Ground rent

Ground rent is a periodic payment, typically annual, made by a leaseholder to the  freeholder for the right to occupy the land on which a leasehold property stands. It is set out in the lease and is separate from service charges, which reimburse the freeholder for actual building costs such as repairs, insurance, and communal maintenance. Ground rent provides no service in return, it is payment solely for occupying the freeholder's land. It applies most commonly to leasehold flats, though some leasehold houses also carry ground rent obligations.

As GOV.UK's guidance on the Leasehold Reform (Ground Rent) Act 2022 explains, ground rent is "a property industry term given to a rent that is usually paid annually by owners of residential long leases to their landlord" for which the landlord is not required to provide any clear service in return.

New leases: the peppercorn rule since June 2022

The Leasehold Reform (Ground Rent) Act 2022 came into force for most new residential long leases on 30 June 2022 (and from 1 April 2023 for retirement home leases). Under the Act, landlords granting new regulated residential leases must not charge more than a peppercorn rent, a nominal amount defined in law as one peppercorn per year, with no financial value. In practice, most landlords do not collect even the peppercorn. Any landlord who charges a prohibited ground rent on a regulated new lease faces a financial penalty of between £500 and £30,000.

This rule applies to new leases only. Leases granted before 30 June 2022 are not affected.

Existing leases: escalating ground rent and the doubling problem

For the roughly five million leaseholders who hold leases granted before June 2022, ground rent continues to apply on the terms written into their original lease. Historically, ground rents were modest, often £10 to £100 per year. From the 1990s onwards, some developers began inserting escalation clauses that caused ground rents to rise significantly over time.

The most problematic type is the doubling clause, where ground rent doubles at fixed intervals, typically every 10 or 25 years. A ground rent that starts at £200 and doubles every 10 years reaches £1,600 per year after 30 years, and over £12,000 per year after 60 years. Even before reaching such extremes, a doubling clause affects property value and mortgageability, because most lenders will not lend on properties where ground rent is above 0.1% of the property value or where the doubling interval is less than 20 years.

Other escalation types include RPI-linked increases (where ground rent rises with the Retail Price Index) and capital value-linked clauses. All carry risks for saleability and mortgage finance if they result in ground rent exceeding common lender thresholds.

From working with self-managing landlords across the UK, August finds that escalating ground rent clauses are most frequently discovered when a landlord attempts to remortgage a leasehold flat they have owned for some years, often the first time anyone has carefully reviewed the lease terms since purchase.

The mortgage and saleability impact

A ground rent clause that causes the annual charge to exceed certain levels creates practical problems for lenders and buyers. Where an existing pre-2022 lease carries ground rent above £250 per year (£1,000 in Greater London), it has historically raised concerns about whether the lease could be treated as an assured tenancy under the Housing Act 1988, a scenario known as the AST trap, which gave freeholders an easier route to repossession for ground rent arrears. Section 31 of the Renters' Rights Act 2025, which came into force on 27 December 2025, resolved this by excluding fixed-term residential leases of more than 21 years from the definition of assured tenancies. Existing leaseholders with ground rents above the £250/£1,000 thresholds are no longer at risk of the AST trap.

However, mortgage lenders' own policies on acceptable ground rent remain in place independently of legislation. Most mainstream lenders will still decline to lend where ground rent doubles in intervals of less than 20 years or exceeds 0.1% of the property value, regardless of the AST trap being resolved.

The proposed £250 cap and reform timeline

The government published the draft Commonhold and Leasehold Reform Bill on 27 January 2026. The draft Bill proposes to cap ground rents for existing residential leases at £250 per year in England and Wales, with ground rent then reducing to a peppercorn after a further 40 years. The government's press statement confirmed the intention for this to apply to leases granted before June 2022, addressing the position of the approximately 77% of leaseholders who still pay ground rent.

The cap is subject to parliamentary approval and is expected to come into force in late 2028 at the earliest, based on current government statements. The draft Bill is currently under pre-legislative scrutiny and is not yet law. Until it is enacted, existing ground rent obligations remain on the terms of each lease. Our full guide to the Leasehold and Freehold Reform Act 2024 covers the reform programme in full.

Ground rent for leaseholder-landlords

For many self-managing landlords, ground rent is a cost rather than an income stream, because they own a leasehold flat that they let out on a short-term residential tenancy. In that position, ground rent is payable to the freeholder or superior landlord as a condition of the long lease, regardless of whether the flat is occupied by a tenant. Ground rent cannot be passed on to a residential tenant as a separate charge, it is a cost of ownership that should be reflected in the overall rent level and budget. For buy-to-let landlords, ground rent is an allowable expense against rental income for tax purposes.

Frequently asked questions

What is peppercorn ground rent?

A peppercorn ground rent is a nominal annual payment defined under the Leasehold Reform (Ground Rent) Act 2022 as one peppercorn per year, meaning it has no financial value and is effectively zero. Under the Act, all new regulated residential long leases granted from 30 June 2022 must be at a peppercorn. There is no obligation on landlords to actually collect or demand even the peppercorn. The Act also prevents landlords charging administration fees for a peppercorn ground rent.

When will ground rent be abolished for existing leases?

Ground rent for existing leases is proposed to be capped at £250 per year under the draft Commonhold and Leasehold Reform Bill, published January 2026. The cap would then reduce to a peppercorn after 40 years. This is not yet law: the draft Bill is under parliamentary scrutiny and the government has indicated the cap could come into force in late 2028. Until legislation is enacted, existing ground rent obligations remain as set out in each lease.

What can I do about a doubling ground rent clause?

For leaseholders with escalating ground rent clauses, the most effective remedies are a statutory lease extension (which removes the ground rent entirely by replacing it with a peppercorn for the extended term) or a deed of variation agreed with the freeholder to amend the escalation clause. The freeholder will typically charge a premium for a deed of variation, which can be negotiated. A statutory lease extension requires at least two years of ownership as registered proprietor and involves a valuation process. Legal advice from a specialist leasehold solicitor is advisable before taking either route.