Context
The Ministry of Housing, Communities and Local Government has published a consultation on “Permitted insurance fees for landlords, freeholders and property managing agents”, seeking views on proposals to prevent freeholders, property managing agents and landlords from imposing on leaseholders opaque and excessive charges related to building insurance, often in the form of commissions. Instead, they would only be able to charge a fair and transparent permitted insurance fee to leaseholders. Secondary legislation will set out what is permitted. These proposals relate to England and Wales. The consultation will inform UK and Welsh governments who will bring forward separate secondary legislation.
As outlined in our weekly update for the week ending 29 November 2024, (Statement to Parliament here) any brokers who deal with, or who are, or who own, PMAs need to be aware of this and its implications.
Key points to note and next actions
This Government is seeking to introduce into law a ban to stop insurance brokers sharing their commissions with policyholders, freeholders and property managing agents (PMAs) who will instead be allowed to charge leaseholders a fee commensurate with any insurance work done.
In January 2024 the FCA published new rules to bring in leaseholder protections and transparency with a requirement for firms to act in leaseholders’ best interests, treating them as customers when designing products. The new rules also introduced a ban on recommending a policy based on commission or remuneration levels.
Firms have been required to disclose policy information to their customer (usually the freeholder or the PMA) and ask that this is passed to leaseholders. Should this not happen (we are aware of cases where this has not happened) leaseholders can ask for this directly from firms. Some industry commentators have indicated that such leaseholder requests are sometimes also ignored.
Firms must also ensure policies provide fair value, and any commission shared with third parties requires justification and evidence in line with fair value rules.
The consultation asks 32 questions including; whether leaseholders are aware of what payments – if any – their freeholder or PMA receives for the arranging or managing of insurance; whether leaseholders have tried to challenge the payment of their freeholder or PMA for the arranging or managing of insurance; and what specific activities relating to the management and arranging of insurance do freeholders and PMAs currently carry out for their remuneration.? In some instances, commissions have fallen but industry speculation is that premiums have not fallen as a consequence.