The Government has published further details of its proposed overhaul of residential leasehold ownership, including plans to cap existing ground rents at £250 per year, eventually reducing them to a peppercorn. However, importantly, any new legislation will not be implemented any time soon, with a rough estimate of late 2028 at the earliest given based upon the time it will take for the bill to pass. Additionally, whilst the Government has laid out their proposal, this is likely to be subject to amendments before its eventual implementation. Therefore, whilst it is worth being aware of the proposed reforms, taking a watching brief is advisable rather than making knee jerk reactions.
The proposed measures are part of the draft Commonhold and Leasehold Reform Bill, which represents a significant shake-up of the leasehold system, and raise operational and legal questions for managing agents, many of which remain unresolved.
What the Reform Proposes
The Government intends to intervene in existing residential leases, not just new ones. In brief, the proposals include:
- Ground rents capped at £250 per year, with leases above this reduced to the statutory cap
- Reduction to a peppercorn after 40 years
- Wider structural reform, including a push towards commonhold to allow collective flat ownership and management
Areas of uncertainty include how the reforms will apply to different types of lease (for example, shared ownership, retirement housing, or mixed-use developments) and the mechanism for varying existing leases to give effect to the cap. The reforms are expected around late 2028, but this is not yet confirmed.
Implications for Managing Agents
Managing agents may see a reduced role in ground rent collection, but increased responsibility in other areas, including:
- Greater focus on service charge governance, budget transparency, and compliance
- Increased interaction with leaseholder-led or commonhold structures, potentially requiring changes to management agreements and reporting lines
- Responding to queries from leaseholders about when and how their ground rent will change
The draft bill also proposes removing lease forfeiture, with a replacement enforcement regime for non payment of service charges outlined.
Freeholder and Leaseholder Implications
For freeholders and investors, ground rent income may be materially reduced. The Government has indicated it does not plan to automatically compensate freeholders, though legal challenges may arise.
For leaseholders, the reforms aim to promise lower costs, an option of a change in tenure and enhanced security, but many benefits will depend on secondary legislation and implementation detail. The removal of ground rent may reduce premium calculations but without clarity on valuation methods that remains unclear.
Looking Ahead
The Commonhold and Leasehold Reform Bill signals a clear intention to reshape residential property ownership, but it is important to note that this is a draft Bill that is likely to miss the Kings Speech in May 2026. Once it begins its journey in the Houses of Parliament, with likely amendments, the earliest the Act is likely to receive assent is Spring 2028. The new law will also have to be implemented before it comes into legal effect, adding further time before any impact, positive or negative is seen.
It is worth managing agents remaining up to date with how the legislation develops between now and its eventual implementation. Ensuring to pay close attention to the final wording of the legislation, commencement dates, and guidance on enforcement, lease conversion, and compliance.
