Leaseholders launch authorized case over ‘hidden’ insurance coverage commissions

Hundreds of thousands of leasehold property owners may have been paying hidden insurance commissions to their freeholders, a legal case alleges.

An estimated 900,000 leasehold flats owned by the largest freeholders across England and Wales may have been affected, according to the law firm, Velitor.

It has launched a multi-million pound class action legal case against what it refers to as the ‘top 20 private ground rent investors and their insurance brokers,’ though it has not named the firms publicly. 

While leaseholders are often charged for buildings insurance each year, the case claims these insurance premiums often include a hidden ‘commission’ which is split between the freeholder and the insurance broker.

Class action: Estimates suggest the ‘secret insurance commissions’ may affect up to 900,000 flats owned by the largest freeholders

Velitor alleges that leaseholders are then paying these commissions without realising they are being charged – and paying more for insurance than they should be.

The law firm is offering leaseholders the chance to bring a no win, no fee claim against freeholders and insurance brokers for unlawfully charging these hidden commissions on building insurance premiums.

It is thought the malpractice has been going on for years in buildings across England and Wales.

If successful, a claim could see leaseholders winning back between £1,500 and £3,500 on average, according to the leaseholder charity, Leasehold Knowledge Partnership.

The charity also revealed that during the first day the claim was publicised, more than 1,700 leaseholders signed up.

Although ‘secret’ commissions will become unlawful as a result of the Leasehold and Freehold Reform Act 2024, the Act is not yet in force and is not retrospective. 

Earlier this year, The Financial Conduct Authority (FCA) reported that between 2019 and 2022, £1.6 billion was paid out by leaseholders in insurance premiums. 

The FCA estimated the average ‘hidden’ commission charged was 30 per cent of the premium, and there was evidence some leaseholders were facing an uplift of up to 60 per cent. 

Since the Grenfell Tower tragedy in 2017,  the costs of insurance – and therefore the commissions charged to leaseholders – have soared. 

Giles Grover, a leaseholder, investigated the insurance commission charged to residents in his own block in Manchester. 

His home was found to have the same type of cladding as Grenfell Tower and, as a result, the building’s insurance premiums rose 500 per cent.

Legal case: Homeowners who have been paying ‘secret’ insurance commissions to the owners of their freeholds are getting a chance to recover some of their money

He said: ‘It is disgraceful that, while residents were dealing with unsafe cladding in the aftermath of the Grenfell tragedy, insurance brokers and freeholders were splitting hidden commissions on our building insurance. 

‘In just three years our insurance costs rose more than five times to over £440,000 a year. 

‘Charging high rates of commission on such huge sums for doing next to no work will have made them a packet. 

‘I would say they are nothing but freeloaders, profiting from the misfortune of others.’

Velitor says leaseholders were never told and therefore have not given ‘informed consent’ and that the commissions paid should be returned to the leaseholders.

Liam Spender, head of real estate litigation at Velitor, recently successfully challenged a £100,000 insurance commission taken by his own freeholder, relating to the block of flats where he lives. 

This, he said, alerted him to the wider issue faced by many other leaseholders across England and Wales.

‘I was able to expose and recoup the secret commissions through which freeholders took money from unknowing leaseholders,’ said Spender.

‘Through this 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.’

Spender says they are expecting to bring claims against the top 20 private ground rent investors and their insurance brokers, but will also consider claims against other landlords.

He says the large purpose built developments within cities are likely to have paid the highest charges.

Spender added: ‘There are affected buildings in every town and every city in England and Wales.

‘But the worst affected blocks are larger ones in the biggest cities like, London, Manchester and Leeds.

‘That is because the commission is normally a percentage of the insurance premium and those buildings have higher premiums.

‘The insurance is arranged by the target landlords across multiple buildings, so all buildings under landlords engaging in this practice are affected.’

How can you make a claim?

The legal action to be pursued in the High Court on behalf of any leaseholders who opt in. It will seek to reclaim the hidden commissions, any resultant increase in Insurance Premium Tax, and interest going back at least six years.

It is also hoped the six-year period could be extended if the High Court agrees.

The claim is open to any existing leaseholder or anyone who has owned a leasehold property since 1997.

There is no charge for joining the claim and there is no risk to leaseholders, according to Velitor. 

Velitor and its funders will receive 40 per cent of any damages awarded by the courts. 

To take part in the claim leaseholders can sign up here.

Velitor and its barristers say they will be working at discounted hourly rates. In addition, successful claimants will pay the funder £100 of their damages for expenses, rising by £10 for each year that the action is active. 

The claim is backed by ‘after the event’ insurance to cover any cost risks. If the claim is not successful, then claimants will pay nothing.