The UK Government has detailed plans to cap ground rents at £250 annually, sparking fierce warnings from investors and insurers who claim the reforms could deter global capital and hit pension funds. The draft Leasehold and Commonhold Reform Bill sets out a major shake-up of England and Wales' property system, affecting approximately five million leasehold properties.
The proposed cap would take effect in late 2028, then fall to a "peppercorn" rate — effectively zero — after 40 years. The reforms also ban new leasehold flat sales except in limited cases, with future properties sold as commonhold, where neighbors collectively own the ground and building.
The Association of British Insurers warned the changes set a dangerous precedent. The organisation stated: «We are deeply concerned that retrospective changes to existing property rights set a troubling precedent and undermine confidence in contract certainty.» It added: «It is likely to raise the risk premium that investors attach to the UK and could weaken its appeal as a destination for global capital and the domestic market.»
Financial Impact Warnings
Investment manager M&G warned of a £230 million one-off hit from write-downs on its £722 million ground rent assets. Bosses called the changes «disproportionate» and said they would «negatively impact savers and companies that have chosen to invest in UK assets».
Danny Pinder, director of policy for the British Property Federation, warned the cap would «interfere with investments made by pension funds and institutional investors over many years and undermine the Government's pursuit of investment in this country». He stressed compensation should be given to those who «invested in good faith».
Some of Britain's biggest insurance groups are discussing the impact with the government. Investors might seek compensation over potential losses.
Support From Campaigners
Long-term campaigner Sebastian O'Kelly of the Leasehold Knowledge Partnership charity welcomed the bill. He said: «This is a transformative bit of legislation that will turn leaseholders into proper flat owners, as is already the case in the rest of the world.»
The Residential Freehold Association criticized the ground rent cap as «wholly unjustified interference with existing property rights». The group warned professional freeholders might leave the sector.
System Overhaul
Approximately 3.8 million properties across England and Wales still attract ground rent, with homeowners collectively paying more than £600 million in 2025. Ground rents were abolished for most new residential leasehold properties in 2022.
Under leasehold, a freeholder owns the building and land while leaseholders buy the right to live in a property for a fixed period. The government's move to commonhold aims to give homeowners unlimited control over their properties.
The reforms also scrap "forfeiture" — where freeholders seize property for service charge debt above £350 — replacing it with a court-led process with strict safeguards. Labour promised in its 2024 election manifesto to end what it called the "feudal leasehold system".
A government consultation on commonhold closes on 24 April.
Note: This article was created with Artificial Intelligence (AI).
