England and Wales ground rent cap: New quid pro quo consultation — A human rights strategy in disguise?

The story so far

Ground rent reform in long residential leases has been gathering pace for several years now. On 30 June 2022, the Leasehold Reform (Ground Rent) Act 2022 came into force, restricting the ground rent chargeable on most new long residential leases to one peppercorn per year - effectively zero. Crucially though, that Act was prospective in nature: it did not affect long leases already granted in respect of residential premises which required the payment of ground rent, even those containing mechanisms which provided for the doubling of ground rent, meaning existing tenants received no immediate relief. 

The Government then turned its attention to existing leases. In November 2023, a consultation was launched on new proposals which went a step further and would cap ground rents in all existing leases - a retrospective re-writing of the agreement struck between two consenting parties by statutory intervention. Five options were put forward, ranging from a freeze at current levels to a reduction to a peppercorn. We blogged about that consultation at the time (see our 2023 blog), where we set out our concerns, not least the Government's then-stated position that "regardless of the option taken forward, we would not expect to compensate freeholders for lost revenue, nor do we expect freeholders would be able to capitalise the lost income stream through other means". 

Now, the Government has made its choice.

The Government's chosen approach

The consultation on the five possible options has produced a result, contained in the draft Commonhold and Leasehold Reform Bill. The Government has landed on a maximum value cap - set at £250 per annum without uplift in line with inflation - combined with a transition to a peppercorn after 40 years. The Government’s stated intention is to address affordability and marketability harms now, whilst bringing ground rents to an end altogether in the longer term. 

This will apply to most existing residential long leases in England and Wales granted before the Leasehold Reform (Ground Rent) Act 2022 came into force. 

So, the picture is coming into focus. But significant questions remain.

The Select Committee calls for faster implementation and halving the transitional period 

The Housing, Communities and Local Government Select Committee has carried out pre-legislative scrutiny of the draft Bill and has produced some pointed conclusions.

First, on the 40-year transition period. The Committee welcomed the proposal to cap ground rent at £250 per year but said it was not clear why the Government had selected a 40-year transitional period before ground rent becomes a peppercorn and questioned why a shorter period - specifically 20 years - would not also strike a fair balance. 

Second, on timing. The Government has indicated the £250 cap could come into force in late 2028, subject to parliamentary timing and secondary legislation. The Committee was not satisfied with this and, in a pointed recommendation, called for the final Bill to include a commencement clause bringing the £250 cap into force two months after Royal Assent, rather than leaving it to ministerial commencement. Its view was that the cap could come into force in late 2027, and that time spent considering a small number of exemptions was not in leaseholders' interests. 

Third, on human rights. The Committee concluded it was likely the ground rent provisions, if enacted in their current form, would face a legal challenge alleging breach of freeholders' rights under Protocol 1, Article 1 of the European Convention on Human Rights (the right to peaceful enjoyment of possessions). This will come as no surprise. We flagged this risk in our 2021 blog, noting the argument that retrospective capping without compensation could amount to a sequestration of a landlord's assets without balancing compensation. In particular, substantial ground rent portfolios have been acquired by pension funds, insurers and other investors over the years who have paid significant sums for the right to receive those income streams. Retrospectively reducing those rents to a peppercorn without compensation would effectively relieve those owners of part of the value of the property they purchased, raising obvious questions about whether the burden of reform is being imposed fairly and lawfully on a particular class of asset owner. Indeed, the Minister himself told the Committee that he "fully expects" a legal challenge once the legislation is passed. 

The Protocol 1, Article 1 challenge is not untested. A judicial review was already brought against the Leasehold and Freehold Reform Act 2024, in which claimants argued certain provisions were incompatible with Protocol 1, Article 1 due to alleged expropriation without adequate compensation - a challenge which the High Court dismissed in October 2025, finding the measures compatible with the ECHR. However, permission to appeal was granted on 1 April 2026, so the matter is far from concluded – we expect the Court of Appeal to hear the case in 2027 and, given the nature of the issues, whatever the result a further appeal to the UK Supreme Court must be a possibility. Against this background the Committee said the Government should take a responsible approach to balancing interests to maximise its prospects of successfully defending a judicial review. 

It is against this backdrop that the newest development - the quid pro quo consultation - takes on particular significance.

The quid pro quo exemption: a human rights lifeline?

The Government has now launched a consultation on a possible exemption from the £250 ground rent cap for so-called "quid pro quo" leases. These are leases where the leaseholder and freeholder specifically agree a higher ground rent in exchange for a corresponding reduction in the premium - whether on original grant or on lease extension. The thinking is clear: where the parties have explicitly agreed higher rent in exchange for at least a corresponding reduction in premium, it could be unfair to later restrict the agreed rent, because the leaseholder received something in return and might otherwise be receiving a windfall.

