Ground Rent Capped at £250. Your Leasehold Portfolio's Exit Price Just Changed.

The Draft Commonhold and Leasehold Reform Bill landed on 27 January 2026. Ground rent capped at £250 a year. New leasehold flats banned — commonhold becomes the default. Forfeiture abolished. Implementation expected late 2028.

If you manage a residential building in England or Wales, your service charge model just got a deadline. Here is what changes and what you need to do now.

Ground rent at £250 changes the economics of your service charge

Ground rent has been a reliable income line for freeholders and managing agents. A typical lease on a one-bedroom flat in Manchester city centre might carry £350–£500 a year in ground rent. On a 50-unit block, that is £17,500–£25,000 annually. The Bill caps it at £250 per year — and that cap applies to existing leases too.

For buildings where ground rent was a material part of the budget, that revenue disappears. Your service charge must now cover the shortfall. Either you raise the service charge per unit, or you cut costs. Neither is easy when tenants are already watching every line item.

A practical example: a 120-unit block in Canary Wharf with an average ground rent of £400 per flat loses £18,000 a year. That is roughly the cost of one full-time maintenance technician or a chiller overhaul every five years. You need to find that money elsewhere.

Commonhold becomes the default — your management contract changes

New leasehold flats are banned. All new residential developments must be commonhold. That means the freeholder disappears. The building is owned collectively by the unit owners, who form a commonhold association.

For you as a building manager, this shifts who signs your contract. Instead of a single freeholder or developer, you answer to a board of residents. They are not property professionals. They are accountants, teachers, retirees. They will ask harder questions about every line in the service charge.

Your reporting must become clearer. No more opaque line items like "management fee — £12,000." You will need to show exactly what that fee covers: compliance checks, insurance procurement, contractor management, energy monitoring. If you cannot explain it in plain English, expect pushback.

Existing leasehold blocks are not forced to convert, but the Bill creates a simpler process for leaseholders to collectively enfranchise and switch to commonhold. Expect more requests. Have your service charge data ready.

Forfeiture abolished — your debt recovery model needs a rethink

Forfeiture — the right to take back a lease if the tenant does not pay ground rent or service charges — is abolished. This has been a nuclear option, but it was an option. Without it, you need a different way to recover unpaid service charges.

The Bill introduces a new statutory regime for service charge arrears. You can apply to the First-tier Tribunal (Property Chamber) for an order requiring payment. The tribunal can also order interest and costs. But this takes time. A typical tribunal application takes 8–12 weeks. In that period, the arrears grow.

For a 200-unit block in Birmingham where 5% of tenants are consistently late, that is 10 units. At an average service charge of £2,500 per year, you are carrying £25,000 in arrears at any given time. Without forfeiture, you cannot use the threat of losing the home to accelerate payment.

Your options: tighten your credit control process, introduce direct debit mandates with early-payment discounts, or build a small contingency into the service charge to cover expected arrears. The Bill does not ban late-payment interest, so you can still charge that — but only at a rate set by the tribunal, not whatever your lease says.

Service charge transparency becomes a legal requirement

The Bill mandates a standardised service charge statement. Every building must provide tenants with a breakdown that follows a prescribed format. No more hiding costs in "sundry expenses" or "contingency."

You will need to report:

• Total service charge per unit
• Breakdown by category: energy, water, maintenance, insurance, management fee, sinking fund
• Actual spend vs budget for the previous year
• Planned works for the next 12 months with estimated costs
• Any commissions or referral fees paid to the managing agent

This is not new for well-run buildings. But for blocks where the service charge has been a black box, this is a shock. Start preparing your data now. If your current system cannot produce a per-unit breakdown by category, you have two years to fix that.

For comparison, the SECR 2025 requirements for tenant energy reporting already pushed many operators toward better data. This Bill extends that logic to the entire service charge.

What this looks like in practice for your building

Take a 150-unit leasehold block in West London. Current ground rent: £400 per unit. Service charge: £3,200 per unit. Total annual income from ground rent: £60,000. That disappears in 2028.

Option one: raise the service charge to £3,600 per unit. That is a 12.5% increase. Tenants will notice. Option two: cut £60,000 from operating costs. That means reducing maintenance frequency, deferring planned works, or renegotiating contracts. Option three: a mix of both.

Whichever route you take, you need to explain it to tenants. The Bill gives them the right to challenge unreasonable service charges at the tribunal. If you cannot justify the increase with data, you lose.

This is where having real building data matters. If you can show that energy costs rose 8% last year, that insurance premiums went up 15%, and that the sinking fund is underfunded by £40,000, the increase is defensible. If you just send a letter saying "costs have gone up," expect a tribunal application.

For buildings in the GCC, this Bill does not apply directly. But the trend is clear: regulators everywhere are demanding more transparency in how buildings are run. Dubai's sewerage fee tripling and Abu Dhabi's hotel classification changes are part of the same global shift. Operators who have clean, auditable data will adapt faster.

Where to start

Two years sounds like a long time. It is not. Start now by auditing your current service charge model. Map every cost line to a category the Bill will require. Identify where ground rent income currently sits and plan for its removal. Review your debt recovery process and build a tribunal-ready case for any arrears.

If your building data lives in spreadsheets, consider a platform that can produce per-unit breakdowns automatically. HermanWa tracks energy, maintenance, and service charge data in one place — so when a tenant asks why their bill went up, you have the answer ready.

— The HermanWa Team