Ground Rent Reform

Ground Rent Reform: What the Proposed Cap Means for Leaseholders, Freeholders and Property Managers

The government’s proposed reforms to leasehold tenure, including the introduction of a ground rent cap, represent one of the most significant shifts in the residential property landscape in decades.

While the cap on existing ground rents is not expected to come into force until 2028, its impact is already being felt across the market. The reforms change not only the long-term value of residential freeholds, but also the way lease extensions, enfranchisement and portfolio strategies will need to be considered going forward.

For many owners and managers of residential property, the key challenge is uncertainty: what should you be doing now?

Why the ground rent cap matters

Ground rent has traditionally formed a key component of the investment value of a freehold interest. Where leases contain ground rents above £250 per annum, that income stream contributes directly to the capital value of the asset and is reflected in valuation calculations, including lease extension premiums.

The cap will effectively mean that freeholders cannot count on income from ground rents beyond 2028, and this requires valuers and property advisors to consider how future income assumptions are treated when assessing lease extensions, enfranchisement claims and freehold portfolio values.

In simple terms, even though the legislation is not yet fully implemented, the market will likely begin pricing the change well in advance.

What this means for freeholders and investors

For freeholders, and this includes institutional investors and pension funds, the reform will impact asset value. A reduction in ground rent income alters the investment profile of residential freeholds and will certainly influence decisions around whether an asset is held, refinanced or disposed of in the short- to medium-term.

There may also be a strategic consideration around enfranchisement claims.

• Leaseholders anticipating reform may seek to acquire the freehold now in preparation for the commonhold reforms
• Freeholders will need to understand the potential impact on premium calculations and negotiation positions

Understanding how these changes affect valuation is therefore critical. Early advice can help inform whether to restructure, negotiate, or adjust portfolio strategy.

What this means for leaseholders

For leaseholders, the reforms are largely positive, but they may also possibly introduce a predicament.

Many leaseholders with diminishing lease terms are now asking whether they should extend their lease immediately or wait for the reforms to take effect. If the valuation methodology changes following the ground rent cap, future premiums may differ significantly from those calculated today.

However, the timeline and final structure of implementation remain uncertain. Waiting could prove beneficial, but it could also carry potential risk if property value or ‘mortgageability’ becomes affected in the interim.

Careful advice based on individual lease terms, ground rent levels and remaining lease length is therefore essential.

The link to commonhold and enfranchisement

The proposed shift towards commonhold ownership adds another layer of complexity.

Before leaseholders can convert to commonhold, they must typically acquire the freehold collectively through enfranchisement. If leaseholders believe reform will reduce long-term freehold value, we may see an increase in collective enfranchisement claims as groups look to act ahead of legislative change.

For property managers and resident management companies, this could mean significantly higher volumes of enquiries from residents seeking guidance and coordination.

How we can support

Although the legislation is still evolving, action now can provide clarity.

At SRVO, our Lease Advisory and Valuation teams are already supporting clients across the sector by:

• advising freeholders and investors on the potential valuation impact on portfolios
• helping leaseholders assess whether to extend leases now or wait
• supporting managing agents and resident management companies through enfranchisement processes
• providing valuation reports required for negotiations and claims

The key is to be informed and prepared; understanding the implications early allows stakeholders to make decisions from a position of strength rather than reacting later under pressure.

The ground rent cap is unlikely to be the final stage of reform, and wider changes to leasehold and commonhold tenure are expected in the coming years. What is clear is that the residential sector is entering a period of structural change, and seeking early advice will be increasingly important.

Get in touch with Matthew Gawne:

Matthew.Gawne@srvoproperty.com