Ground Rent and the Proposed Cap: What Has Changed

Ground rent on a new long residential lease in England and Wales must now be a peppercorn. The Leasehold Reform (Ground Rent) Act 2022 made that change for leases granted on or after 30 June 2022, and on or after 1 April 2023 for leases of retirement homes. It did nothing to leases granted before those dates, which is why most leaseholders in Devon and Cornwall pay what they paid in 2021. Reform of those historic rents is a live proposal in a draft Bill, not law.

What the 2022 Act Did

The Act defines a category of lease it calls a regulated lease, then limits what may be charged under it. Section 4 sets the general permitted rent as a peppercorn rent, which the Act defines as an annual rent of one peppercorn. No money passes and no landlord collects the peppercorn.

Section 3 makes it unlawful for the landlord under a regulated lease to require the tenant to make a payment of a prohibited rent. Requiring payment covers both asking for the money and failing to refund it within 28 days of receiving it. Section 7 handles leases drafted wrongly: where a regulated lease reserves a prohibited rent, the term is treated as reserving the permitted rent instead. The clause is not struck out, it is read down to a peppercorn.

Rent is defined in section 22 as anything in the nature of rent, whatever it is called, but amounts reserved for rates, council tax, services, repairs, maintenance or insurance are excluded. That exclusion matters, because many leases reserve service charge and insurance as additional rent and none of it is caught by the ban.

Which Leases Are Regulated, and Which Are Excepted

A lease has to clear five hurdles before the peppercorn rule bites. Sections 1 and 2 set them out.

The business lease exception is narrow. The lease must expressly permit business use, the use of the premises as a dwelling must significantly contribute to those business purposes, and landlord and tenant must each give the other written notice of that intention at or before the grant of the lease. Statutory lease extensions are excepted because the enfranchisement legislation already forces a peppercorn.

A lease of a retirement home is defined in section 25 as one where a term of the lease is that the premises may be occupied only by people who have reached a minimum age, and that minimum age is not less than 55.

What the Act Did Not Do

This is where most of the confusion at annual meetings comes from. The Act is prospective only.

• It did not reduce the ground rent in any existing lease. A rent of £250 a year doubling every 10 years in a 2015 lease is still payable on the terms the lease sets out.
• It did not ban leasehold. New flats can still be sold on long leases; only the money rent has gone.
• It did not touch service charges, insurance rent, estate rentcharges or administration charges generally.
• It did not apply where the lease was granted under a contract entered into before the commencement day, so a few leases completed well after June 2022 lawfully carry a money ground rent.
• It does not reach Scotland or Northern Ireland. The Act extends to England and Wales, and both nations commenced it on the same dates.

Inside one block, two flats can therefore sit on different footings. A 1999 lease of Flat 3 may carry a reviewable ground rent while the 2023 lease of Flat 4 carries a peppercorn. A director who assumes uniformity will answer sales enquiries wrongly.

Lease Extensions, Variations and Replacement Leases

A statutory lease extension of a flat produced a peppercorn long before 2022. Section 56(1) of the Leasehold Reform, Housing and Urban Development Act 1993 requires the landlord to grant a new lease at a peppercorn rent for a term expiring 90 years after the term date of the existing lease. That is why section 2 excepts statutory extensions rather than regulating them.

A voluntary extension agreed directly with the freeholder works differently. Section 6 splits the replacement lease in two. For the excepted period, the part of the new term overlapping what was left of the old lease, the landlord may reserve up to the rent that would have been payable under the old lease. For the added years, the regulated period, the rent must be a peppercorn.

Variations are the trap. Where a variation operates in law as a surrender and regrant, section 1 disapplies the premium condition if the earlier lease was itself regulated or was granted before the commencement day. A variation can therefore pull a lease into the Act although no fresh premium was paid. Take advice before agreeing any variation that alters the term or the extent of the demise.

Enforcement, Penalties and Administration Charges

Section 8 puts enforcement with local weights and measures authorities, which is your trading standards service. They must enforce section 3 in their own area and may enforce it elsewhere in England and Wales. District councils that are not weights and measures authorities may also enforce in England.

Section 9 allows a financial penalty of not less than £500 and not more than £30,000. Only one penalty may be imposed on a landlord for breaches in respect of the same lease in the same period, though a single penalty can cover breaches across several leases.

A leaseholder need not wait for the council. Section 13 allows the tenant to apply to the appropriate tribunal, defined by section 17 as the First-tier Tribunal in England and a leasehold valuation tribunal in Wales, for an order requiring repayment within 28 days. That route is blocked only where an enforcement authority has already ordered recovery of the same money under section 10.

Section 18 closes the obvious loophole. It inserts a new paragraph 2A into Schedule 11 to the Commonhold and Leasehold Reform Act 2002, so that no administration charge is payable for, in connection with or in respect of, the payment of a rent the 2022 Act requires to be a peppercorn. A landlord cannot replace the lost income with a collection fee.

