The Government target the Residential Real Estate system again: this time ground rents and leasehold reform

30th January 2026 | Caroline Vernon | Residential Real Estate, Ground Rent, Leaseholds

On 27 January 2026 the UK Government published the draft Commonhold and Leasehold Reform Bill. This Bill is aimed at strengthening the position for homeowners and modernising the residential property tenure system.

These reforms are in addition to recent changes to the residential sector by the Leasehold and Freehold Reform Act 2024 and the Renters’ Rights Act 2025.

 

Ground Rents:

The Bill caps ground rents at £250 per annum for a 40-year transitional period, after which ground rents will reduce to a peppercorn. The cap will be introduced in late 2028. The Bill is designed to end excessive and unaffordable ground rent charges which can make properties hard to sell and mortgage.

Since 2022 (Leasehold Reform (Ground Rent) Act 2020) all new leases that have been granted have to be at a peppercorn rent, in any event.

Ground rents have long provided investors with a dependable income stream, often forming the core value of ground rent portfolios. These portfolios will see their income diminish significantly and disappearing altogether after 40 years. A once burgeoning ground rent industry will now be in decline.

 

Abolition of Forfeiture:

The Bill abolishes the threat of forfeiture which is a landlord’s remedy for breaches of long residential lease covenants and allows the lease to be terminated where there have been unpaid sums such as ground rents and service charges.

The Bill replaces this with the new statutory enforcement scheme to include introduction of a new court power to make remedial orders, orders for sale or cost orders.

 

New Leasehold Flats:

A hugely controversial element of the Bill is a total ban on the selling of new leasehold flats once the commonhold model is in place. Residential flats will be sold as commonhold which is a form of ownership where residents collectively own and manage the building.

The ban prohibits the grant or assignment of new long residential leases in flats and applies to long residential leases exceeding 21 years and flats and buildings that are wholly on commonhold land (where no part was demised by a relevant lease before the ban).

As yet there is no real detail of what the documentation will look like that will be imposed and how this will interact in a mixed use scheme where there are commercial units. Further, lenders have to be on board otherwise such schemes will be unmortgagable.

Since the introduction of commonhold in 2004 by the Commonhold and Leasehold Reform Act 2002 which introduces new form of tenure, only 20 developments in England and Wales have utilised this scheme. 

Commonhold is a system of freehold ownership, that gives apartment owners ownership of their individual apartment and collective control over the shared areas. It removes issues associated with leases such as ground rents, diminishing lease terms and lack of control of the management of the building.

Certain categories of leasehold flats will be permitted and will be exempt from the ban and these will include shared ownership leases (allowing staircasing to 100% ownership) and home finance plan leases (home reversion plans and home purchase plans).

Existing leasehold flats are unaffected.

 

Conversion of Leasehold Developments to Commonhold Developments:

The Bill allows for the conversion of existing leasehold schemes into commonhold. This can be done with the consent of only 50% of qualifying leaseholders (rather than unanimous agreement).

There are proposals of introducing sections within a commonhold allowing further management of mixed-use buildings. There would be a Commonhold Community Statement to codify governance of the building. Directors could be appointed through first tier tribunal and will limit developers voting powers to reflect the units they still own. Where a site is not yet complete there will be rights reserved for developers with the First Tier Tribunal having power to review such proposals.

Apparently, the bill reinvigorates commonhold to simplify structures and make it easier for developers to use commonhold for new flats. Commonhold ownership is said to give resident landlords the powers for setting budgets and service charges collectively.

 

Estate Rent Charges:

The Bill removes disproportionate remedies (such as taking possession or granting a lease) previously available to rent charge owners for arrears.

Rent charge owners will be able to serve a notice demanding payment on the landowner, including specified information and allowing 30 days before any enforcement action can commence. Rent charge owners may still recover arrears through proportionate means such as cost recovery claims, the small claims court or a breach of covenant claim.

 

There is a fundamental shift away from the leasehold model for flats in England and Wales. Although, the Bill is open to consultation until April 2026 and still needs to be passed by Parliament. It would be prudent for you to review your existing portfolio and future transactions along with the plethora of changes that the Government have already bought in.

To find out more, please contact Caroline Vernon, or the Residential Real Estate Team.