While stopping far short of the total abolition of leaseholds that some call for, a new Leasehold and Freehold Reform Bill is making its way through Parliament. It focuses on making it easier and more affordable for leaseholders to buy freeholds or extend leases but, even if it’s passed as Law this year and before the general election, it’s not expected that all the changes will be in force until 2028.

Ground rent reform on the other hand is well underway but in stages. So, we currently have a dual system which can be a bit confusing. The Leasehold Reform (Ground Rent) Act 2022 didn’t ban ground rent but restricted it in most new leases (after 30 June 2022) to a peppercorn. It also defined a peppercorn in law for the first time as a peppercorn with no financial value and not a subjective nominal amount.

This leaves ground rent still unregulated and chargeable for existing leases, so yes, you can still charge for it if the lease allows. Be aware though that there are moves afoot to restrict and cap it for these older leases too.

There is no compulsion to include the peppercorn ground rent in a new lease at all – yet most seem to do so. There are also some exceptions to the new law, typically voluntary agreements between the parties, but that will be made clear in the lease.


Ground rent still applies to older leases.

For now, if you have leases that specify that leaseholders should pay ground rent, you can continue to charge and can go back six years under the  Limitation Act 1980. Just be sure to demand it in the correct format. While some leases expect the leaseholder to pay proactively, most require that the landlord issue a demand: without that, there is no obligation for the leaseholder to pay.

The Commonhold and Leasehold Reform Act 2022 lays out the correct, prescribed notice of demand format.

Your landlord cannot begin any legal steps for recovering the rent, including an action for forfeiture (the landlord’s right to end the lease and re-enter their property if you break the terms of the lease) and possession unless they have already served the notice of demand (in the correct format) and given you the correct period of notice, and they have failed to respond.

You need to check the lease as the ground rent liability will be stated there and may have changed. It may be fixed for the whole term of the lease or increased at fixed times and amounts or based on a formula like the retail prices index.

It was when some developers started to write excessive increases into leases that the existing ground rent system fell into terminal disrepute, and pressure to abolish it once and for all became louder.

Will ground rent be abolished altogether?

The next step in reform is that the government is looking at how to cap existing lease ground rent provisions. It is now analysing responses to a public consultation on how best to do so. Proposals are:

  • Capping ground rent at an absolute maximum value. The maximum value is to be determined but has been proposed at £250 per annum.
  • Capping ground rents at a percentage of the property value. The current proposal is 0.1% of the property value.
  • Capping ground rent at the original amount it was when the lease was granted; and
  • Freezing ground rent at current levels.
  • Capping ground rent at a peppercorn (zero ground rent).

The intention is to implement any cap on ground rents by overriding existing lease terms through legislation rather than requiring every lease to be varied (rewritten.)

For some freeholders such as urban estates, local authorities, charities, and institutional pension funds, the loss or even the reduction of ground rent could have far-reaching consequences so there will be no overnight decision on this.

Why is ground rent a priority for reform?

Ground rent is something a landlord does not have to provide a service for. For many leaseholders, ground rent has always been a relatively small amount – possibly just a few £££s and not a major concern.

However, malpractice in the past quarter century or so changed the scene and led to calls for urgent reform following a fairly damning Competition and Markets Authority investigation into unfair practices.

Those unfair practices saw developers retaining ownership of more leases and including terms that allowed ground rent to increase substantially during the term of the lease, be reviewed frequently, and often gave no clear definition as to how much the increase would be. There were now-infamous ground rent clauses that doubled ground rent every 10 years, and if you remember your school maths you’ll see where that could lead! Most big-name developers have abandoned those clauses, but there are still some leaseholders facing future ground rent bills for thousands of pounds worth and finding it hard to re-mortgage or sell.

The regulator already helped over 20,000 leaseholders seek redress from developers and freeholders and ground rent for new leases was abolished in the summer of 2022. However, CMA is still dealing with cases, which underlines the need for the further reform that is now in the pipeline.

For now, ground rent can become a contentious management issue, which could lead to confusion and error. Residents’ management companies may be well advised to take out liability cover alongside their building insurance.

Find out more about management company liability cover and residential leasehold buildings insurance.


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