Property experts have warned the latest wave of leasehold and commonhold reform, including a £250 ground rent cap, threaten to deter investment coming into the UK.

Earlier today (27 January), the government published a draft version of its new Commonhold and Leasehold Reform Bill (CLRB), which is intended to ban new leasehold flats and reduce ground to a peppercorn over a 40-year period.

The government will also set out a new commonhold model to make it easier for existing leaseholders to transition to that tenure, with a new consultation launched seeking views on the details of the leasehold ban.

Danny Pinder, director of policy at the British Property Federation, welcomed moves to address the “rapidly escalating ground rents”. However, he warned that the cap would “interfere with investments made by pension funds and institutional investors over many years and undermine the government’s pursuit of investment in this country”.

“There are elements within the commonhold proposals that responsible freeholders will support, including reforms to the funding of major works,” he added.

“However, the management of buildings is complex and the introduction of commonhold needs to be carefully phased to ensure the market, including conveyancers, lenders and managing agents can fully understand the changes and their implications.”

The sentiment was shared by Scott Goldstein, property litigation partner at law firm Payne Hicks Beach, who agreed the cap would “interfere with investments in freeholds built up by pension funds over many years”.

“The new rules will not allow enforcement for unpaid ground rent, or for small amounts of other unpaid charges such as service charges,” he said.

“As with the removal of ‘no-fault’ evictions, the government says landlords will be protected by the courts. However, this offers little reassurance given court staff shortages and long delays. In practice, these reforms are unlikely to have much impact.”

Leigh Shapiro, partner and head of leasehold enfranchisement and residential property at Winckworth Sherwood, said: “The message from the government this week is that this is all a victory for leaseholders. The reality is that there are few quick wins when it comes to this reform.

“The government expects 900,000 leaseholders to benefit from the initial ground rent cap of £250. Others with lower ground rents will then have to wait another 40 years before that £250 falls to a peppercorn rate.

“These reforms present little short-term relief for a subdued housing market. On an individual and investment level, making decisions over property remains very difficult. At a time when we urgently need to see new homes built, the move to commonhold presents a further challenge to long-established investment cases.”

Jason Tann, partner at law firm Howard Kennedy, said: “The effect of retrospectively changing the terms of existing leases to limit and ultimately remove ground rents is a further substantial transfer of value from freeholders to leaseholders.

“A significant proportion of those freeholders are pension funds holding money for the public sector and personal pension holders who have invested in stable income from ground rents. Some, such as M&G, are already writing down the value of those investments.

“A challenge under the right to property enshrined in the Human Rights Act is an avenue that might be open to pension funds and other affected parties if the legislation goes through as planned. Particularly if it does not envisage a compensation scheme for those who lose out.”

Whereas, Gary Scott, property litigation partner at law firm Spector Constant & Williams, claimed the cap would only affect a “small minority of leaseholders, likely less than 25% of all those with a ground‑rent obligation”.

“Current government estimates indicate that around 770,000 to 900,000 leaseholders pay more than £250 per year, out of approximately 3.8 million leasehold properties that still carry a ground‑rent charge,” he said.

“While this means the vast majority of leaseholders will see no direct financial change from this measure, for the much smaller group of leaseholders still burdened by onerous doubling or investment‑linked ground rents, the impact will substantial.”