Labour government's ground rent cap welcomed by leading Stafford property lawyer
The new ground rent cap for leaseholders is a “necessary intervention” according to a leading Shrewsbury and Stafford property lawyer – but she warned of possible legal challenges from disgruntled investors.
Prime Minister Sir Keir Starmer took to TikTok to announce that ground rents on existing residential leases will be capped at £250 a year in England and Wales from 2028. Over time the rents will reduce to a nominal peppercorn rate of effectively zero.
New leasehold flats will be banned and existing leaseholders will get the right to switch to commonhold ownership in a bid to give homeowners greater control over their properties.
Ground rent is an annual fee paid by millions of leaseholders to freeholders – but some index-linked fees have climbed to thousands of pounds a year, while other people are locked in contracts which cause their fees to double every 10 years.
Nicola Fury, Conveyancing Director at ORJ Law, which has offices in Shrewsbury and Stafford, said the cap would be “felt across the residential property market for years to come”.
She said: “This is a decisive moment in the long-running reform of the leasehold system.
“As a property lawyer, I see this proposal as both a necessary intervention and a legally complex recalibration of long-established property rights.
“The crucial aspect of this decision is that it is not limited to new leases – it will directly override existing contractual terms, something English property law has historically been reluctant to do.
“For many leaseholders, this is a huge announcement. Ground rent has long felt like a charge without service. Worse still, index-linked ground rent clauses meant the fees were consistently going up and rendering some properties difficult to sell or remortgage.
“This cap will reduce financial pressure, improve mortgageability and enhance market confidence.”
Ground rents have been seen as an income stream for investors who hold interests in freehold properties.
Nicola said legal challenges are inevitable from those who will lose out financially from the cap, particularly institutional investors whose assets may be materially devalued.
“Ground rents have historically been treated as low-risk, long-term income assets”, added Nicola. “A statutory cap and eventual removal will force a reassessment of how freehold interests are valued and traded.
“The Government says freeholders will not be paid compensation – but that is sure to be challenged. There is too much money at stake for it not to be.”
The reforms will be included in draft legislation to be published on Tuesday.
ORJ is a leading firm of conveyancing and property solicitors, trusted by clients across Staffordshire, Shropshire and the West Midlands.
