Ground Rent in Blocks: A Guide for RTM Directors

Ground rent is a fixed annual sum a leaseholder pays the freeholder simply for holding the lease. Nothing is provided in return — no repairs, no insurance, no management. That is what separates it from the service charge, and it is why an RTM company that has taken over management of a block usually has nothing to do with collecting it.

If you are a director of an RTM company or an RMC, the practical question is narrower than the headlines suggest: is ground rent your problem, and what do you tell leaseholders who ask about the reforms? This guide answers both.

This applies to England and Wales.

Ground rent is not a service charge — and the distinction is legal, not semantic

Directors of self-managed blocks get asked this constantly, usually by a leaseholder who has received two separate demands and wants to know why.

Section 18 of the Landlord and Tenant Act 1985 defines a service charge as an amount payable by a tenant of a dwelling as part of or in addition to the rent —

"(a) which is payable, directly or indirectly, for services, repairs, maintenance, improvements or insurance or the landlord's costs of management, and (b) the whole or part of which varies or may vary according to the relevant costs."

Ground rent fails both limbs. It buys no services, and it does not vary with what anything actually cost — it is whatever the lease says it is.

The consequences matter to you as a director:

The service charge protections do not apply to ground rent. The reasonableness test, the consultation requirements for major works, the 18-month rule — all of those attach to service charges. None of them constrain a ground rent that the lease validly reserves.
It does not belong in your service charge accounts. If ground rent passes through your company's hands at all, it is money collected on the freeholder's behalf, not block income. Mixing it into the service charge account is one of the more common presentation errors in self-managed block accounts.
A leaseholder disputing ground rent is not disputing your charge. Point them at the freeholder, not at you.

Our service charge accounting guide covers how the two should be presented separately.

Who actually collects it after RTM

This is the point most RTM directors get wrong in their first year.

Acquiring the Right to Manage transfers management functions to your company — not the freehold, and not the landlord's income streams. Section 96 of the Commonhold and Leasehold Reform Act 2002 defines those functions as functions with respect to:

"services, repairs, maintenance, improvements, insurance and management"

Collecting ground rent is not on that list. The freeholder keeps the reversion and keeps the right to the ground rent, and generally continues to demand it directly from each leaseholder. Your RTM company runs the building; the freeholder still owns it and still charges rent for the land under it.

Two practical implications:

Do not budget for ground rent income. It is not yours. Our guide to what the Right to Manage does and does not transfer covers the wider boundary.
Do not chase ground rent arrears. Arrears of ground rent are a matter between the freeholder and the leaseholder. Your arrears process covers unpaid service charges only — see the arrears recovery guide for what is in scope.

Where a block has bought its freehold, the position flips: the company is the landlord and does hold the right to any ground rent reserved by the leases. The freehold residents management company guide explains that structure.

What the 2022 Act changed — and what it did not

The Leasehold Reform (Ground Rent) Act 2022 is narrower than most people assume.

Section 4 sets the rule for a regulated lease:

"(2) The permitted rent is a peppercorn rent. (3) In this Act a 'peppercorn rent' means an annual rent of one peppercorn."

A peppercorn rent means, in practice, nothing is payable. But it only bites on a regulated lease, and section 1 defines that as a lease which

"(a) it is a long lease of a single dwelling, (b) it is granted for a premium, (c) it is granted on or after the relevant commencement day, otherwise than in pursuance of a contract made before that day, and (d) when it is granted, it is not an excepted lease"

Condition (c) is the one that matters. The Act came into force for most leases on 30 June 2022, and for retirement housing on 1 April 2023. It applies to leases granted on or after those dates — not to existing ones.

So in a typical block:

Flats sold on new leases since 30 June 2022 pay a peppercorn.
Flats on leases granted before then pay whatever their lease reserved, which may be £50, £250, or a figure that doubles every ten or twenty-five years.
The same building can therefore contain leaseholders paying nothing and leaseholders paying several hundred pounds a year, for identical flats.

If a leaseholder extends their lease under the statutory route, the extended term is granted at a peppercorn ground rent — which is one of the reasons lease extension is worth understanding even for directors who do not own an affected flat.

Where the £250 cap has actually got to

This is the question directors are being asked in 2026, and the honest answer is that it is not law yet.

The government published the draft Commonhold and Leasehold Reform Bill on 27 January 2026. Among its measures, the Bill would extend ground rent protection to existing leases by

"capping ground rents at £250 a year, changing to a peppercorn after 40 years"

The Housing, Communities and Local Government Select Committee began pre-legislative scrutiny of the draft Bill on 4 February 2026.

What that means precisely:

It is a draft Bill. It has not completed its passage and none of it is in force. Scrutiny stages move — check the Committee's own page for where it has got to before you rely on the position with leaseholders.
The cap is a ceiling on what can be charged, not a reduction applied to everyone. A lease reserving £120 a year is unaffected by a £250 cap.
Commencement timing has not been fixed, and reported expectations have already moved more than once.

The directors' takeaway is a boring one, and it is the right one: do not tell leaseholders their ground rent is capped. Tell them a cap is proposed, that it is in a draft Bill, and that nothing changes until it is enacted and commenced. Directors who over-promise on reform timetables spend the following year fielding complaints when the date slips.

What to actually do as a director

A short list, because there is genuinely not much for you to do here:

Check your own leases. Establish, once, what ground rent each flat's lease reserves and whether it escalates. Doubling clauses on older leases are the ones that cause problems on sale.
Keep it out of the service charge account. Separate line, separate treatment, separate demand.
Confirm who demands it. In most RTM blocks that is the freeholder or their agent, not you. Make sure leaseholders know where to send queries.
Answer reform questions with the current position. A £250 cap is proposed in a draft Bill; the peppercorn rule applies only to leases granted from 30 June 2022.
Flag escalating rents to leaseholders early. A leaseholder whose ground rent doubles in three years will want to know now, not at the point of sale.

Ground rent is one of the few areas of block management where the right answer is usually "not our department." Knowing that clearly, and being able to point at the section that says so, saves a surprising amount of time.

LevyBoard is building guided block management software for volunteer directors — service charge accounting, arrears tracking, and Section 20 compliance, designed for people who did not sign up to become property managers.

This guide applies to England and Wales. Scottish and Northern Irish property law differs significantly. This is general information, not legal advice — the reform position in particular is moving, so check the current status of the draft Bill before relying on it. For advice on a specific lease, contact a solicitor specialising in leasehold law or the free service at the Leasehold Advisory Service (LEASE).

Ground Rent in Blocks: A Guide for RTM Directors

Ground rent is not a service charge — and the distinction is legal, not semantic

Who actually collects it after RTM

What the 2022 Act changed — and what it did not

Where the £250 cap has actually got to

What to actually do as a director

Sources

Stop managing your block with spreadsheets

Related guides

Service Charge Budget Planning for Self-Managed Blocks: A Step-by-Step Guide

Running an AGM for Your RTM or RMC: A Practical Guide for Volunteer Directors

Leaseholder Rights in England and Wales: What You're Entitled To