BREAKING NEWS – Government legislation to cap Ground rents at £250 a year announced

The Prime Minister (Sir Kier Starmer) has released a TikTok video announcing that ground rents for leaseholders will be capped at £250 for the first 40 years and then reduced to a peppercorn.

The Prime Minister stated in the video “good news for homeowners, we are capping ground Rent at £250. That means if you are a leaseholder, and your ground rent is more than £250, you’ll be paying less”.

He gave no indication of how this would be implemented. It is another huge transfer of wealth imposed by the Government through legislation and the opening up of signed legal contracts (which what leases essentially are) will likely bring a fresh wave of legal challenges through the courts. It also comes amidst reported in-fighting between high level politicions about this and the measures still to be introduced from the Leasehold and Freehold Reform Act 2024. Many institutional investors such as pension funds and larger freeholders with significant holdings in RPI or doubling ground rents will see £millions wiped from their portfolio values.

It is also extraordinary that a new piece of legislation is being introduced which counter-acts the previous 2024 Bill since the 0.1% cap on ground rent calculations will be null and void. It may be the case that this Bill will override the previous 2024 legislation and used as a smoke screen while that is quietly dropped. We have no information on this however the silence in regard to the 2024 legislation speaks for itself.

Other measures also announced will be a ban on new Leasehold Flats, freeholds will get the right to switch to commonhold in an attempt to phase out the Leasehold system. The government has also announced a change to forfeiture rules where leaseholders can lose their home when a debt is owed of £350 or more. There will be a new regime for collecting the money but it is likely that forfeiture will be abolished at least for these small amounts.

This is a draft Bill and the measures are likely to come into force in 2028, if they do. From past track record the government has been slow to introduce the main and significant parts of the Leasehold and Freehold Reform Act 2024.

We will continue to carry out calculations under the old system but no doubt this will introduce a new pressure for deals to be agreed and those investors with RPI or doubling ground Rent will see their portfolio significantly damaged by this recent announcement and potential future instigation of the legislation.

Please do call us if you need any further clarification on this or how to proceed with your lease extension or enfranchisement.