Homeowners who have been unwittingly paying secret insurance commissions to the owners of their freeholds are getting a chance to recover some of their money.
Law firm Velitor has secured funding from Balance Legal Capital LLP for leasehold homeowners to bring a no win, no fee claim against wealthy freeholders and insurance brokers for unlawfully charging hidden commissions on building insurance premiums for years.
Millions of leaseholders are charged large sums for buildings, terrorism and other insurance every year. Buildings across England and Wales are affected.
However, for many years these insurance premiums have included a hidden ‘commission’ which is often split between the freeholder and the insurance broker. Leaseholders pay these commissions without realising they are being charged, paying more for insurance than they should.
Since the Grenfell Tower tragedy in 2017, some freeholders have enjoyed a ‘Grenfell premium’, as the costs of insurance - and therefore the commissions charged - have soared. These increased costs have compounded the distress of leasehold homeowners living in blocks of flats blighted by unsafe cladding and other building safety issues.
The Financial Conduct Authority (FCA) reported in February 2024 that between 2019 and 2022 £1.6 billion was paid out by leasehold homeowners in insurance premiums. The FCA estimated the average ‘hidden’ commission charged was 30% of the premium, and there was evidence some leaseholders were facing an uplift of up to 60%.
Velitor says charging secret commissions on insurance premiums is unlawful, as leaseholders were never told and therefore have not given ‘informed consent’. Velitor says that, as a result, these commissions remain the property of 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 alerted him to the wider issue faced by many other leaseholders across England and Wales.
Velitor estimates that the same issue may affect up to 900,000 flats owned by the largest freeholders. The aim of this action is to recover secret commissions paid by other leaseholders.
Liam Spender said:
‘I was able to expose and recoup the secret commissions through which freeholders took money from unknowing leaseholders. 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.’
The claim, to be pursued in the High Court on behalf of leaseholders who ‘opt-in’, will seek to reclaim the hidden commissions, any resultant increase in IPT (Insurance Premium Tax), and interest going back at least six years. It is hoped this six-year period could be extended, if the High Court agrees.
The claim is open to any leaseholder who owns, or has since 1997 owned, a leasehold flat in England and Wales. To take part in the claim leaseholders must sign up via a dedicated website www.leaseholderaction.com.There is no charge for joining the claim and there is no risk to leaseholders. Leaseholders could receive between £1,500 and £3,500 for each flat, including IPT on the commission and compound interest. Velitor and their funders will receive a proportion of any damages awarded by the courts.
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%.
Giles commented:
‘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.”
Secret commissions will become unlawful as a result of the Leasehold and Freehold Reform Act 2024. However, the Act is not yet in force and is not retrospective. This proposed group action is currently the only way for leaseholders who were misled about secret commissions for years, before the change in the law, to recover their money.
