Publication
Publication
Leasehold reform has been a hot topic on the political agenda for many years across successive governments. On 27 January 2026, the Government published the draft Leasehold and Commonhold Reform Bill (the “Bill”), which proposes seismic shifts for the residential long leasehold market – but not without controversy. In this article, we unpack the proposed cap (and eventual ban) on residential ground rents, the ban on forfeiture and the next chapter in the commonhold revolution.
The recent Government announcement on residential leasehold reform is the latest in a series of significant legislative changes that have long been on the agenda.
The direction of travel in this area has been clear for some time – so it is no surprise that the proposals weigh heavily in favour of leaseholders. In essence, the Bill seeks to address long-standing criticisms of the leasehold system by enhancing leaseholders’ rights, capping ground rents, banning new leasehold flats in favour of commonhold tenure, abolishing forfeiture and facilitating conversions to commonhold.
The policy statement accompanying the Bill highlights the Government’s commitment to tackle cost of living pressures by capping “unregulated and unaffordable” ground rents, abolishing the “draconian practice of forfeiture” and ending the “feudal leasehold system” by making conversion to commonhold easier and banning new leasehold flats. Whilst the Government has characterised the existing system in stark terms, investors and freeholders view ground rents as legitimate investment assets providing predictable returns, and question whether the proposed reforms appropriately balance the interests of all stakeholders.
So, what are the poposed changes, how will these changes impact investors in residential ground rent portfolios (who have historically favoured the predictable income streams that they provide), and might there be unintended consequences?
Ground rents for most residential long leases granted since June 2022 are already limited to a peppercorn (see our previous Talking Points Article: The first wave breaks in a swelling tide of residential leasehold proposals). The Bill now turns its sights on older, pre-existing leases, proposing a two-stage cap that would fundamentally reshape the economics of long residential income streams:
(i) Stage 1: a maximum of £250 per year for the next 40 years (expected to take effect from late 2028, subject to the Bill being passed); and
(ii) Stage 2: a reduction to a peppercorn after 40 years.
So, an annual ground rent of £500 would be reduced to £250 under Stage 1, representing an immediate 50% reduction in income for the freeholder. After 40 years, this would be further reduced to a nominal peppercorn rent, effectively eliminating the income stream entirely.
Leasehold campaigners argue that the proposals do not go far enough – in their view, 40 years is a long time to wait for the peppercorn stage. The Government, however, has framed this as a deliberate compromise, seeking to balance leaseholder protection with avoiding a sudden and total erosion of value for freeholders and investors.
For investors holding ground rent portfolios, the proposals strike at the heart of the investment model. Pension funds and institutional investors that have treated ground rents as bond-like, stable assets face the prospect of material write-downs, with potential knock-on effects for retirees’ funds.
Critics argue that the cap and eventual phase-out amount to a de facto seizure of income streams without fair payment, and calls for compensation to be paid to freeholders in exchange for the diminution in value of their interests appear, so far, to have been sidelined. Freehold campaigners are likely to continue to press this point as the Bill is scrutinised, and arguments that the proposals infringe rights under the European Convention on Human Rights could provide a springboard for judicial review.
There is also a broader concern over legal certainty and the protection and stability of property rights. By retrospectively eroding existing contractual rights, critics argue that the Government is setting a dangerous precedent and chipping away at the reputation of England and Wales as a safe and predictable place to invest. They warn that this sends a wider signal: if established property rights can be altered in this way, what might follow? And could this willingness to alter property rights unilaterally ultimately deter investment?
The Government has been keen to stress that reforms of this kind are not undertaken lightly. An impact assessment and a formal response to the 2023 consultation on restricting ground rents are expected to follow.
Although certain exemptions will apply for commercial and community housing leases, the retrospective, broad brush nature of the proposals is likely to be a flashpoint for the investment community, with human rights and other legal challenges likely on the horizon.
The Bill also seeks to abolish landlord forfeiture rights in all residential long leases, introducing a new statutory lease enforcement scheme as the replacement route for recourse. The aim is simple: leaseholders should not lose their homes over minor breaches.
Some of the operational details will be confirmed in regulations if the Bill is enacted, but the intention is that, for certain tenant breaches, landlords will need to apply to the Courts, which will have broad powers to grant remedies that they consider fair and proportionate in the circumstances (including orders for sale of the property).
