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On 27 January 2026, the Government published draft legislation to revolutionise the way in which flats are owned and managed in England and Wales. The headlines provisions are as follows:
- Ground rents payable under existing long leases to be capped at £250 per annum
- Abolition of forfeiture
- Commonhold will replace leasehold for new flats
- Leasehold reform will continue
- Conclusion
1. Ground rents payable under existing long leases to be capped at £250 per annum
The Government intends to introduce a legislative cap on ground rents of £250 a year, changing to a peppercorn after 40 years, regardless of the contractual rent payment provisions in those leases. This will apply to most long residential leases.
No compensation for lost rental income will be payable and indeed the Government's policy statement states that their "proposals will not require landlords to compensate leaseholders for any past ground rent paid in excess of the cap".
The policy statement suggests that there may be scope for exemptions, such as where the leaseholder agreed to pay a higher ground rent in exchange for a lower premium, which might be the case in some forms of retirement housing. There will also be provisions to reduce the obligations of intermediate landlords to pay ground rent to a superior landlord when their own income from ground rent is reduced, which will be relevant in some financing structures.
2. Abolition of forfeiture
Forfeiture will be replaced with a new leasehold enforcement scheme whereby the court will decide on the most appropriate and proportionate order to address a leaseholder's breach. As forfeiture of a long residential lease is rare, this does not represent a major change in practice. Enforcement of rent charges will also be reformed.
3. Commonhold will replace leasehold for new flats
Following on from the Commonhold White Paper, explored here, all new flats will be owned on the basis of a reformed model of commonhold designed to overcome previous shortcomings. 'Sections' will enable an element of separate management for commercial units and residential units in the same building. A new consultation paper has been published to allow affected parties to share their thoughts, which closes on 24 April 2026. It will be important to engage with this process because the reformed tenure still contains flaws, some of which are discussed in an earlier briefing.
4. Leasehold reform will continue
The ongoing process of implementing the rest of the Leasehold and Freehold Reform Act 2024 will continue.
5 Conclusion
These changes will be momentous for the real estate sector. Those impacted by the changes proposed above should engage with the Government as soon as possible to ensure that the ramifications of the new regime are fully understood.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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