Before they were elected in July 2024, Labour promised to end the “feudal” leasehold system – capping ground rents and abolishing costly “marriage value” fees for homeowners.
But the reforms now appear caught in a tug-of-war between some ministers and the Treasury, which is reportedly concerned about the impact of a cap on pension funds which own freehold properties.
Millions of leaseholders could be affected by the outcome of this struggle, while MPs and campaigners warn that backing down from the policy could spark a rebellion in Parliament.
Let’s unpack the reforms – and how pension funds could cause ministers to scrap them.
What was promised
The Conservative Party effectively ended ground rents for most new-build, leasehold homes in 2022.
However, in their 2024 election manifesto, the Labour Party went further – and promised to “act where the Conservatives have failed and finally bring the feudal leasehold system to an end”.
Here are the details of the Government’s proposed reforms:
Tackle “unregulated and unaffordable” ground rent charges for existing leaseholders by instituting a cap, meaning there would be a legal limit on how much freeholders can charge each year, regardless of what the original lease says; End the practice where homeowners on private estates are forced to pay high, unregulated maintenance fees for communal areas; Scrap the “marriage value” fees applied when renewing a lease. Properties with short leases are worth less than those with long leases, so extending a lease increases the property’s value. Under current law, leaseholders must give the freeholder half of that increase in value – known as the “marriage value” – which can add tens of thousands of pounds to the cost of renewal.Why it matters
It is estimated that there are almost five million leasehold homes in England alone – which are home to millions of people.
These leaseholders – who don’t, unlike freeholders, own the property and land permanently – pay expensive ground rents that can rise over time, making homes harder to sell or remortgage.
Leaseholders must pay this fee on top of a service charge and their mortgages.
Some particularly problematic leases allow freeholders to double ground rent every 10 years, causing bills to run into tens of thousands of pounds over time. These have in some cases forced leaseholders into financial ruin and made homes impossible to sell.
One leaseholder from Salford told The i Paper that doubling ground rent meant their charges had gone up from £250 a year to £500 and then £2,000. The flat itself was bought for £125,000.
Another said that her ground rent would reach more than £1m a year in 50 years’ time without a cap.
The Government has promised to cap ground rents and abolish costly “marriage value” fees for homeowners (Photo: Jason Alden/Bloomberg via Getty Images)What leasehold reform means for pension funds
Ministers had been looking at capping what freeholders can charge at a maximum of £250 a year.
But, Treasury officials are understood to be pushing for this cap to be dropped over concerns this would affect pension funds that own freehold properties.
Britain’s leasehold-freehold homeownership system means that blocks of flats, in particular, are owned by freeholder landlords. Some of these are major institutional investors, others are backed by pension funds.
The Residential Freehold Association – the trade body for freeholders – estimates that pension funds have invested more than £15bn in residential ground rents, and the total value of investment in UK ground rents is thought to be close to £30bn.
Pension funds often invest in freeholds because ground rents offer predictable, long-term income. Funds need to pay retirees for decades, and ground rents are attractive because they are legally enforceable, backed by land and property, and often linked to inflation, providing a relatively low-risk income stream.
Labour’s proposed reforms could sharply reduce the value of these assets – and subsequently have a major impact on the returns of some pension funds.
The freehold sector has argued that these changes amount to retrospective interference with property rights. Pension-backed funds and Freehold Associations took a case to court last year, claiming that reform unfairly targets long-term investments.
However, in October 2025, the High Court dismissed a £5m judicial review brought by freeholders, including pension-backed funds.
The Court ruled that Parliament is entitled to reform leasehold law in the public interest, even if it affects investors.
Is this the next Labour rebellion?
The pledge to cap ground rents appears to have become caught in a wider internal Government row.
The i Paper exclusively reported last month that plans to cap ground rents at £250 a year could be scrapped because of concerns among Treasury officials.
They are said to be concerned that a cap would damage investor confidence and reduce the value of freeholds owned by institutional investors, including pension funds.
The news, however, has sparked significant backlash from campaigners and Labour MPs. Former housing secretary Angela Rayner, who was leading the reforms before she resigned in September, has urged Sir Keir Starmer to stick with the plans to scrap ground rent.
Writing for The Guardian, she said that ministers were being “subjected to furious lobbying from wealthy investors trying to water this manifesto commitment down”.
Appearing to address the Treasury concerns directly, Rayner added: “There are those who argue we cannot act on our promise as it could risk a backlash from investors, including pension funds. It’s hardly surprising – the system works just fine for them.
“They get an annual return for doing absolutely nothing, they can raise ground rents and pile up service charges without transparency and with total impunity, regardless of the devastation it causes to families.”
What happens next
The Government had initially said a draft bill on the matter would be published by the end of 2025, but last month, housing minister Matthew Pennycook confirmed it would be unveiled sometime in the new year.
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The delay has stoked concerns that the Government could backtrack on its pledge, with dozens of Labour MPs reportedly expected to rebel if that happens.
Justin Madders, a former minister and Labour MP for Ellesmere Port, told the BBC that his party had “a clear manifesto commitment” and “a lot of backbenchers feel very strongly about this”.
He added that he would be willing to personally rebel on the issue.
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