But the Government is wary of the exemption becoming a loophole. It rejects any broad exemption on the basis that ground rents "generally" form part of the price - it says it has not seen convincing evidence that in most cases leaseholders were given a clear choice - and it only wants an exemption where there is a specific, clear agreement trading rent for a premium discount. 

For the definition, the consultation points to the Leasehold and Freehold Reform Act 2024 definition (used in the enfranchisement context) as a helpful starting point, under which a quid pro quo lease is one where the premium was lower and the rent higher than would otherwise have been the case, and the value of paying the lower premium was broadly equivalent to, or greater than, the capitalised value of the extra rent. 

Some categories are expressly excluded. A high ground rent by itself is not enough - the exemption requires clear evidence the leaseholder was offered a genuine choice between different levels of ground rent in return for at least an equivalent premium reduction. A non-statutory lease extension where the leaseholder simply continues paying the pre-extension ground rent will not count: that is simply a continuation of the original lease terms, so the cap would apply as it would to the original lease. 

On the question of how "equivalence" is to be tested, the consultation proposes comparing the capitalised value of the ground rents with the premium reduction using the standard valuation method under the LFRA 2024, and using capitalisation rates to be prescribed in regulations in order to avoid disputes.

To prevent abuse, the Government is also considering requiring the freeholder to demonstrate the leaseholder had a real choice at the grant of the lease, with evidence requirements - for example, a written specification of the arrangement at or before grant showing the quid pro quo status, or a signed declaration by both parties that it was in fact a quid pro quo arrangement. Obviously, there is zero incentive for a tenant to sign such agreement simply so that the landlord can continue to charge its ground rent. The Government also notes it is taking a standard designed for properly advised transactions and applying it retrospectively across leasehold properties, many of which were granted years ago. The data in Annex 5 of the draft Impact Assessment for the draft Commonhold and Leasehold Reform Bill is stark: fewer than half of property listings even specified the ground rent. The suggestion that a landlord can produce neat contemporaneous evidence years after the grant that the leaseholder was offered a genuine choice is wildly unrealistic

Beyond this, the consultation goes further even when evidence requirements are met: it contemplates mandatory third-party scrutiny of quid pro quo arrangements, whether by the appropriate tribunal (on an application by the freeholder for a declaration that the lease is a quid pro quo arrangement), an accredited body, or through a registration requirement. The consultation seeks views on methods to scrutinise leases without overburdening the court system.

Prohibited ground rent demands would continue to be enforced via Trading Standards, and freeholders would be prohibited from knowingly providing false information to claim quid pro quo status.

Even if a landlord jumps through these hoops and the lease acquires the coveted quid pro quo exemption, the Government is not content to leave those arrangements alone. Its starting position is that quid pro quo leases, even if exempt from the £250 cap, should still have their ground rents capped at a peppercorn after 40 years - so that such rents do not continue indefinitely and prolong the two-tier market. The Government considers 40 years proportionate and sufficient for freeholders to recoup the forgone premium in most cases.

One of the trickier issues is what happens on sale. A successor purchaser may not have been involved in the original deal, may not have been offered a choice of rent level, and may not even have been told about the arrangement. The consultation raises the possibility of binding successors only where the freeholder can show the successor was aware and benefited from a reduced premium, but also flags the risk of a perverse incentive to sell in order to eliminate a quid pro quo obligation if successors are not bound.

So, is this consultation genuinely interested in quid pro quo arrangements or merely an attempt at protection against the inevitable human rights arguments? The Minister cited "quid pro quo leases" as one of the "remaining policy choices" still being worked through when explaining why these provisions could not simply commence automatically after Royal Assent. By carving out genuine cases where a leaseholder knowingly traded a lower premium for higher ongoing rent - and received equivalent value in return - the Government can argue it is not interfering with a pure exchange freely struck between commercially aware parties. Its hope might be that this is a harder target for a Protocol 1, Article 1 challenge and therefore helps to ring-fence the remaining cap provisions from attack. 

What’s next?

The Select Committee has urged the Government to make the necessary changes before publishing the revised Commonhold and Leasehold Reform Bill in autumn 2026. The consultation on the quid pro quo exemption is, it seems, a key part of that process.

The pace of reform - and the political pressure to deliver for leaseholders - means that landlords, investors and their advisers should be tracking this closely. The quid pro quo consultation is open for responses, and those who may be affected (whether original parties to historic leases or their successors) should consider engaging. The shape of the final exemption - its definition, its evidence requirements, and its treatment of successor purchasers - will matter in practice.

We will continue to monitor developments. In the meantime, if you would like to discuss any of the issues raised above, please do not hesitate to get in touch with a member of our team.

Written by Connal Dunsmuir, trainee, and Shanna Davison, Knowledge Counsel, Real Estate Dispute Resolution