Leaseholders Fight Insurance Fees

Leaseholders’ Revolt: The Fight Against Millions in Secret Insurance Fees

Thousands of apartment owners across the United Kingdom are embarking on a significant legal campaign. They seek a financial settlement worth millions through a proposed legal case against the corporate owners of their residential buildings. This action confronts allegations that freeholders, the ultimate owners of the apartment blocks, have been systematically collecting undisclosed commissions on property insurance coverage, a practice described by campaigners as a national scandal.

The core of the dispute lies in claims that these commissions were secretly embedded within the insurance premiums. These inflated costs were then passed directly to leaseholders through their annual service charges. Many homeowners report being completely unaware of these arrangements. Lawyers leading the charge suggest that individual flat owners could be entitled to a compensatory sum reaching £2,000 each, while the companies involved firmly deny any breach of rules.

The Anatomy of an Alleged Secret Charge

The mechanism for these controversial payments involved insurance companies rewarding freeholders for purchasing their policies. Leaseholders contend that their freeholders, or the managing agents acting on their behalf, would add the commission sum to the building's insurance premium. The full, inflated amount was subsequently billed to the residents within their service charge obligations. This process, they argue, was conducted without their informed knowledge or consent.

To illustrate the situation, consider a residential building where the true cost of an insurance policy is £80,000. An insurer might offer a £20,000 payment to the building's owner for placing the business with them. The legal action alleges that leaseholders were then billed for the entire £100,000, which includes the commission. The residents would see only the final figure, with no breakdown revealing the hidden fee paid to their landlord.

Legal Action Targets Major Freeholders

The legal practice Velitor Law is spearheading the charge, having issued formal legal letters to four prominent freeholding companies. E&J Estates, Consensus Business Group, Long Harbour, and Ground Rents Income Funds have all been put on notice. The firm acts representing 2,500 apartment proprietors who have joined the collective action.

The legal basis for the claim is that the companies accepted payments for setting up insurance plans in a way that was unlawful. The lawyers argue this constitutes a form of secret payment, received without the prior and informed agreement of their clients, the leaseholders. The action aims not only to achieve a recovery of the commission amount but also any associated interest and additional Insurance Premium Tax that clients were charged because of the inflated premiums.

A Growing Movement of Homeowners

What began with a few thousand claimants has rapidly expanded into a much larger movement. Liam Spender, a solicitor at Velitor Law, has indicated that around 20,000 leaseholders have now registered for the collective legal action. This demonstrates the widespread nature of the issue and the growing determination among homeowners to seek redress for what they see as systemic exploitation.

Mr. Spender stated that the initial four companies were chosen for strategic reasons, including the volume of claimants associated with them and the desire to achieve a wide national spread. However, he also made it clear that the legal action is likely to widen its scope. He suggested that as many as twenty various landlord organizations could eventually be pursued as the case progresses and more homeowners come forward.

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Grenfell's Long Shadow on Premiums

The catastrophic Grenfell Tower catastrophe in 2017 sent shockwaves through the property and insurance markets. In its aftermath, the expense of insuring multi-occupancy residential buildings skyrocketed. Buildings identified as having hazardous cladding, in particular, saw their premiums soar to unprecedented levels, placing an immense financial burden on the flat owners who had to foot the bill.

This dramatic rise in insurance costs has had a significant knock-on effect concerning the commission issue. Since commissions are typically a proportion of the premium, higher premiums automatically lead to larger commission payments for freeholders and their agents. Lawyers argue this has created a perverse financial incentive, whereby building owners have effectively profited from the fallout of a national tragedy that made homes more expensive to insure.

Regulator Exposes Soaring Commissions

The UK’s financial regulator, the Financial Conduct Authority (FCA), has turned its attention to the sector. An April 2023 report from the authority uncovered damning evidence. The investigation revealed that insurance commission percentages on some policies could climb as high as 62%. The findings gave official weight to the long-held suspicions of leaseholders about the scale of these hidden charges.

The FCA’s data revealed a clear trend of escalating costs. The FCA discovered the mean commission given to insurance brokers rose from £1,785 for each policy during 2019, to £2,595 in 2022. This sharp rise occurred during a period when leaseholders were already facing immense financial pressure from other building safety costs. The report highlighted a systemic failure within the market to protect the end-payers.

FCA Finds Lack of 'Fair Value'

The FCA’s conclusions were stark. The authority wrote that the majority of brokers in its analysis failed to supply proper proof that they provide equitable value consistently on products for multi-occupancy structures. This criticism struck at the heart of the business model, suggesting that the arrangements often benefited intermediaries and freeholders more than the leaseholders who were ultimately paying for the service.

The report identified a fundamental flaw in the market structure: leaseholders, who bear the expense of the insurance, are not technically the insurer's customer. This means they have historically been excluded from the consumer protections that would normally apply. The FCA's findings prompted calls for significant reform to rebalance the system and ensure homeowners' interests are properly protected.

One Homeowner's Frustrating Fight

David Walsh, a proprietor of a residential unit in London’s south-west, personifies the struggle faced by many leaseholders. He states that for his 144-flat apartment building, the yearly building insurance fees have tripled over the last few years. They now stand at over £150,000, and the primary reason is an assessment identifying the structure as having hazardous cladding. This year, his personal service charge contribution amounts to nearly £5,000.

Frustrated by the escalating costs, Mr. Walsh attempted to get clarity from his building owner, E&J Estates, about the commission it was receiving. Despite his persistent efforts, he was met with a wall of silence and evasion. This experience is what ultimately prompted the 50-year-old to join the burgeoning collective legal action, seeking the transparency he was repeatedly denied.

