The government unveiled plans to cap ground rents at £250 for leaseholders in England and Wales, but some experts have warned the decision could do more harm than good.
The plans include banning leaseholds for new flats and giving existing leaseholders the option to switch to commonhold.
For context, under a leasehold system people own their property for a fixed term but not the land it’s built on, meaning they usually have to pay ground rent to a landlord. Under commonhold, residents own their homes outright and jointly manage shared areas of the building.
The reforms are due to be outlined in a draft Leasehold and Commonhold Reform Bill, which will be introduced on Tuesday (27th January), and will be subject to consultation. If passed, the cap would be introduced from 2028.
Announcing the ground rent cap in a video on TikTok, Keir Starmer said: ‘Good news for homeowners, we’re 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.
‘And I’ve spoken to so many people who say this will make a difference to them of hundreds of pounds. That’s really important because the cost of living is the single most important thing across the country.
‘So this is a promise that we said we’d deliver and I’m really pleased that we’re delivering on that promise.’
The proposals also include abolishing forfeiture. The practice means leaseholders can lose their home and any equity they built up by defaulting on a debt as low as £350.
Housing Secretary Steve Reed said: ‘If you own a flat you can be forced to pay ground rents that can become completely unaffordable. We said we’d be on the side of leaseholders – which is why today we are capping ground rent – helping millions of leaseholders by saving them money and giving them control over their home.
‘The leasehold system has tainted the dream of home ownership for so many. We are taking action where others have failed – strengthening home ownership and calling time on leasehold for good.’
Industry reactions
While the news is expected to reduce costs for leaseholders, The Residential Freehold Association (RFA) said the proposals represent ‘wholly unjustified interference with existing property rights’.
A spokesperson said: ‘If enacted, this would seriously damage investor confidence in the UK housing market and send a dangerous and unprecedented signal to the wider institutional investment sector.’
In contrast, leasehold reform specialists Homehold welcomed the £250 cap but claimed the slow pace of reform is frustrating for homeowners.
‘A cap of £250 is a sensible choice,’ Linz Darlington, managing director of Homehold, said. ‘It recognises that freeholders will continue to receive an income stream in the short term, while ensuring leaseholders are protected from excessive charges.
‘But the speed of leasehold reform remains glacial. Much of the Leasehold and Freehold Reform Act 2024 is still not implemented, 18 months after Royal Assent.’
However, March Chick, director of the Association of Leasehold Enfranchisement Practitioners (ALEP), said the government should focus on careful implementation.
‘This draft legislation is long-awaited, both by the industry and by the five million plus leaseholders in England and Wales,’ Chick said. ‘Reforming tenure structures may not attract the same attention as meeting housebuilding targets, but it remains a cornerstone of housing delivery.’
‘There is clear political and public pressure to accelerate change, but reforms of this magnitude must balance speed with care,’ Chick continued.
‘Rushed legislation rarely delivers clarity or certainty. The experience of implementing Leasehold and Freehold Reform Act (LAFRA) shows how important it is to get the detail right.’
Nevertheless, campaign group Free Leaseholders said the decision to cap leaseholds falls short of truly ending them for good.
Prior to today’s announcement, the group posted on X (formerly known as Twitter): ‘Let’s be clear, freezing ground rents or even capping them at £250 per annum keeps leasehold on life support.
‘It would be the opposite of ending leasehold, which is what the UK Labour manifesto promised.’
‘This may, local elections will be taking place across the country, including in London, where there is a super high proportion of leaseholders,’ the group continued.
‘No wonder disruptors like Zack Polanski and Nigel Farage are licking their lips at a government servile to wealth-destroying corporates and captured by weird ECHR legalism.
‘Homes are for people, not corporations.’
Image: Jakub Pabis/UnSplash
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