Speed up £250 cap on leasehold ground rent, MPs urge

A planned £250 cap on yearly ground rents paid by leaseholders in England and Wales should be introduced more quickly, a committee of MPs has urged.

The government has said it expects the limit on ground rents - an annual fee paid by leaseholders to their freeholder - to come into force in late 2028.

However, a report by the cross-party Housing, Communities and Local Government Committee said this should be brought forward to late 2027, arguing leaseholders have waited too long for successive governments to tackle the issue.

The government said it was bringing forward legislation "as an urgent priority" to bring the leasehold system to an end in this Parliament - which could run until 2029.

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.

As well as capping ground rents, the government's draft Commonhold and Leasehold Reform Bill, which is being scrutinised by the committee before it is introduced to Parliament, would ban the sale of new leasehold flats.

It also aims to make it easier for people to convert to commonhold, where people jointly own and take responsibility for their buildings without an expiring lease.

Ground rents are paid for the right to occupy the land on which a building sits and are separate to service charges, which cover the management and maintenance of a building.

The English Housing Survey estimated that in 2023/24 the average annual ground rent was £304 a year.

However, it is common for ground rents to double or increase by RPI inflation at fixed intervals, which can make it difficult to sell or get a mortgage for a property.

Ground rents were abolished for most new residential leasehold properties in England and Wales in 2022 under the previous Conservative government, but remained for existing leasehold homes.

Under the current draft version of the bill, the £250 cap would come into effect on a date decided by ministers.

The government has said it expects this to be in late 2028, but it could happen sooner if the bill progresses more quickly.

Instead, the committee wants the cap to come into force two months after the bill passes into law, which it said could be in late 2027.

'Realistic' 40-year timeline

The government is also promising to reduce ground rents to a peppercorn rate - effectively zero - after 40 years.

The committee said it was unclear why this transition period could not be shortened to 20 years.

Some freeholders and investors have argued they need more time to adjust and plan for the change.

But the committee's report said it was not convinced by this argument, given successive governments had indicated their intention to cap ground rents since at least 2017.

The government has argued a 40-year transition is a "balanced, achievable and realistic timeline", with a shorter period carrying a greater risk of legal challenge.

The Residential Freehold Association, which represents professional freeholders, opposes capping ground rents, warning about the impact on the UK's reputation for investors and on pension funds which invest in ground rents.

However, the committee was contacted by thousands of leaseholders who said escalating ground rents had left them struggling to sell their home.

One said their flat had become "effectively worthless" as their ground rent was now more than £500 and increasing every year, leaving them unable to move.

Another said their flat was "unmortgageable and therefore unsaleable" because of the high ground rent, which meant they had to delay starting a family as they could not afford a second mortgage.

Overall, the committee said the government's leasehold bill "would make a significant step towards giving leasehold homeowners greater control of their buildings".

However, it added that "the final bill requires several changes and additions to meet leaseholders' expectations and previous government pledges".

Labour's 2024 general election manifesto promised to "finally bring the feudal leasehold system to an end", ensuring commonhold is the default tenure, while tackling "unregulated and unaffordable" ground rent charges.

Labour MP Florence Eshalomi, who chairs the committee, said leaseholders had been "waiting for too long for successive governments to tackle the unfair leasehold system".

She added: "It is vital the government now recognises this urgency by bringing forward revised legislation to deliver justice for leaseholders as soon as possible."

The committee is calling for the government to introduce the final bill to Parliament in the autumn, so it can become law in mid-2027.

The government has said it expects a new commonhold framework to be operating well before the end of the Parliament.

However, Housing Minister Matthew Pennycook has said the ban on the sale of new leasehold flats is unlikely to come into force until after the next election.

He has argued it would not be feasible to abolish leasehold overnight, as this would involve instantly establishing millions of commonhold associations and would impact the mortgage market.

However, Pennycook has insisted the government is still committed to dismantling the leasehold system by the end of the Parliament, by empowering leaseholders to take control of their buildings and allowing them to convert to commonhold when they choose to.

The committee's report said the government should continue with its aim of introducing the ban "as soon as possible", while minimising unintended impacts on the wider housing market.

The committee also recommends introducing an independent regulator of property management agents, with the power to sanction rogue agents and remove their licence to operate.

Many leaseholders have complained of poor service from their managing agent, including spiralling service charges, which they have no control over.

Meanwhile, the committee's report raised concerns several "vital" recommendations previously made by the Law Commission, which would make it easier for leaseholders to convert to commonhold, were missing from the draft bill.

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