Arguably, the proposed abolition of forfeiture is more symbolic than substantive, given how rarely full forfeiture is actually achieved. Whilst, at first blush, forfeiture appears to be a draconian remedy (especially in the context of minor breaches), in practice it is already subject to strict procedural safeguards. Currently, leaseholders can apply for “relief from forfeiture” in Court if they remedy the breach that gave rise to the forfeiture, and relief is almost always granted unless the breach is extreme and irremediable. It has been estimated by industry sources that only around 0.002 per cent of residential leases face forfeiture proceedings each year, with full forfeiture resulting in a permanent loss of property being so rare that reliable statistics appear not to exist. Nevertheless, optics matter and the proposals mark a significant shift in the perceived balance of power between landlord and leaseholder.
Commonhold is an alternative form of property ownership designed specifically for flats and multi-occupancy buildings. Under commonhold, flat owners own the freehold title to their individual units whilst collectively owning and managing the common parts of the building (such as hallways, roofs and lifts) through a commonhold association. This eliminates the need for a separate freeholder and avoids the issues associated with diminishing lease terms. We explored the mechanics of commonhold and its major shortfalls (which have meant that only a handful of commonholds currently exist) in our previous Talking Points Article: Commonhold explained: the future of leasehold property ownership?
Building upon the proposals set out in the 2025 Commonhold White Paper (which we considered in our Talking Points Article: Making commonhold commonplace – the next chapter in the commonhold revolution), the Bill seeks to overhaul the existing commonhold legislation to make it more workable and to ease the path for existing leaseholds to convert to commonhold. Key proposals include:
(i) allowing for the creation of “sections” and separate heads of cost to address the current viability challenges with mixed-use or multi-block developments, so that different groups of occupiers pay only for the facilities and services they can actually use;
(ii) requiring commonhold associations to keep reserve funds for major works (such as roof replacement or lift renewal) to address concerns about surprise costs and sudden demands; and
(iii) for conversions of existing leaseholds, reducing the threshold so that only 50 per cent of leaseholders must consent (as opposed to the current onerous requirement of 100 per cent of all those with an interest in the building, including lenders) and providing for non-consenting leaseholders to be included in the commonhold association and pay contributions, while retaining their lease (albeit adjusted to fit with the new commonhold structure).
Of course, previous attempts to introduce commonhold have failed. So, what’s different this time?
The answer lies partly in the proposal within the Bill to ban the grant of long leases of new flats intended for home ownership (subject to exceptions) – the intention being that the default legal structure for such will be commonhold.
Over time, will the legacy leasehold stock become a less attractive outlier, or will it trade at a premium compared with a re‑engineered commonhold market? That remains to be seen.
To inform the transition, the Government has launched the Moving to Commonhold consultation (open until 24 April 2026), which seeks views from stakeholders on questions relating to scope, exemptions, timings, transitional arrangements, and the wider commonhold legal framework. A political priority will be to manage the shift in a way that minimises disruption to the delivery of new housing developments, particularly build-to-sell pipelines, and to ensure that key stakeholders properly understand the complexities of the new regime.
As a related but distinct reform, the Bill also proposes the abolition of the draconian statutory enforcement powers attached to estate rentcharges (a mechanism often used on privately managed estates to recover costs for communal areas, similar to a service charge). Currently, in some cases, if a property owner falls into arrears, the rentcharge owner can use statutory powers to take possession of the property (to take income until the arrears are paid) or grant a lease of the property to trustees (to raise money to pay the arrears) – which risks homeowners losing control of their property over a relatively small debt.
Estate rentcharges will remain available as a funding mechanism (and other remedies for breach will remain, subject to notice prior to enforcement action), but the most severe and controversial enforcement tools will go. Similar measures were taken to regulate historic rentcharges in 2024 (see our previous Talking Points Article: Last minute legislation – The Leasehold and Freehold Reform Act 2024), and questions were raised as to why estate rentcharges were left out of those reforms. The Bill now closes that gap.
The Bill has been published in draft form, so will be subject to pre-legislative scrutiny before it is formally introduced to Parliament. There is likely to be significant debate about every aspect of the Bill and possibly legal challenges in respect of the ground rents cap. The British Property Federation has already commented that the proposals will need to be carefully managed to avoid economic harm.
For investors and lenders active in this space, the immediate priorities are likely to include:
For leaseholders, the Bill is likely to be seen as a significant step towards stronger protections and greater control over their homes. Nevertheless, leaseholders and consumer groups are unlikely to rest here – there is still a long path ahead for the Bill and this is not the end of the road for the programme of reform, particularly in respect of privately managed estates. Separate consultations have been launched on how best to implement new consumer protections for homeowners, and on strengthening regulation of managing agents.
The end of an era for residential long leasehold may be nigh, but there remains a great deal of detail to unpack and further reforms on the way.
If you would like to discuss any of the topics mentioned in this article, please reach out to your usual Linklaters contact.