The government has announced that ground rent (Not Service Charges) for leaseholders in England and Wales will be capped at £250 a year.

Ground rent is a yearly fee that people who own leasehold homes must pay to the freeholder. Although ground rent was removed for most new leasehold homes in 2022, people who already owned leasehold properties still had to pay it.

Prime Minister Sir Keir Starmer said the change would save many people hundreds of pounds a year. The new rules will be set out in the draft Leasehold and Commonhold Reform Bill, which will be introduced this week.

Many leases include clauses where ground rent increases regularly, sometimes doubling or rising with inflation. This has made some homes hard to sell or mortgage. Under the government’s plans, ground rent will gradually be reduced until it reaches zero after 40 years.

The reforms will also:

• Ban new leasehold flats
• End forfeiture rules that allow people to lose their home over small debts
• Make it easier for leaseholders to switch to commonhold ownership, where residents jointly own the building and land with no time-limited lease
• There are about five million leasehold homes in England and Wales, and almost all flats are sold as leasehold.

Campaigners for leaseholders support the cap, saying rising ground rents have caused serious problems. Some believe the government should go further and reduce ground rent to zero immediately, but ministers say a £250 cap reduces the risk of long legal challenges.