The road to ground rent reform and commonhold

On 27 January 2026, the Government announced a conclusive roadmap to phase out ground rents for existing leaseholders – the most significant shift in property law in a generation. This follows the Leasehold and Freehold Reform Act 2024 and effectively signals the end of the traditional ground rent model.

Developers: this isn’t just a legal change – it’s a commercial pivot

Historically, ground rent was a nominal “peppercorn” payment. However, in the 2000s, it evolved into a lucrative investment asset for freeholders, often featuring doubling clauses (e.g. rent doubling every 10 years).

This led to a multi-stage legislative crackdown:

• 2022: Ground rents were banned for almost all new residential leases.
• 2024: The Leasehold and Freehold Reform Act 2024 made it cheaper for leaseholders to extend leases and buy freeholds but stopped short of capping existing rents.
• 2026: The Government published the draft Commonhold and Leasehold Reform Bill, which finally addresses the five million existing leaseholders who were “left behind” by previous law.

The new legislation, expected to be fully implemented by late 2028, introduces a “step-down” approach to zero out ground rents:

• The immediate cap: All existing ground rents will be capped at £250 per year.
• The 40-year twilight: After 40 years, all ground rents must transition to a peppercorn (£0).
• Ban on new leases: New leasehold flats will be banned; commonhold becomes the default for developers.
• Abolition of forfeiture: Landlords can no longer repossess a home for small debts (as low as £350).

Being prepared for the shift to commonhold

In a commonhold development, the land is divided into units (the individual flats) and common parts (hallways, elevators, gardens). Ownership is overseen by a Commonhold Association (CA), which is a private company limited by guarantee.

Best practice for developers

• Developers must master the commonhold model. Unlike leasehold – where a landlord owns the land – commonhold allows residents to own their unit and a share of the common parts through a CA. Strategy: engage with solicitors early to draft a CSS that clearly defines repair obligations and management costs.

• Move toward professional management fees that are clearly itemised in service charges. Ensure these are competitive and justified, as the 2024 Act makes it easier for residents to challenge “unreasonable” costs in a tribunal.

• A major risk for developers is losing control of a site before construction is finished. Retain the majority of voting rights in the CA until a defined “trigger event” (e.g. 75% of units sold). This ensures effective site management and that the “house rules” are enforced during sales.

• Commonhold can be complex for mixed use sites (e.g. commercial and residential). Use “sectioning” CSS as this allows the separation of voting rights and costs so that residential owners don’t have a say in commercial-only costs and vice-versa. This protects the capital value of commercial units.

This article was co-authored by Josh White.