rent on new leases, and the rent is capped at a peppercorn (effectively zero) for most new residential properties in England and Wales
. This reform was a significant step in protecting future leaseholders, but it did not apply to existing lease agreements, leaving many leaseholders still paying annual ground rents, some of which escalate over time.
For existing leases, the situation remains complex. The government has acknowledged the burden that ground rent places on existing leaseholders and has indicated its intention to reform this area further. A consultation on how to deal with ground rent for current leases has been ongoing, with several options being discussed:
Abolishing Ground Rent (Peppercorn Rent): One of the most favored options is to abolish ground rent entirely for existing leases, capping it at a peppercorn. This would align existing leases with the terms of new leases and effectively mean leaseholders would not have to pay ground rent anymore
. However, there is concern about the impact this could have on freeholders and investors who rely on ground rent as an income stream, and this option faces resistance from certain stakeholders
.
Capping Ground Rent: Another proposal is to cap ground rent at a set amount, preventing future increases beyond a certain threshold. This would offer relief to leaseholders with escalating ground rent clauses but would still allow freeholders to retain some form of income from existing leases
.
Freezing Ground Rent: A less drastic measure being considered is to freeze ground rent at its current level, preventing any further increases but allowing leaseholders to continue paying the existing amounts
.
In 2024, further reforms were introduced under the Leasehold and Freehold Reform Act, aimed at expanding leaseholder rights and addressing ongoing issues in the leasehold system. However, despite the introduction of these broader reforms, specific legislation to cap or abolish ground rents for existing leases was not included before Parliament was dissolved ahead of the general election
.
The new Labour government, which took office in mid-2024, has indicated that it plans to take further action to reform ground rents for existing leases as part of its housing reform agenda. In the King's Speech, Labour committed to "bringing the feudal system of leasehold to an end" and proposed stronger protections for leaseholders stuck with escalating ground rents
. This includes possible new legislation to regulate ground rents for existing leaseholders, although the details are still under consultation
.
While there is strong political will to address ground rent for existing leases, no definitive decision has been made. A key factor will be the outcome of ongoing consultations and how the government balances the interests of leaseholders and freeholders. If ground rent is capped or abolished, it would represent a major victory for leaseholders, many of whom have been burdened by unfair or escalating ground rent clauses for years.
In summary:
For now, leaseholders with existing agreements should keep an eye on developments and may want to seek legal advice about their individual situation, particularly if they are considering extending their lease or buying the freehold.
