In recent developments, a significant number of flat owners are initiating a legal claim against various companies that manage their apartment blocks over undisclosed insurance charges. This situation arises as thousands of leaseholders are collectively pursuing legal action that seeks millions of pounds in compensation from the freeholders—those who own the buildings associated with these flats.
According to legal documentation reviewed by BBC News, the allegations suggest that many freeholders have accepted hidden commission fees for organizing buildings insurance policies. These claims assert that the commissions were secretly included in the service charges that leaseholders were required to pay, often without their knowledge or consent. Alarmingly, these undisclosed fees could amount to thousands of pounds per flat.
Lawyers representing the leaseholders believe that each flat owner could potentially receive up to £2,000 in compensation. While the companies named in these legal claims assert that they have not violated any regulations, the concerns raised by the leaseholders cannot be ignored.
The crux of the issue lies in the relationship between the freeholders and the insurance providers. The fees in question are purportedly paid by insurance companies to the freeholders as commissions for securing policies. Disturbingly, leaseholders allege that these commissions were then added to the overall cost of the buildings insurance, which was subsequently passed on to them as part of their service charges without their awareness. As an example, if a building’s insurance were billed at £80,000, the insurance provider might pay the freeholder £20,000 in commission. The leaseholders claim that they are then charged the full amount of £100,000 as a cost, without being informed that the insurance rate included this commission.
Legal firm Velitor Law has been proactive in addressing this matter. They have sent correspondence to major freeholders, including E&J Estates, Consensus Business Group, Long Harbour, and Ground Rents Income Funds, on behalf of 2,500 flat owners who are part of this collective lawsuit. In their letters, they contend that the commissions received by these firms are “unlawful” since they were obtained without the informed consent of the flat owners. The plaintiffs are not only requesting the return of these commissions but also any accrued interest and associated Insurance Premium Tax that they might have paid.
The backdrop of this growing concern is the drastic rise in insurance costs for apartment blocks, particularly following the Grenfell Tower tragedy. Given that commissions are often a percentage of the insurance premiums, it is suggested that property owners have, inappropriately, benefitted from the situation exacerbated by this unfortunate disaster. Liam Spender, from Velitor Law, indicates that the scope of the lawsuit may expand as interest in the class action grows; currently, they have noted 20,000 individuals signing up, and there could be as many as 20 different landlord groups targeted for legal action.
In a related report from the Financial Conduct Authority (FCA) published earlier in April 2023, it was noted that commission rates on insurance could soar to as high as 62%, with average commissions for insurance brokers rising significantly since 2019. The implications of these findings suggest widespread issues within the insurance brokerage landscape, particularly affecting multi-occupancy dwellings.
David Walsh, a flat owner in southwestern London, vividly illustrates the pressing nature of this issue. His building’s insurance for a block that includes 144 flats has escalated to over £150,000 annually, primarily attributed to the dangerous cladding assessments. His own service charge has swelled to nearly £5,000 this year. Despite his diligent inquiries directed at freeholder E&J Estates regarding commission details, Mr. Walsh has received either incomplete responses or none at all.
He expresses his frustration at being left in the dark regarding how these commissions are structured and is now participating in the class action, shocked to learn the extent of financial manipulation involved. The freeholders have maintained a defensive posture, with representatives denying any valid basis for claims and asserting that their services adhere to regulatory frameworks mandated by the Financial Conduct Authority.
The unfolding situation is a stark reminder of the complexities and challenges that leaseholders face, raising profound questions about transparency and fairness within the property management and insurance sectors. As these legal proceedings take shape, it will be critical to monitor their outcomes, potentially heralding a shift in how financial interactions between freeholders and insurance companies are conducted.