Ground Rent, Forfeiture and Assured Tenancies

For years a long lease entered into on or after 1 April 1990 reserving more than £250 a year outside Greater London, or more than £1,000 a year in Greater London, fell outside the low rent exclusion in paragraph 3A of Schedule 1 to the Housing Act 1988. The argument ran that such a lease could be an assured tenancy, exposing the leaseholder to the possession regime for rent arrears rather than the protections around forfeiture.

That risk has gone. Section 31 of the Renters’ Rights Act 2025 came into force on 27 December 2025 and inserts paragraph 3D into Schedule 1, excluding a fixed term tenancy of a term certain of more than 21 years from the date of grant, whenever it was granted. A long lease of a flat sits outside the assured tenancy regime however high the ground rent is, and forfeiture, with the statutory hurdles attached to it, is the landlord’s route for rent arrears.

Lending remains the live problem. One of the five options in the 2023 consultation was a cap set as a percentage of property value, commonly suggested at 0.1%, which the consultation tied to mortgage lending concerns. Until the law changes, the rent and its review pattern have to be stated accurately in the management pack. A vague answer about a doubling clause is a common reason a sale stalls.

Where Reform of Historic Ground Rents Stands

The consultation Modern leasehold: restricting ground rent for existing leases closed at 23:59 on 17 January 2024. It put five options: reduce all ground rents to a peppercorn; cap them at an absolute maximum value, with £250 the figure discussed; cap them at a percentage of property value; freeze them at their original amount; or freeze them at their current level.

The government published the draft Commonhold and Leasehold Reform Bill on 27 January 2026, and the Housing, Communities and Local Government Committee began pre-legislative scrutiny on 4 February 2026 and reported on 27 May 2026. The Bill was announced in the King’s Speech on 13 May 2026, and no Bill had been introduced to Parliament as at 25 August 2026. On ground rent the policy is a cap of £250 a year, changing to a peppercorn after 40 years, applying to residential long leases granted before the 2022 Act commenced, subject to limited exceptions including business leases, community-led housing and certain financial products. About 3.8 million leasehold properties in England and Wales are in scope, and the government said on 27 January 2026 that the cap could come into force in late 2028, subject to parliamentary scrutiny.

A further consultation, Quid pro quo leases and the ground rent cap, was published on 2 July 2026 and closes at 11:59pm on 27 August 2026. It asks whether to exempt leases where a higher rent was agreed in exchange for a correspondingly lower premium, and how to define one: the working definition is a lease where the reduction in premium was broadly equivalent to or greater than the capitalised value of the extra rent at grant. The same document indicates the 40 year period would run from the implementation date, not from the grant of each lease.

The two rows from the 2024 Act matter if your company is planning enfranchisement or lease extensions, because those valuation changes would reduce premiums where the ground rent is high. They are enacted but not commenced.

What This Means for Your Block

Five things follow for a block.

• Read the rent clause in a sample lease and in any lease granted since June 2022. Where flats have been sold or extended since then, one building can hold two rent regimes.
• If a freeholder or its agent invoices a fee for collecting a peppercorn, challenge it under paragraph 2A of Schedule 11 to the Commonhold and Leasehold Reform Act 2002.
• Where the resident management company is not the landlord for rent purposes, ground rent is not yours to collect and should not appear in the service charge accounts.
• Answer pre-sale enquiries from the lease itself, quoting the review dates and the mechanism. Do not estimate.
• Do not build a budget or an enfranchisement strategy around the £250 cap arriving on a particular date. It sits in a draft Bill that has not been introduced.

If you are working out which regime a flat falls under, or whether an informal extension offered by a freeholder is a fair deal, the answer is in the lease and in the dates. Plymouth Block Management gives leasehold advice to the companies it manages and can review the rent position across a whole block; contact details are on the site if you want to talk it through before replying to a freeholder.

Common Questions

These come up most often from directors and leaseholders dealing with ground rent in an existing block.

Sources

Everything above is taken from these, not from a summary of them:

1. Leasehold Reform (Ground Rent) Act 2022 legislation.gov.uk
2. The Leasehold Reform (Ground Rent) Act 2022 (Commencement) Regulations 2022 legislation.gov.uk
3. Leasehold Reform, Housing and Urban Development Act 1993, section 56 legislation.gov.uk
4. Renters’ Rights Act 2025, section 31 legislation.gov.uk
5. Housing Act 1988, Schedule 1 legislation.gov.uk
6. Leasehold and Freehold Reform Act 2024, Schedule 4 legislation.gov.uk
7. Leasehold and Freehold Reform Act 2024, sections 33 and 34 legislation.gov.uk
8. Modern leasehold: restricting ground rent for existing leases GOV.UK (MHCLG)
9. Draft Commonhold and Leasehold Reform Bill GOV.UK
10. Quid pro quo leases and the ground rent cap GOV.UK
11. Pre-legislative scrutiny of the draft Commonhold and Leasehold Reform Bill, HC 40 of session 2026-27 UK Parliament, Housing, Communities and Local Government Committee
12. PM: We are capping ground rents at £250 GOV.UK

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