On 27 January 2026, the government published its draft Commonhold and Leasehold Reform Bill and confirmed what many in the property industry had feared: ground rents on existing residential leases in England and Wales will be capped at £250 per year, before reducing to a peppercorn — effectively zero — after 40 years. The Residential Freehold Association has estimated that this single measure could wipe out £18.7 billion from freehold investment values across the country. For investors who own blocks of flats and rely on ground rent income as part of their return profile, this is not a distant regulatory concern. It is a direct financial event that demands immediate attention.

What the Cap Actually Does to Your Numbers

Ground rent has long functioned as a reliable, low-effort income stream for freehold investors. For those who acquired multi-unit freehold blocks — particularly older converted properties or purpose-built flats — the ground rent element often represented a meaningful component of both annual yield and capital value. The logic was simple: predictable, contractually guaranteed income streams attract a valuation multiplier. A block generating £10,000 per year in ground rent, valued at a 15x multiple, was worth £150,000 in freehold income value alone.

Under the cap, any leaseholder currently paying more than £250 per year will see their rent reduced to that ceiling once the legislation comes into force — expected in late 2028. After 40 years from implementation, all qualifying ground rents fall to a peppercorn regardless of what the original lease says. Government estimates suggest between 770,000 and 900,000 leaseholders currently pay above £250 per year, with 490,000 to 590,000 of those concentrated in London and the South East. In 2025, leaseholders paid a combined £600 million in ground rents nationally. A significant portion of that revenue is about to be permanently reduced.

The valuation impact is asymmetric and immediate. Even though the cap does not take legal effect until 2028, sophisticated buyers and lenders are already repricing freehold acquisitions to reflect the post-cap income trajectory. Freehold reversions that once attracted competitive bidding are now being discounted, and in some cases lenders are declining to fund acquisitions where the income case depends heavily on escalating ground rent clauses.

Why MUFB Investors Are Particularly Exposed

Investors in multi-unit freehold blocks face a more complex picture than straightforward buy-to-let landlords. The appeal of the MUFB model has always been the combination of rental income, title splitting upside, and — in older stock — the freehold reversion with ground rent. Many blocks were acquired with a blended return in mind: income from residential lettings plus a capital gain engineered through the title split process, with ground rent providing a baseline income floor.

Where ground rent formed a meaningful part of that return calculation, investors need to rerun their numbers. A block acquired at a price that assumed £500 per unit per year in ground rent across ten flats — £5,000 annually — now faces a hard ceiling of £2,500 in total ground rent income from that same block. That is not a rounding error. Depending on the multiple applied at acquisition, it represents a substantial reduction in the recoverable value of the freehold interest itself. Investors who used bridging finance to acquire blocks and planned to refinance off the back of a blended income and capital value case should model what their exit looks like with a deflated ground rent income stream before that refinance is due.

The draft Bill also includes provisions that accelerate leaseholder enfranchisement rights and simplify the route to collective freehold purchase. This compounds the exposure for freehold investors: not only is the income stream being capped, but leaseholders are being given cleaner and cheaper routes to buy out the freehold entirely, further eroding the long-term hold value of the reversion.

What Investors Must Do Before 2028

The first step is a portfolio audit. Every block should be reviewed to identify which units carry ground rent obligations above £250 per year and what the aggregate income reduction looks like at the point the cap lands. This is not purely a finance exercise — legal review of lease terms is also essential, because some leases contain escalation clauses or indexed increases that were expected to push ground rent higher over time. All of that upside is now capped. Any business plan that factored in compounding ground rent growth needs to be rewritten.

Second, investors should engage with leaseholders proactively on lease extensions now, before the legislative framework shifts further. Under the current statutory route, lease extension premiums are calculated using a formula that includes a ground rent element. As ground rents are capped and eventually abolished, that component of the premium reduces. Freeholders who want to negotiate informal extensions — often at a premium above the statutory floor — still have a window to do so before leaseholders become aware that waiting for the new legislation may work in their favour. That window is narrowing.

Third, acquisition strategy needs to be recalibrated. Buying a block purely on the basis of its ground rent roll is no longer a defensible investment thesis. The case for MUFB investment remains strong — but it rests on rental income yield, title splitting value uplift, and operational execution. Ground rent should now be treated as a diminishing residual rather than a core return driver. Investors who sharpen their focus on gross rental yield, void management, and the net spread above financing costs will be better positioned than those who have been relying on the ground rent component to carry the return.

The Broader Picture and What Comes Next

The £250 cap is not the end of the reform agenda — it is a staging point. The draft Bill also proposes making commonhold the default tenure for new flats, banning new long leasehold houses, abolishing forfeiture, and simplifying the collective enfranchisement process. Taken together, these changes represent the most significant restructuring of residential property law in a generation. The direction of travel is clear: the government is systematically dismantling the financial architecture that made freehold investment in residential blocks attractive to institutional capital and private investors alike.

For investors who operate in the MUFB and title splitting space, the strategic response is not to exit the asset class — the fundamentals of residential property investment remain compelling. It is to ensure that every acquisition, refinance, and business plan is modelled on a post-ground-rent basis. The investors who adapt their underwriting now will be buying at prices that reflect the new reality. Those who are slow to adjust will find themselves holding assets that are harder to finance, harder to sell, and generating less income than their original models assumed. The 2028 deadline may feel distant. The market is already pricing it in today.