Ground rent reform bill – What Hong Kong investors in London property need to know

The UK government has published a draft ground rent reform bill as part of wider leasehold reforms. These changes will affect how ground rent is charged on leasehold properties in the UK and are relevant to Hong Kong buyers, landlords and investors who own or are considering buying property in London. As an overseas investor, it is important to understand how leasehold works, what ground rent is, what is changing and the practical impact on investors.

How does leasehold work in the UK?

Most apartments in London are sold as leasehold. Under this structure, the buyer owns the apartment for a fixed period, which commonly is 99, 125 or 250 years. A freeholder is the one who owns the land and the building. A lease is set out for clear costs involved, including service charges and ground rent. Leasehold is the standard structure for apartments in the UK. In the year 2024, almost 99% of apartment sales were leasehold.

What is ground rent?

Ground rent is an annual payment made by the leaseholder to the freeholder. It is not the same as a service charge and does not cover any maintenance or repairs for the property. The ground rent is clearly set out in the apartment lease.

Historically, ground rent was often low. However, some older leases include clauses under which ground rent increases at set intervals and, at times, even doubles due to rising inflation. Such clauses have caused issues for some owners, including higher long-term costs, lender-imposed mortgage restrictions and difficulty selling leasehold apartments.

What changed in 2022?

In 2022, the UK government eliminated ground rent on most new residential leasehold properties. As a result, most new homes for sale in London now carry zero ground rent. Existing leasehold properties were not affected by this change and continued under the original lease terms.

What does the ground rent bill propose?

The draft leasehold reform bill introduces changes like:

Ground rent on existing leasehold properties will be capped at £250 per year. After a defined period, ground rent will reduce to a peppercorn rate, near zero. The reforms further propose banning the sale of new leasehold flats, encouraging a move towards commonhold-style ownership. The practice of forfeiture, where a leaseholder could lose a property for relatively small unpaid debts, will be abolished. This will be replaced with court-led safeguards. Besides, service charges will be made easier to understand and challenge. The cap could come into effect by 2028 as per the government’s statement and subject to parliamentary approval.

Why does this reform matter to Hong Kong landlords and investors?

Once implemented, the new ground rent reform bill will lead to reduced risk from escalating ground rent clauses, improved resale and refinancing prospects and greater certainty over long-term ownership costs. It will also ensure transparency when managing property remotely.

Let Benham and Reeves Hong Kong help

For Hong Kong investors holding London property or considering new purchases, understanding these changes is crucial for accurate valuation and long-term planning. For tailored advice, connect with Benham and Reeves Hong Kong today. Our experienced agents can explain how the ground rent reform bill applies to your existing London investment properties and lease structures.