What is being proposed?
Under the proposals, freeholders and managing agents would no longer be able to charge leaseholders for the cost of arranging or managing building insurance unless it falls within a newly defined category of permitted insurance fees. These permitted fees would be strictly regulated, and any commission payments to managing agents or freeholders would be banned.
The changes follow growing concerns that leaseholders pay excessive insurance premiums due to commission-sharing practices among insurers, brokers, freeholders, and managing agents. The UK Government argues that the reforms will improve fairness by ensuring leaseholders only pay for the insurance they require.
Banning commissions may not reduce costs
Propertymark agrees that leaseholders should be fully informed about insurance costs, including any commission or fees paid to managing agents. However, commissions are not the main cause of rising premiums, which are largely due to building safety concerns following the Grenfell Tower fire and the shrinking number of insurers willing to cover high-rise properties.
Managaing agents need to be fairly compensated
If commissions are banned, managing agents must find alternative ways to cover the costs of arranging insurance. This could lead to higher service charges for leaseholders, rather than reducing costs overall. Propertymark argues that instead of banning commissions, managing agents should be required to clearly disclose them to leaseholders before any insurance contract is agreed.
Building safety must be addressed to lower insurance costs
One of the biggest drivers of increased premiums is the ongoing uncertainty over building safety standards. Many insurers are reluctant to cover certain properties, leading to higher costs. Propertymark is urging the UK Government to focus on addressing these underlying safety issues rather than imposing restrictions on how managing agents are renumerated.
Leaseholders should be given a greater say
Propertymark suggests that leaseholders should have the right to challenge insurance fees and propose alterrnative providers if they beleive they are being overcharged. This could be done by amending the Landlord and Tenant Act 1985 so that a consultaion would be necessary if leaseholders were asked to pay more than £250 towards insurance costs.
