What are leaseholds? Labour plans to ban property managers who exploit tenants

Labour is reportedly considering banning property management companies from operating if they persistently rip off leaseholders.

The Guardian reported on Wednesday that shadow housing secretary Lisa Nandy is considering options to impose tighter regulation on the sector after complaints.

During a Commons debate, Wigan MP Ms Nandy called the practices “a scandal hiding in plain sight” and tweeted that she had voted for a change to the system.

However, Labour is yet to spell out what it will do exactly.

Her comments follow plans to abolish the leasehold system across England and Wales being scrapped after a clash between housing secretary Michael Gove and Downing Street.

Earlier this year, the Mr Gove promised to “fundamentally reform” the leasehold system, which he described as “outdated” and “unfair”.

He will next month outline a package of measures to protect the millions in England and Wales who own their homes in a leasehold, a type of property ownership which gives someone the right to live in a property for a set number of years.

But he will stop short of abolishing the system altogether, despite a pledge made in January to end it this year, according to The Guardian.

The reforms are set to include more power for tenants to choose their own property management companies, a cap on ground rents, and preventing building owners from forcing leaseholders to pay legal costs from disputes.

Ms Nandy said: “These reports suggest a department in chaos and a housing secretary that has lost control.

“In the space of a few months, this government has caved into backbenchers on housing targets, locked themselves in internal battles on making the basic improvements for renters and is now rowing back on leasehold commitments.”

What are leaseholds?

A leasehold is an ownership of the property but not the land on which it is built, which is owned by the freeholder.

When a person is a leaseholder, they also have ownership of the property for a set period of years, which can range from decades to centuries, depending on the length of the lease.

They will usually have to pay ground rent to the person who owns the land and will have to pay to extend the lease, which can become more expensive as it becomes shorter.

However, if the lease expires, technically ownership of the property also expires and ownership passes to the freeholder.

What are Michael Gove’s leasehold reforms?

Mr Gove will next month outline his leasehold reforms.

The measures are expected to include more power for tenants to choose their own property management companies, a cap on ground rents, and preventing building owners from forcing leaseholders to pay legal costs from disputes.

Mr Gove has promised for a long time to scrap the system, which he has described as “feudal”.

“In crude terms, if you buy a flat, that should be yours. You shouldn’t be on the hook for charges that managing agents and other people can land you with which are gouging,” he told Sky News earlier this year.

“We want to introduce legislation in the final parliamentary sessions of this calendar year to change the leasehold system.

“It’s not easy in legal terms because you’ve got a tangle of deals going back hundreds of years – unstitching all of that is difficult – but the fundamental thing is that a leasehold is an unfair form of property ownership. It is an outdated feudal system that needs to go.”

What is the leasehold reform act 2022?

The Leasehold Reform or Ground Rent Act 2022 came into force on June 30, 2022, and fulfils the commitment to “set future ground rents to zero”.

A ground rent is a property-industry term given to a rent that is usually paid annually by owners of residential long leases to their landlords.

However, according to the new act, if a person has bought a new lease, they will not be faced with financial demands for ground rent.