What’s Changed?
The Leasehold Reform (Ground Rent) Act 2022 introduced a significant change: ground rent on new leases granted after 30 June 2022 is now capped at one peppercorn per year — effectively £0.
This was a landmark moment for leasehold reform. For the first time, the government legislated to stop freeholders from charging ground rent on new residential leases.
But there’s an important distinction: this only applies to new leases. If you already have a lease with ground rent, the Act doesn’t change your existing terms.
How Ground Rent Affects You Now
If you’re an existing leaseholder, you’re likely still paying ground rent under the terms of your current lease. Ground rent can be:
- Fixed — a set amount each year (e.g., £250 per year)
- Escalating — increases at set intervals (e.g., doubles every 25 years)
- RPI-linked — rises with inflation, which can be unpredictable and expensive
Why It Matters
Ground rent isn’t just an annual cost. It affects your property’s mortgageability and saleability:
- Most mortgage lenders won’t accept ground rent above 0.1% of the property value
- Doubling ground rent clauses are particularly problematic — many lenders refuse to lend on them entirely
- Buyers and their solicitors will flag high or escalating ground rent as a deal-breaker
Even if you’re not planning to sell soon, high ground rent erodes the value of your property over time.
What Happens When You Extend Your Lease
Here’s the good news: when you extend your lease through the formal (statutory) route, your ground rent is automatically reduced to a peppercorn — £0.
This is one of the biggest benefits of a formal lease extension. No matter how high your current ground rent is, or how aggressively it escalates, it drops to nothing once you extend.
This also removes the mortgageability issue entirely. Lenders have no concerns about ground rent on an extended lease.
The Informal Route Risk
If you extend your lease through the informal (voluntary) route, there’s no guarantee your ground rent will be reduced. The freeholder can negotiate whatever terms they want — and many will try to keep ground rent in place or even increase it.
This is one of the key reasons we recommend the formal route for most leaseholders. The statutory right to zero ground rent is too valuable to give up.
What Further Reforms Are Expected
The Leasehold and Freehold Reform Act 2024 laid the groundwork for further changes, including potential caps on ground rent for existing leases. However, most provisions haven’t been enacted yet, and timelines remain uncertain.
The government has signalled that it intends to:
- Cap existing ground rents (possibly to a peppercorn)
- Ban the creation of new leasehold houses
- Make it cheaper and easier to extend leases or buy freeholds
- Abolish marriage value
Until these reforms are fully enacted, the current system remains in place. If you’re waiting for reforms to reduce your ground rent, you may be waiting a long time — and your lease is getting shorter every day.
What Should You Do?
If you have a lease with high or escalating ground rent, extending your lease through the formal route is the most reliable way to eliminate it. Waiting for reforms is a gamble — extending your lease is a certainty.
Get your free lease report to see how much a lease extension would cost and how it eliminates your ground rent.