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A Wall of Silence from Freeholders

Mr. Walsh's attempts to uncover the truth regarding the commissions were met with a series of frustrating responses. He recounted to the BBC how the company initially ignored his enquiries for several months. When a response did come, it was a simple refusal to comment. Later, the company’s representatives contested his interpretation of the situation, effectively shutting down any further discussion.

He explained that he was never able to get to the truth regarding the commission arrangements through direct communication. It was only after learning about the wider legal campaign that he realised his experience was part of a much larger pattern. He described his recent discovery of how the system operated as an unwelcome revelation, confirming his suspicions of a lack of transparency.

Companies Deny Wrongdoing

The freeholding companies targeted by the legal action have all responded to the allegations. A representative for Ground Rents Income Funds communicated that the company does not believe there are any legitimate grounds for a complaint against it. This sentiment was echoed by the other firms, who are preparing to contest the legal challenge robustly.

Penult Capital Partners, which handles insurance matters for E&J Estates, asserted that the various assertions by Velitor are fundamentally flawed. Similarly, Consensus Business Group communicated that any formal legal complaint will be defended forcefully. Homeground, which provides insurance products for Long Harbour, emphasised that its operations are controlled by the Financial Conduct Authority’s regulatory system and that it takes commissions that comply with that exacting regulatory structure.

New Rules Mandate Transparency

In response to the growing scandal and the FCA's damning report, new regulations came into force in January 2024. These rules were specifically designed to address the lack of transparency in the market. Brokers and insurers must now legally reveal the commissions they pay to freeholders and other intermediaries. This information must be made available to the homeowners who are paying the premiums.

This change represents a significant step towards empowering homeowners. By having a clear view of where their money is going, leaseholders are in a much stronger position to challenge costs they believe are unreasonable. The rules aim to end the era of secret payments and force a new culture of openness, ensuring that any fees are justifiable and transparent.

The Leasehold and Freehold Reform Act

Further legislative change has arrived through the Leasehold and Freehold Reform Act 2024. This wide-ranging piece of legislation, which received Royal Assent in May 2024, aims to overhaul the leasehold system in England and Wales. One of its key provisions is the banning of opaque and excessive buildings insurance commissions for freeholders and managing agents.

The Act intends to replace these commission-based models with a system of transparent and fair handling fees. This means that any charge passed on to leaseholders must relate directly to the work done to arrange the policy, rather than being a proportion of the premium. This reform is designed to sever the link between high insurance costs and the remuneration received by freeholders.

What the New Law Changes for Insurance

The 2024 Act introduces several measures to improve the insurance market for leaseholders. It will require landlords to provide clear and detailed breakdowns of insurance costs, making it easier for homeowners to scrutinise the figures. The ban on percentage-based commissions will be replaced by a system of "permitted insurance payments," with the specifics to be detailed in forthcoming secondary legislation following a government consultation.

However, while the Act marks a significant milestone, its main provisions are not yet in force. The new Labour government has stated its intention to implement the measures "at pace," but secondary legislation is required to bring them into full effect. This means that for now, many of the old practices can legally continue until the new rules are fully rolled out.

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Is the Reform Act Enough?

While the new legislation has been widely welcomed, it is not a complete solution. Crucially, the Leasehold and Freehold Reform Act is not retrospective. This means it will not provide a remedy for leaseholders who have been overcharged for years in the past. The only way for them to recover money they believe was unlawfully taken is through legal action.

This is why the collective legal action led by Velitor Law remains so critical. It seeks to address historical wrongs that the new law will not cover. The lawsuit will proceed in parallel with the implementation of the new reforms, creating a two-pronged attack on the issue of unfair insurance costs: one looking forward to prevent future abuses, and one looking back to compensate for past ones.

A System Under Fire

The insurance commission scandal does not exist in isolation. It is just one of many grievances that have led to widespread criticism of the leasehold system, which some campaigners have described as a "feudal" model of homeownership. For years, leaseholders have complained about a range of issues, including escalating ground rents, high fees for permissions to make home alterations, and a general lack of control over their own properties.

These systemic problems have created a power imbalance that heavily favours freeholders over homeowners. The insurance issue is seen by many as a particularly egregious example of this imbalance, where essential financial protection has been turned into an opaque and profitable enterprise at the expense of residents. The current legal and legislative momentum reflects a growing desire to fundamentally reform this contentious system.

The Cladding Crisis Compounded

The financial strain caused by hidden insurance commissions has been severely compounded by the ongoing building safety crisis. In the years following the Grenfell tragedy, hundreds of thousands of leaseholders have found themselves trapped in buildings with dangerous cladding. Many have faced life-altering bills for remediation work, often running into the tens of thousands of pounds per flat.

On top of these remediation costs, these residents have also had to bear the burden of soaring insurance premiums. The knowledge that these already-inflated premiums may have been further padded with hidden commissions has added insult to injury. For these homeowners, the fight against secret commissions is not just about fairness; it is a crucial battle to alleviate an almost unbearable financial pressure.

What Happens Next for Homeowners?

The path forward for leaseholders involves both legal and political channels. The collective legal action will continue to move through the courts, with lawyers seeking to reclaim commissions paid over at least the last six years, and potentially longer. This legal battle will be a key test case and could set a powerful precedent for the property sector.

Simultaneously, homeowners and campaigners will be watching the government closely to ensure the swift and effective implementation of the Leasehold and Free-hold Reform Act. The new government has promised to consult on the details of the commission ban shortly and introduce the necessary secondary legislation. The success of these reforms will depend on the fine print of these new regulations.