Freeholders are expected to fight for compensation over plans for ground rents to be capped for millions of leaseholders.
Ground rents paid by leaseholders will be limited to £250 a year from 2028 before reducing to a peppercorn, or nominal, rent after 40 years.
New leasehold flats will also be banned, while existing leaseholders will get the right to switch to commonhold.
The Press Association said it understands some of the UK’s biggest insurance groups are speaking to the Government about the effect of the reforms, while investors might seek compensation over possible losses
However, leaseholders dismissed legal threats as “sabre-rattling” and said a challenge was unlikely to succeed.
There are an estimated 3.8 million leasehold properties across England and Wales which pay ground rent charges for the right to occupy a property through a lease for a limited number of years.
Leaseholders paid more than £600m in ground rents last year and are expected to save up to £12.7bn over the entire lease term due to the cap, according to the Government.
Legal challenge ‘could arise’
The Residential Freehold Association (RFA), which represents freeholders, claimed the ground rent cap was a “wholly unjustified interference with existing property rights” which will “seriously damage investor confidence in the UK housing market”.
The group accused the Government of tearing up “long-established contracts” which would “hinder building safety projects”.
The RFA claimed that compensation could exceed £27bn, pointing to a previous government impact assessment.
However, a freeholder source said the figure was based on the ground rent cap being retrospective, which it is not in Labour’s reforms. Meanwhile, leaseholders said the scenario analysed by the previous Conservative government had involved a reduction to £0 rather than a £250 cap.
Danny Pinder, director of policy at the British Property Federation, told The i Paper it is “not unimaginable” that a “legal challenge could arise here”.
He pointed out that freeholders had previously brought a legal challenge against proposals in the Leasehold and Freehold Reform Act which were not as costly to them.
Pinder said the federation supports the move to address “rapidly escalating ground rents” but warned that the cap will “interfere with investments made by pension funds and institutional investors over many years and undermine the Government’s pursuit of investment in this country”.
He said compensation should be given to those that have “invested in good faith” and who “continue to fund everyone’s pensions”.
Investment manager M&G warned of a £230m one-off hit, saying it has £722m in ground rent assets.
A spokesperson for the Association of British Insurers said they support proportionate leasehold reform but raised concerns that the changes “undermine confidence in contract certainty” and could deter investment in the UK.
The RFA estimates that pension funds and insurance companies have around £15bn invested in ground rents.
But Sebastian O’Kelly, chief executive of the Leasehold Knowledge Partnership, a campaign group, said no evidence is publicly available to support the figure and that many freeholds are owned by private equity firms.
Previous legal action
O’Kelly added he believes claims of big taxpayer bills are “sabre-rattling” from freeholders and said a previous attempt to take the government to court over ground rent reforms had failed.
In October 2025 the High Court rejected the previous legal challenge by freeholders, who claimed that proposed measures infringed on their property rights under the European Convention on Human Rights.
The six judicial review claims were brought by investors over changes to so-called “enfranchisement” rules which included limits on ground rents.
The Grosvenor and Cadogan Estates formed one group of claimants. The ARC Time Freehold Income Fund, the Ground Rents Income Fund and PGIM formed another.
Separate claims were made by Long Harbour, Albanwise Wallace, John Lyon’s Charity and the Portal Trust.
Although they lost, the legal challenges have contributed to years-long delays to the proposals.
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