UK to Cap Ground Rents in Property Overhaul

UK Government to Limit Ground Rents in Property System Reform

Overview of Ground Rent Reforms

By Sam Tabahriti

Impact on Leaseholders

LONDON, Jan 27 (Reuters) - Britain will cap ground rents at 250 pounds ($342) a year in an overhaul of its antiquated property system, Prime Minister Keir Starmer said on Tuesday, adding it would ease financial strain on millions of households.

Reactions from Stakeholders

Starmer's Labour Party promised in its 2024 election manifesto to tackle unregulated and unaffordable ground rent charges for those living in leasehold properties, a commitment he said had now been fulfilled.

Historical Context of Ground Rents

In Britain, homes are generally sold as either freehold, where the owner controls the property and the land it sits on, or leasehold, where the buyer owns only the right to occupy a home while paying charges such as ground rent to the freeholder.

The structure means millions of people do not own the land beneath their homes and can face rising fees or restrictions imposed by landlords.

PARTY DIVISIONS OVER HOW TO WIN BACK SUPPORT

The move is likely to reassure lawmakers on the left of Starmer's Labour Party after a plunge in support following its 2024 landslide victory, and as its members are divided over how to regain voter confidence.

However, freeholder groups said a retrospective cap would amount to an unprecedented interference with existing property contracts.

M&G, one of Britain's largest asset managers, said in a statement the changes would harm savers and companies invested in UK assets and set "a worrying precedent" for the country's reputation as a stable investment location.

SYSTEM DATES BACK TO MEDIEVAL LAND LAW

Ground rents in Britain originated in medieval feudalism, evolving from landholders charging fees for land use, and they were formalised in the 1920s as long-term residential leases.

The reform will apply to more than 5 million leaseholders in England and Wales and will ultimately reduce permitted ground rents to a nominal "peppercorn" after 40 years, the government said in a statement. 

"This is a promise that we said we'd deliver and I'm really pleased that we're delivering," Starmer said in a TikTok video announcing the cap.

The plan would save some families thousands of pounds over the life of their lease and help unblock stalled home sales blamed on high or escalating ground-rent clauses, the government said. 

The government said it would also ban new leasehold flats.

($1 = 0.7309 pounds)

(Reporting by Sam Tabahriti, additional reporting by Sarah Young, editing by Paul Sandle and Barbara Lewis)