If you grant new residential leases in England and Wales, you cannot charge ground rent. The law changed in 2022 to protect leaseholders from escalating ground rent charges that could make properties difficult to sell or remortgage.
This affects freeholders, developers building new-build flats, and anyone granting long residential leases. Getting this wrong can cost you up to 30,000 pounds per lease in penalties.
What the ground rent ban means
For qualifying leases, ground rent is limited to one peppercorn per year. A peppercorn rent is a symbolic payment that has no monetary value - effectively zero. You cannot charge, demand, or recover any ground rent above this.
This applies regardless of what the lease document says. Even if a lease contains ground rent terms, you cannot enforce them on qualifying leases granted after the commencement dates.
When the ban applies
The commencement dates depend on the type of lease:
Why retirement homes had a later date: The government gave retirement developers extra time to adjust their business models, as some relied heavily on ground rent income to subsidise purchase prices for retirees.
Critical point: The date that matters is when the lease was granted, not when contracts were exchanged or when the property was built. A flat built in 2021 but leased in 2023 is subject to the ban.
Which leases are exempt
Not all leases fall under the ban. Identifying exempt leases correctly is essential - you need different lease templates and systems for exempt vs qualifying leases.
Business lease exemption - important details
The business lease exemption is commonly misunderstood. A lease is only exempt if it expressly permits business use (not just home working). Simply allowing someone to work from home does not make it a business lease.
If you are relying on this exemption, you must follow the prescribed notice procedures under the Business Lease Notices Regulations 2022. Failing to serve the correct notices means the lease will be treated as a qualifying lease subject to the ban.
Penalties for demanding banned ground rent
The penalties are severe and apply per lease, not per property. A developer with a block of 50 flats faces potential penalties of up to 1.5 million pounds if they demand ground rent on all qualifying leases.
What triggers enforcement
Trading Standards can act if you:
- Send a ground rent demand for a qualifying lease
- Pursue arrears for ground rent on a qualifying lease
- Threaten forfeiture for non-payment of banned ground rent
- Include ground rent above one peppercorn in a new qualifying lease
- Charge an administration fee for collecting peppercorn rent
Accidental demands: If you mistakenly demand ground rent, you have 28 days to return any payment received. Refunding promptly may help mitigate penalties, though it does not guarantee you will avoid them.
What landlords and developers must do
Compliance requires changes to your standard practices, systems, and documentation. Take action now if you have not already.
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1
Update your lease templates
Set ground rent to one peppercorn per year in all new qualifying lease templates. Have your solicitor review existing templates to ensure compliance.
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2
Implement a lease classification system
Create a system to identify and flag qualifying leases vs exempt leases. This prevents accidental ground rent demands. Update your property management software if you use one.
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3
Train your staff
Ensure everyone involved in lease management understands which leases can and cannot have ground rent demanded. Include accounts staff who process invoices.
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4
Review your invoicing processes
Never generate ground rent invoices for qualifying leases. Set up system blocks or manual checks to prevent this.
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5
Audit your existing portfolio
Identify which leases in your portfolio were granted before vs after the commencement dates. Pre-2022 leases retain their ground rent rights.
Impact on property developers
The ground rent ban fundamentally changes the economics of leasehold development. Ground rent was traditionally a valuable income stream that could be capitalised and sold to investors.
Adjusting your development appraisals
If your development appraisals historically included capitalised ground rent as a revenue line, remove this for any projects where leases will be granted after the commencement dates. This may affect:
- Land purchase prices you can afford to pay
- Expected returns on investment
- Financing arrangements that assumed ground rent income
For retirement developers specifically: Review your pricing model if you previously subsidised purchase prices using ground rent income. You may need to adjust unit prices or find alternative revenue sources.
Managing pre-2022 leases
The ban is not retrospective. Leases granted before the commencement dates retain their ground rent provisions. You can still demand and collect ground rent on these leases.
This creates a two-tier market:
Implications for property valuations
Properties with pre-ban leases that have remaining ground rent obligations may be valued differently from post-ban properties. Ground rent income remains an asset for pre-ban leases.
However, lenders and buyers increasingly view high ground rents negatively. Properties with onerous ground rent terms (especially those that double periodically) may be difficult to sell or mortgage regardless of when the lease was granted.
Enforcement by Trading Standards
Local Trading Standards authorities (weights and measures authorities) enforce the ground rent ban. They have powers to:
- Investigate complaints from leaseholders
- Issue financial penalty notices up to 30,000 pounds per lease
- Require landlords to refund unlawfully received ground rent
- Share information with other enforcement bodies
Penalties are not automatic. Trading Standards consider factors including the severity of the breach, number of affected leases, whether it was a deliberate or accidental breach, and the landlord's conduct after being notified.
What to do if you receive a complaint
- Take it seriously - do not ignore correspondence from Trading Standards
- Check your records - verify whether the lease in question is qualifying or exempt
- Refund promptly - if you have received ground rent in error, refund within 28 days
- Cooperate with the investigation - provide requested documents
- Take corrective action - review your systems to prevent repeat breaches
- Get legal advice - if facing significant penalties, seek specialist advice
Buy-to-let investors and portfolio landlords
If you own leasehold properties as investments, this ban does not affect you directly - it affects freeholders who grant leases.
However, as a leaseholder yourself, you benefit from the ban on any new leases you take out. If you are granted a new lease extension, check whether it is a statutory extension (exempt) or a voluntary new lease (subject to the ban).
If you are a freeholder granting new leases, all the compliance requirements above apply to you.