Ground Rent Reform and Leasehold Changes: What Property Owners Need to Know

The Problem with Ground Rent

Ground rent is a sum paid by a leaseholder to their freeholder purely for the right to occupy the land on which the property sits. Unlike service charges (which pay for building maintenance) or management fees (which fund administration), ground rent is not linked to any service provided. It is simply a recurring income stream for the freeholder.

For decades, developers and freeholders structured leases with ground rents that doubled every 10 or 25 years. A lease granted in 2000 with a ground rent of 250 pounds per year, doubling every 10 years, would have risen to 2,000 pounds per year by 2030 and 16,000 pounds per year by 2060. Properties with such terms became effectively unmortgageable as lenders refused to accept the risk of escalating ground rents, and some buyers were left trapped in unsaleable homes.

This is the problem the reform legislation was designed to address.

The Leasehold Reform (Ground Rent) Act 2022

The Leasehold Reform (Ground Rent) Act 2022 came into force on 30 June 2022 for new regulated leases. Its core provisions are:

The Peppercorn Rule

From 30 June 2022, no regulated residential lease may require the tenant to pay a ground rent exceeding a peppercorn (which in legal terms means zero, or at most a nominal amount not exceeding one pound per year). This applies to:

• New residential long leases (initially for a term exceeding 21 years)
• Statutory lease extensions (under the Leasehold Reform, Housing and Urban Development Act 1993)
• Variations to existing leases that extend the term

A freeholder who charges more than a peppercorn on a regulated lease commits a criminal offence, with fines of up to 30,000 pounds per breach.

What Is Not Covered

The 2022 Act does not apply to:

• Existing leases granted before 30 June 2022 -- these remain governed by their original terms
• Voluntary (non-statutory) lease extensions where the parties agree different terms (though in practice most solicitors now insist on peppercorn rents even for informal extensions)
• Business leases and commercial property
• Community housing (certain affordable housing leases have different rules)
• Retirement housing (deferred until April 2023, then brought into force)

The critical implication: if you own a flat with a pre-2022 lease that contains an escalating ground rent clause, that clause remains legally enforceable. You are not protected by the 2022 Act unless you extend your lease under the statutory procedure or renegotiate the terms.

The Leasehold and Freehold Reform Act 2024

The Leasehold and Freehold Reform Act 2024 received Royal Assent in May 2024 and introduced a wider set of reforms affecting existing leaseholders. Many provisions require secondary legislation before they take effect, but the framework is now in place.

Abolition of Marriage Value

Under the previous law, if a lease had fewer than 80 years remaining, the leaseholder had to pay the freeholder 50% of the marriage value -- the increase in property value created by the lease extension -- as part of the extension premium. This could add tens of thousands of pounds to the cost of an extension.

The 2024 Act abolishes marriage value for all statutory lease extensions. This means the premium is calculated only on the capitalised ground rent and reversionary value, regardless of how short the remaining term is. This is a significant reduction in cost for owners of properties with shorter leases.

Extended Right to Lease Extension

Under the previous law, leaseholders had to have owned their property for at least two years before exercising the statutory right to extend their lease. The 2024 Act removes this two-year qualifying period. New purchasers can serve a statutory notice for a lease extension immediately after completion.

Collective Enfranchisement: Removing the 25% Limit

Under the previous law, leaseholders in a mixed-use building (with commercial and residential elements) could collectively enfranchise (purchase the freehold) only if the commercial floorspace did not exceed 25% of the total. This prevented many leaseholders in mixed-use buildings from exercising the right.

The 2024 Act removes the 25% limit, allowing collective enfranchisement even where commercial space forms a larger proportion of the building.

Lease Extension Term

Under the 1993 Act, statutory lease extensions add 90 years to the unexpired residue of the existing lease, at a peppercorn ground rent. The 2024 Act increases this to 990 years -- effectively a permanent lease. This eliminates the risk of leaseholders needing to extend again in the future and simplifies the valuation.

Service Charge Transparency

The 2024 Act introduces new requirements for freeholders and managing agents to provide leaseholders with detailed, standardised information about service charges, making it easier to challenge unreasonable charges. Specific regulations on the format and content are expected via secondary legislation.

