Renters’ Rights Act 2025: The end of the ground rent trap

The Renters’ Rights Act 2025 has received Royal Assent, so before the end of the year the leasehold related provisions in part one, chapter two will take effect. This change removes a long-standing problem that has affected property lawyers, lenders, and leaseholders for years: the ground rent trap.

From the 27th December, long residential leases will no longer risk being treated as assured shorthold tenancies (AST) simply because of the level of ground rent.

How the trap was created

For many years lawyers have had to manage the technical problem created by the Housing Act 1988, which provides that a residential lease can become an AST if the tenant is an individual and the annual ground rent is at least £250 (£1,000 or more in London).

When the legislation was drafted this did not cause difficulty because ground rents were traditionally a nominal sum; older leases often reserved rents of only a few pounds each year. The problem only emerged after developers began granting long leases with significantly higher ground rents.

These modern leases often included escalating rent clauses which meant the rent could quickly exceed the thresholds.

Why this caused real risk to leaseholders and lenders

When a long lease became an AST, the landlord gained access to the statutory possession procedure under Section 8 of the Housing Act 1988. The danger was Ground 8, Rent Arrears: if at least three months of rent was more than three months overdue, the court had no discretion and had to order possession.

This was not forfeiture and relief was not available so usual protections did not apply, and neither the leaseholder nor their mortgage lender needed to be compensated. In practice, a landlord could recover possession of a long residential lease through a procedure intended for short term tenants simply because ground rent was unpaid.

Understandably, lenders were unhappy and conveyancers were left explaining the issue over and over again, seeking indemnity policies, or negotiating lease variations simply to avoid the assured tenancy trap – all of which slowed down transactions and increased costs for clients.

What the Renters Rights Act 2025 changes

The Renters’ Rights Act 2025 abolishes ASTs entirely and rewrites the assured tenancy regime. Chapter 2 of the act inserts a new rule into the Housing Act 1988 confirming that a fixed term tenancy of more than 21 years cannot be an assured tenancy. As long leases cannot be assured tenancies they also cannot become ASTs.

If a tenancy is not assured in the first place, the landlord has no access to Section 8 statutory possession proceedings for rent arrears under Ground 8. The ground rent level becomes irrelevant, and the legal status of long residential leases finally matches commercial and practical reality.

The commencement section of the act provides that this part of the legislation takes effect two months after Royal Assent. Royal Assent was given on 27 October 2025, which means that on 27 December 2025 the AST trap will disappear. From that point, long residential leases will remain long residential leases.

Why this matters for conveyancers and clients

For conveyancers, this marks the end of countless hours spent discussing AST risk with lenders, producing indemnity policy requests, explaining statutory possession grounds to clients, or negotiating lease variations. For leaseholders, it restores certainty and ensures that a home bought for hundreds of thousands of pounds cannot be taken through a statutory eviction procedure designed for short term tenants.

By the end of this year the ground rent trap will be consigned to history. After years of frustration the law will finally align with some common sense.

The information provided in this article reflects only a narrative of some elements to consider on the topic. The article does not contain considered legal advice and should not be relied upon as advice.