The escalating ground rents imposed on leaseholders in England and Wales represent a profound injustice in the housing market. An estimated 18% of leaseholders, equating to around one million households, are trapped in so-called "modern ground rent" leases with charges that rise steeply, often rendering properties unsellable or impossible to remortgage. Amidst the ongoing cost-of-living crisis, with soaring food and energy prices, addressing this issue has never been more urgent.
A System in Need of Radical Overhaul
This market should never have been permitted to develop in such a predatory manner. An investigation by the Competition and Markets Authority found no evidence that leaseholders receive any tangible benefits for these annual fees, which are separate from service charges covering common area maintenance. Campaigners for the abolition of leasehold are correct in their assertion that the rent-seeking behaviour of freeholders is fundamentally wrong. Mortgage lenders and politicians alike should have taken a firm stance against these practices years ago.
Labour's Tentative Steps Forward
While the case for reform is unequivocal, wealthy freehold investors were always going to resist change vigorously. In 2024, Matthew Pennycook, now Labour's housing minister, urged the then Conservative government to show courage in pushing ahead with reforms, despite industry threats. Unfortunately, even with this week's announcement of a ban on new leasehold flats and a ground rent cap of £250 for existing leases, Labour appears to be displaying signs of timidity.
For those leaseholders burdened with the most egregious deals, the cap will provide some relief, though it should have been set lower and its implementation, not expected before 2028, is disappointingly slow. The 40-year period before ground rent is phased out in favour of a nominal "peppercorn rent" is excessively long; a much shorter grace period would have been more reasonable.
Unresolved Issues and the Path Ahead
Even with the cap and the overdue abolition of forfeiture—which allowed freeholders to seize properties over unpaid ground rent—significant problems persist. The Conservatives' Leasehold and Freehold Reform Act initiated progress by banning new leasehold houses, but the continued sale of leasehold flats remains one of many unresolved issues. These must be addressed to ensure existing leaseholders are no longer treated as cash cows.
Key outstanding matters include:
- The right of residents to manage their buildings, which should be more readily available as an alternative to purchasing the freehold.
- The methodology for determining freehold prices, with inflated valuations based on hypothetical development values—introduced by the previous government—needing to be rejected.
October's high court victory, which upheld a challenge to 2024 legislation brought by landowners, should have emboldened ministers. Instead of confidently transitioning to a new commonhold model, already standard in countries like Scotland, they seem apprehensive.
A Call for Political Courage
Such doubts must now be dispelled, and clear next steps outlined. This is not merely a matter of principle but of politics. Labour cannot afford to disillusion voters who were promised improvements in living standards. Since modern ground rent is a relatively recent phenomenon, those affected are often younger adults grappling with student loans and larger mortgages than previous generations. Mr Pennycook was right to advocate for bravery in confronting property investors; he and his colleagues must now administer a dose of that same medicine to drive meaningful change.
