Ground Rent Cap Announced: A New Era for Leaseholders
By My Local London Builder Team | January 27, 2026
Breaking News: On 27 January 2026, Prime Minister Keir Starmer announced a landmark shift in property law. Ground rents for leaseholders in England and Wales will be capped at £250 per year, eventually reducing to zero (a "peppercorn") after 40 years. This article explores what this means for London homeowners and the property market.
What Has Changed?
In a historic move delivered via TikTok—marking the first time a UK Prime Minister has used the platform for a major policy announcement—the government has set out to dismantle the archaic leasehold system. The announcement coincides with the publication of the Draft Commonhold and Leasehold Reform Bill.
The core of the policy is a two-stage approach to ending ground rents:
1. The £250 Hard Cap
Effective immediately upon the passing of the legislation, existing ground rents for leaseholders in England and Wales will be capped at £250 per year. For many London leaseholders paying escalating rents of £500, £1,000, or more, this represents an immediate and significant saving.
2. The 40-Year Sunset Clause
The reform introduces a "sunset" mechanism. After 40 years, the ground rent will automatically reduce to a peppercorn (effectively zero). This paves the way for the gradual extinction of the ground rent system entirely.
Impact on London Property
For our clients in London, particularly those in flats or maisonettes in boroughs like Islington, Camden, and Wandsworth, this is transformative. The leasehold system has long been criticised for allowing freeholders to charge for no tangible service, often with "doubling" clauses that make properties unsellable.
Key Benefits for Homeowners:
- Saleability: Properties with onerous ground rents (over £250 or doubling every 10 years) have become difficult to mortgage. This cap should instantly unlock these properties for sale.
- Lease Extension Costs: The cost of extending a lease is partly calculated based on the ground rent income the freeholder loses. Capping this income at £250 should, in theory, make lease extensions cheaper.
- Certainty: Homeowners can now plan their finances without fear of escalating charges.
The Draft Commonhold and Leasehold Reform Bill
Published on the same day as the announcement (27 January 2026), the Draft Bill aims to revitalise Commonhold as the default tenure for flats. Unlike leasehold, where you own a "time-slice" of a property, Commonhold allows you to own your unit outright forever, with a share in the management of the building's common parts.
While the move to Commonhold will take years to fully implement, the ground rent cap is the first aggressive step in making leasehold a less attractive investment vehicle for freeholders, thereby encouraging the market to shift.
What Next?
The Bill must now pass through Parliament. Given the government's majority and the public support for reform, it is expected to progress quickly. However, freeholders and pension funds who invest in ground rents are likely to challenge the legislation, potentially citing human rights laws regarding the deprivation of income.
"This is not just about money; it is about the fundamental right to own your home without paying 'feudal' dues to a landlord who provides no service."
We will continue to monitor the Bill's progress and update our guidance on how this affects extensions and renovations for leasehold properties.
Further Reading
If you are a leaseholder planning work, ensure you also understand your obligations regarding the License to Alter. See our guide on contracts and permissions.