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Ground rents will be capped at £250 a year for leaseholders in England and Wales, the government has announced.
Announcing the cap in a TikTok video, Prime Minister Sir Keir Starmer said: “I’ve spoken to so many people who say this will make a difference to them worth hundreds of pounds.”
The reforms will be published in the draft Leasehold and Commonhold Reform Bill, which will be introduced on Tuesday.
Ground rents – an annual fee leaseholders must pay to their freeholder – were abolished for most new residential leasehold properties in England and Wales in 2022, but remained for existing leasehold homes.
Labour’s 2024 election manifesto promised to “tackle unregulated and unaffordable ground rent charges”.
It is common for a lease to include a clause that the ground rent doubles or increases by RPI inflation at fixed intervals, which can make it difficult to sell or get a mortgage for a property.
The Labour government says under its reforms, ground rent will ultimately be reduced to a peppercorn, effectively zero, after 40 years.
New leasehold flats will be banned and forfeiture, whereby leaseholders can lose their home and the equity they built up if they default on a debt as low as £350, will be abolished.
The bill will also make it easier for existing leaseholders to convert to commonhold, which means occupants jointly own the ground a flat is built on as well as the building, without an expiring lease.
There are around five million leasehold homes in England and Wales, where people own the right to occupy a property via a lease for a limited number of years from a freeholder.
Recent reports suggested that the Treasury and the housing department have been at loggerheads over the issue, with concerns over how a cap would impact pension funds which own freeholds.
The Residential Freehold Association (RFA), which is the trade body representing professional freeholders, said capping ground rent was “wholly unjustified” and warned over the impact on the UK’s reputation for investors.
An RFA spokesperson said the bill “will tear up long-established contracts and property rights, which are pillars of the UK’s investment reputation”.
But campaigners had called for a cap, saying that escalating ground rents had left leaseholders struggling to sell their homes.
However, some had wanted the government to go further and limit ground rent to a peppercorn rate – effectively zero.
Leaseholds is the default tenure for privately-owned flats, and the Land Registry estimates that 99% of flat sales in 2024 in England were leasehold.
The English Housing Survey has estimated that in 2023/24, leasehold owner-occupiers reported paying an average annual ground rent of £304 a year.
In 2024, when Labour were in opposition, the current Housing Minister Matthew Pennycook said his preference was for ground rents to be capped at effectively zero.
Last week, former Labour minister Justin Madders told the BBC that the prime minister could face a “mass rebellion” if the government abandoned its pledge to cap ground rents.
He said setting the limit at a peppercorn rate would be his preferred choice but that he could accept a £250 cap due to the “risk of elongated legal challenge”.
