Ground Rent Reform: What the New Rules Mean for UK Property Investors

Ground rent has long been a contentious feature of the UK leasehold system, and recent reforms mark one of the most significant shifts in property law for decades. For investors, these changes reshape both the economics and the long‑term strategy of leasehold ownership. Here’s a clear breakdown of what’s changed, why it matters, and how investors can adapt.

What Has Changed?

The most notable reform is the ground rent cap, which effectively reduces ground rent on most new long residential leases to £0 (a “peppercorn” rent). This applies to:

• New long leases of houses and flats
• Retirement properties (with a delayed implementation date)
• Lease extensions (statutory and informal)

The Leasehold Reform (Ground Rent) Act 2022 was the first major step, but further reforms proposed under the Leasehold and Freehold Reform Bill aim to go even further, including:

• Capping existing ground rents at a nominal level
• Making it easier and cheaper for leaseholders to extend leases
• Increasing transparency around service charges
• Potentially phasing out leasehold for new houses entirely

While some elements are still progressing through Parliament, the direction of travel is clear: ground rent as an income stream is being dismantled.

Why Ground Rent Was Targeted

Ground rents became controversial due to escalating clauses that, in some cases, doubled every 10 years. According to government data, more than 100,000 UK leaseholders were trapped in leases with onerous terms that made properties unmortgageable and unsellable.

The reforms aim to:

• Protect consumers from unfair contract terms
• Increase transparency in leasehold ownership
• Reduce long‑term financial burdens on homeowners

For investors, however, this removes a once‑reliable passive income source.

Impact on Property Investors

1. Reduced Income Streams

Historically, freeholders could rely on ground rent as a predictable, inflation‑linked revenue line. With ground rents now capped at zero on new leases, this income has effectively disappeared.

Some estimates suggest that the value of freehold portfolios could fall by 20–30%, depending on the proportion of leases with escalating ground rents.

2. Lower Freehold Valuations

Freehold reversion values were partly based on the present value of future ground rent income. With that income removed, valuations shift towards:

• Reversionary value (the value of the property when the lease expires)
• Service charge management income
• Potential development opportunities

This makes freehold ownership less attractive as a pure investment play.

3. Lease Extensions Become Less Lucrative

Under the proposed reforms, leaseholders may gain:

• A standard 990‑year lease extension
• A simplified and cheaper valuation formula
• Removal of “marriage value” (a key profit driver for freeholders)

If marriage value is abolished, some freeholders could see extension premiums fall by up to 50%.

4. Increased Focus on Alternative Investment Models

Investors may shift towards:

• Share of freehold developments
• Commonhold (if revived by government)
• Build‑to‑rent schemes
• Commercial property, where lease structures remain more flexible

The reforms push investors to rethink traditional residential leasehold strategies.

Opportunities Hidden in the Reform

It’s not all downside. Investors who adapt early can still find value:

• Freehold blocks with short leases may still offer strong returns if purchased at the right price.
• Service charge management can provide stable income when run efficiently.
• Redevelopment and rooftop extensions remain viable profit centres.
• Commonhold expertise may become a niche but valuable specialism as the market evolves.

What Investors Should Do Now

• Review existing portfolios for exposure to escalating ground rents
• Reassess freehold valuations using updated income assumptions
• Monitor the progress of the Leasehold and Freehold Reform Bill
• Consider diversifying into alternative property classes
• Engage specialist valuers to model the impact of marriage value removal

Ground rent reform represents a structural shift in the UK property landscape. While it reduces passive income opportunities for investors, it also creates a more transparent and sustainable market for leaseholders. Investors who understand the new rules, and pivot accordingly, can still find strong opportunities in a changing environment.

For trusted investment advice that you can rely on, speak to our friendly advisors.