Leaseholder Action has issued legal letters to four of the UK’s largest freeholders as part of a group claim to recoup unlawfully charged insurance commissions.
The claim could affect up to 900,000 homeowners who most commonly own flats in multi-occupancy blocks.
For years landlords, including companies whose ultimate beneficiaries include some of the wealthiest people in the UK, have charged flat owners hidden fees on their buildings insurance. These ‘secret’ commissions can amount to as much as 60% of the premium paid by the leaseholder.
The issuing of the legal papers – known as ‘Letters Before Action’ – is a significant step in the claim, brought by Velitor Law and funded by Balance Legal Capital.
The Letters Before Action explain how landlords owed various duties to leaseholders to act in on an ‘honest, impartial and disinterested basis in relation to the Landlord Defendants’ obligations in arranging insurance’. The key point being Landlords had a duty NOT to profit from service charges and NOT to charge more than the appropriate market rate for insurance. These duties owed by Landlords are contained in the common law and supplemented by the Landlord and Tenant Act of 1987.
The group action targets the landlords and the insurance brokers who have profited from the practice.
Thousands of homeowners have already joined Leaseholder Action, a ‘group action’ claim on behalf of homeowners who pay buildings insurance arranged by their landlords. A second tranche of legal letters to landlords will be issued before the end of the year.
One of the homeowners who has joined the claim is David Walsh who owns a flat in a block in West London.
“This is nothing short of a national scandal. Hundreds of thousands of leaseholders have been struggling with ever increasing service charges, mortgages, and like everyone else the cost-of-living crisis. So, it is even more shocking that our landlords have been milking us for cash by jacking up insurance premiums with hidden commissions. I’m looking forward to unscrupulous landlords being held to account and paying back what they owe.”
It is expected that around two dozen landlords, who control the leaseholds for close to 900,000 homes, may eventually be subject to the Leaseholder Action claim.
In addition, a firm of insurance risk advisers Artex, have been notified of legal proceedings to secure disclosure of their landlord clients.
Artex advised landlords to set up their own offshore insurance vehicles – known as ‘captive insurers’ – to protect their ‘revenue streams’ from hidden commissions after the practice came under scrutiny.
In promotional literature published in or around 2016 (‘An Alternative Approach to Commission for Property Owners & Managing Agents’) Artex advocated creating captive insurers as a way of profiting from providing homeowners with their buildings insurance. As the promotional material stated:
“Managing insurance placement on behalf of tenants can be an important revenue stream of commission-based income for both property owners and managing agents.”
The same material gave an example of how using a captive insurer could boost the value of landlord commission by up to 47%.
Artex subsequently deleted the 2016 promotional material from their website.
The lawyer leading the claim, Liam Spender, Counsel and Head of Real Estate Litigation at Velitor Law commented,
“We have now reached a critical milestone in the legal process to get homeowners their money back. Thousands have signed up enabling us to get to this point. If you are a homeowner in a block of flats, and your landlord arranges your buildings insurance, we’d encourage you to sign up to the claim. This first set of landlords are now on notice of this claim and they are now going to have to answer in court.”
Interested flat owners should sign up via www.leaseholderaction.com.
The claim seeks to recover a minimum of six years’ worth of commissions from landlords. However, an application to the court to suspend the usual period of limitation could see the claim stretch back as far as 1997 in some cases.
The Financial Conduct Authority has investigated secret commissions received by some insurance brokers between 2019 and 2021. It concluded that the average commission was 30% of the premium and that brokers shared an average 50% of their commission with third parties. There is evidence that some brokers were charging up to 60% in hidden commissions and that this commission was shared with third parties such as landlords and managing agents.
This practice is particularly egregious in the light of the ‘cladding scandal’ where insurance charges on affected buildings skyrocketed. This resulted in a ‘misery dividend’ boosting the hidden commissions and profits made by landlords and insurance brokers.
Velitor estimates the damages payable to each homeowner may be between £1,500 and £3,500. The final amount of damages will depend on where the building is, the overall level of commission, whether it is possible to claim for more than six years, and whether the court awards interest and allows recovery of Insurance Premium Tax.
ENDS
This news was covered in BBC News, The Sun, Insurance Times, Insurance Post, Birmingham Live, ICLG, Law360, Solicitors Journal and Inside Housing.
