’The plight of leaseholders and their unconscionable and unlawful treatment by some freeholders is nothing short of a national scandal,’ says leading solicitor
City solicitor Liam Spender has today (24 July 2024) launched a class action lawsuit over the “national scandal” of “hidden insurance commissions” paid by leaseholders over recent years.
Spender is being backed by his law firm Velitor, which has secured multimillion pound funding for the no win, no fee claims he plans to bring against freehold owners.
Freeholders of multioccupancy buildings or their property managing agents are the parties that place buildings insurance with brokers.
Leaseholders within these properties, on the other hand, are beholden to the choices of their freeholders where buildings insurance is concerned – despite the fact that the cost of the policy is covered by service fees levied on them by freeholders.
This setup is ripe for potential abuse. It allows freeholders or their agents to agree higher premiums for cover with brokers, benefiting the underwriter and allowing brokers to take a larger service fee themselves, which is then often cut back to the freeholder as a commission.
These secret commissions will become unlawful as a result of the Leasehold and Freehold Reform Act 2024, but the act is not yet in force and is not designed to be retrospective, meaning that leaseholders affected by his issue would not be automatically reimbursed.
The class action suit being brought by Spender is seeking to reclaim this form of hidden commissions going back at least six years, as well as any resultant increases in insurance premium tax (IPT), for leaseholders.
Late last year (29 September 2023), the FCA confirmed its planned measures to support leaseholders in the multioccupancy buildings insurance market – and, since, 1 January 2024, has mandated that insurance firms “act in leaseholders’ best interests, treat leaseholders as customer when designing products and will be banned from recommending an insurance policy based on commission or remuneration levels”.
Biba also supported the banning of this practice and committed to providing specific guidance to brokers working in the multioccupancy buildings insurance sector to make sure that leaseholder interests were taken into account alongside the freeholder’s.
National scandal
Speaking to BBC Radio 4’s Today programme this morning, Spender explained that charging secret commissions on insurance premiums was unlawful, as leaseholders were not told and had not given their “informed consent”.
Read: Briefing – FCA surprised at high commission levels for multi-occupancy buildings insurance
Read: Gove brings new bill to Parliament to ban ’exorbitant’ commissions
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Spender has previously challenged a £100,000 insurance commission at Saint David’s Square in London Docklands and has provided evidence to Parliament on the issue.
Last February (2023), the FCA noted that, between 2019 and 2022, £1.6bn was paid out by leasehold homeowners in insurance premiums, with the estimated value of an average hidden commission placed at 30%.
Spender explained that the amount of commission paid in this way to freeholders by insurance brokers could exceed £480m just between 2019 and 2022.
He added: “Through the group action, Velitor is now looking to help others recover secret commissions they may have paid.
“The plight of leaseholders and their unconscionable and unlawful treatment by some freeholders is nothing short of a national scandal. This legal action will be a significant step in addressing it.”
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