Ground Rent and Leaseholders: Demands, Section 166 Notices and Recent Reforms

Ground rent is a payment many leaseholders make each year to the freeholder under the terms of their lease. It is separate from the service charge, which pays for running the building. This guide explains how ground rent must be demanded and the reforms that apply, or are proposed, in England and Wales.

What ground rent is

Ground rent is set by the lease. It might be a fixed sum, a peppercorn (in effect, zero), or a sum that increases over time, for example by doubling at intervals or rising with an index. The lease says how much is payable, when and to whom. Ground rent is income for the freeholder, separate from payment for any particular service.

How ground rent must be demanded: section 166

Under section 166 of the Commonhold and Leasehold Reform Act 2002, a leaseholder of a long lease of a flat is only liable to pay ground rent once the landlord has given a notice relating to the payment. The notice must:

• State the amount due and the date on which it is to be paid
• Give a payment date of between 30 and 60 days after the date the notice is given (and on or after the date payment would be due under the lease)
• Be in the prescribed form: the Landlord and Tenant (Notice of Rent) (England) Regulations 2004 apply in England, and the Landlord and Tenant (Notice of Rent) (Wales) Regulations 2005 in Wales

The prescribed form also includes details such as the period the rent covers and the name and address of the person to whom payment should be made. A demand in the correct form, sent at the right time, keeps ground rent collection clear for everyone.

New leases: the peppercorn rule

The Leasehold Reform (Ground Rent) Act 2022 limits ground rent on most new long residential leases in England and Wales to a peppercorn. It applies to regulated leases granted on or after 30 June 2022, or 1 April 2023 for retirement homes. Some leases are excluded, such as business leases, community-led housing and certain home finance products, and leases granted under a contract made before the relevant date. Landlords are also prevented from charging an administration fee for collecting a peppercorn rent, and enforcement authorities can impose financial penalties of between £500 and £30,000 for charging prohibited rent.

The 2022 Act applies to new leases. Existing leases keep their ground rent terms, and statutory lease extensions for flats already carry a peppercorn rent for the extended term.

Existing leases: what has been proposed

In January 2026 the government published a draft Commonhold and Leasehold Reform Bill. The draft Bill proposes capping ground rents on existing leases at £250 a year, changing to a peppercorn after 40 years, along with wider reforms including ending the use of leasehold for most new flats and replacing forfeiture with a new lease enforcement scheme. The draft Bill has been through pre-legislative scrutiny and is expected to be introduced to Parliament. These are proposals until Parliament passes the Bill and the provisions are brought into force, so check the current position before relying on them.

Ground rent and the Leasehold and Freehold Reform Act 2024

The 2024 Act provides for changes to the price of lease extensions and freehold purchases, where ground rent affects the valuation, and gives leaseholders the option to extend a flat lease to 990 years with a peppercorn ground rent. Those valuation changes are subject to commencement. See our guide to the 2024 Act for what is in force.

Ground rent and the service charge: the difference

Ground rent and service charges are often demanded together, but they are separate payments with separate rules. The service charge pays for the running of the building and must be reasonable, with the statutory summary of rights accompanying each demand. Ground rent is a fixed or formula-based sum set by the lease and is demanded using a section 166 notice. Keeping them clearly separated on statements helps leaseholders see exactly what they are paying for.

Ground rent when you sell or remortgage

Buyers, lenders and their solicitors look closely at ground rent, particularly where it increases over time. Have the lease, recent section 166 notices and payment records ready, and ask the managing agent for the leasehold information pack early in the process. Clear, accurate information helps sales and remortgages proceed smoothly.

Reading the ground rent clause in your lease

Ground rent clauses vary widely. Some set a fixed sum for the whole term; others provide for increases at set intervals, by a fixed amount, by doubling, or in line with an index such as the Retail Prices Index. Check how often the rent can change, how the new figure is calculated and when the next change is due. If the clause is unclear, or the rent is due to rise significantly, a specialist leasehold solicitor can explain the effect and your options.

Practical tips for leaseholders

• Check your lease for the amount of ground rent, any review or increase clauses and the payment dates
• Keep copies of section 166 notices and receipts for payments
• If you are selling, your buyer's solicitor will ask about ground rent, so have the information ready
• If a demand looks incorrect, ask the landlord or managing agent to explain it, and seek advice where needed
• The Leasehold Advisory Service (LEASE) provides free initial advice for leaseholders in England

For RMCs and share-of-freehold buildings

Where leaseholders own the freehold through a company, the ground rent is paid to their own company. Many such buildings choose to keep demanding it correctly and use it towards company costs, while others vary their leases to a peppercorn with legal advice. Either way, clear records help when flats are sold.

Westbridge issues ground rent demands in the correct prescribed form where we are instructed to collect them, and keeps leaseholders informed of changes in the law. See our legal and company secretarial service, or get in touch.