Valuation Changes: How Premiums Are Now Calculated

The 2024 Act changed the valuation basis for lease extension premiums. The key changes are:

• Marriage value is abolished (no longer payable regardless of lease length)
• Capitalisation rates for ground rents are prescribed by regulation rather than being subject to surveyor discretion -- this reduces uncertainty and dispute
• Relativity (the value of the lease compared to freehold) is determined by agreed statutory tables, removing a major source of disagreement between valuers

In practice, these changes are expected to reduce lease extension premiums for most leaseholders, particularly those with short leases. Some freeholders argue the changes undervalue their interests, and legal challenges have been anticipated.

Enfranchisement: Buying the Freehold

Collective enfranchisement is the process by which a majority of leaseholders in a building exercise their statutory right to purchase the freehold collectively. The result is that the leaseholders (usually through a company they form for the purpose) become the freeholder.

Who Can Participate

To qualify for collective enfranchisement:

• At least two-thirds of flats in the building must participate
• At least 50% of all flats must be participating (so in a 10-flat building, at least 5 must participate)
• The building must be at least two-thirds residential by floorspace (this threshold is now being expanded under the 2024 Act)
• There must be at least two flats

The Process

1. Leaseholders appoint a surveyor to value the freehold and a solicitor to manage the legal process
2. An initial notice (under section 13 of the 1993 Act) is served on the freeholder
3. The freeholder has two months to respond with a counter-notice
4. Negotiations on price follow (often involving a specialist enfranchisement tribunal if parties cannot agree)
5. On agreement, a purchase contract is exchanged and completed

Costs

The purchasing leaseholders pay their own surveyor and legal costs, and are also required to pay the freeholder's reasonable surveyor and legal costs. On a straightforward building with an uncontested price, total costs per leaseholder are typically 2,000 to 5,000 pounds for professional fees, plus the premium.

Commonhold: The Long-Term Vision

Commonhold is an alternative form of property ownership that avoids the leasehold structure entirely. Under commonhold:

• Each flat owner holds their unit as a freehold interest
• A commonhold association (a company of which all unit owners are members) owns and manages the common parts of the building
• There is no declining lease, no freeholder, and no ground rent

Commonhold was introduced by the Commonhold and Leasehold Reform Act 2002 but has been almost entirely unused in practice due to technical deficiencies and lack of mortgage lender support.

The government has announced plans to make commonhold the default tenure for new flats in England and Wales. Draft legislation is expected, but as of 2026, detailed provisions are still being developed. The Law Commission has published comprehensive recommendations for a reformed commonhold regime.

Converting Existing Buildings to Commonhold

Existing leasehold buildings can theoretically convert to commonhold, but this requires unanimous consent of all leaseholders. Even a single dissenting leaseholder can block the conversion. This makes conversion of most existing buildings impractical.

Impact on Property Values and Mortgages

The leasehold reforms have had mixed effects on property values:

• Properties with existing escalating ground rent clauses remain problematic for mortgage lenders, particularly where ground rent exceeds 0.1% of the property value or doubles in frequency
• Properties with peppercorn ground rents (new leases or extended leases) are fully mortgageable
• The abolition of marriage value has made short-lease properties more attractive to investors who previously factored in the high extension cost

Buyers of leasehold properties should always:

• Check the remaining lease term (aim for at least 80 years remaining at completion)
• Review the ground rent clause for escalation provisions
• Obtain a specialist lease extension valuation if the term is below 85 years
• Check whether the building is subject to any RICS standards for service charge management

Summary

Leasehold reform has transformed the rights of leaseholders significantly since 2022. The Leasehold Reform (Ground Rent) Act 2022 eliminates ground rent on new leases, while the Leasehold and Freehold Reform Act 2024 makes enfranchisement cheaper and more accessible by abolishing marriage value and removing qualifying periods. However, millions of existing leases with historic ground rent clauses remain unaffected by the 2022 Act -- owners of such properties must extend their leases under the statutory procedure to escape those terms. Commonhold represents the long-term direction of travel but is not yet available at scale. Specialist leasehold solicitors and RICS valuers remain essential advisers for anyone dealing with a short-lease or ground-rent property.