Government Caps Ground Rents and Bans New Leasehold Flats: What London Landlords Must Do Now

Government Announces Ground Rent Cap and Leasehold Reform

The UK government has legislated to cap ground rents on new leases at £250 per year for properties in England and Wales, with a gradual transition to a peppercorn rent (effectively zero) after 40 years. Concurrently, the Commonhold and Leasehold Reform Bill prohibits the creation of new leasehold flats. These reforms target unfair leasehold practices, aiming to enhance affordability and ease of sale for leasehold properties.

Additionally, the reforms eliminate forfeiture rights for unpaid ground rent amounts below £350, reducing the risk of lease termination over minor arrears.

Implications for London Landlords

London landlords, particularly those with leasehold flats forming a significant portion of their rental portfolios, will experience impacts on financial forecasts, compliance responsibilities, and tenant relations. The ground rent cap and phased reduction will diminish future ground rent income, affecting return calculations, especially among landlords with extensive portfolios.

The ban on new leasehold flats signals a shift for investors and developers towards freehold or commonhold ownership models.

The removal of forfeiture for ground rent arrears below £350 reduces termination risks but calls for strengthened arrears management practices.

Practical Guidance by Landlord Type

• Single-unit and accidental landlords: Review existing leases to understand new ground rent terms and prepare for potential tenant or buyer queries.

• HMO and multi-unit landlords: Assess the cumulative financial implications of ground rent caps and consider strategic lease evaluations.

• Developers and build-to-rent operators: Reevaluate ownership and investment frameworks to align with the prohibition on new leasehold flats, considering commonhold or freehold alternatives.

Recommended Actions

1. Audit Lease Agreements

Review all leases to identify ground rent terms and upcoming renewals or extensions that may require renegotiation.

2. Consult Leasehold Solicitors

Seek expert legal advice to clarify effects on enfranchisement rights, lease extension processes, and transactional issues.

3. Communicate Clearly with Tenants

Develop transparent, accessible information explaining the reforms and their impact to foster good tenant relations.

4. Update Financial and Operational Plans

Revise income projections and asset valuations to reflect ground rent reductions and regulatory changes.

5. Train Management Teams

Ensure all property management staff are well-informed to handle queries and implement changes professionally.

6. Monitor Official Guidance

Keep abreast of government updates on implementation timelines and further regulatory details.

Risk Management and Compliance

While the risk level is moderate, failure to adapt leases and management practices timely may result in financial or legal consequences. Proactive steps including lease audits, legal consultation, and communications will help mitigate risks and protect portfolio value.

How Rentals & Sales Can Help

Our team offers comprehensive portfolio reviews addressing ground rent exposure and compliance. We provide tailored audits, pricing strategy assistance accounting for ground rent reductions, and deliver landlord training to ensure smooth transition to the new regulatory environment.

Contact Rentals & Sales to arrange a portfolio consultation and prepare your operations effectively.

Compliance Disclaimer: This article is for informational purposes only and does not constitute legal advice. Landlords should seek professional legal counsel regarding their specific circumstances.