First group of freeholders threatened with legal action over ‘secret’ insurance fees

According to law firm Velitor, letters sent to this first set of firms is the “most significant step” so far in the joint claim, which could eventually affect leaseholders at close to 900,000 homes

Velitor has sent the letters to E&J Estates, Long Harbour, Consensus Business Group and Ground Rents Income Fund plc.

A second tranche of letters to more freeholders will follow, and it is expected that around two dozen landlords may eventually be subject to the claim.

The issue of leasehold insurance has been in the spotlight since the Grenfell Tower fire, when premiums rose on many blocks of flats.

While some of this increase has been driven by the insurance industry’s view of the heightened risk of high-rise buildings, there has also been an increase in commission charges from the brokers that arrange the insurance.

This has led to scrutiny over whether residents were being overcharged, and prompted a clampdown by the Financial Conduct Authority (FCA) on commission payments to insurance brokers.

The FCA highlighted how brokers were often paying a share of the commission to the building’s managing agent or freeholder but were then “often unable to articulate” why this money had been shared.

The FCA reported in February that £1.6bn was paid out by leasehold homeowners in insurance premiums between 2019 and 2022. 

The estimated average ‘hidden’ commission charged was 30% of the premium, and there was evidence that some leaseholders were facing an uplift of up to 60%.

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.

Liam Spender, counsel and head of real estate litigation at Velitor Law, said: “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.”

A spokesperson for HomeGround said: “HomeGround’s insurance services are subject to the Financial Conduct Authority’s regulatory regime and it receives commission in line with that strict regulatory framework.”

A spokesperson for Penult Capital Partners Ltd (PCPL) which arranges insurance for E&J Estates, said the claims made by Velitor are "fundamentally misconceived". 

It added: "PCPL receives a commission in recognition of the essential services it provides in support of its insurance programme. Those services are provided under its FCA regulatory status as an Appointed Representative of its insurance broker."

It added: “We are confident that the level of commission received, which is amongst the lowest in the sector, fully reflects the FCA’s “fair value” principles. Our commission level has reduced successively in recent years to ensure we do not benefit from rising premiums for multi-occupied buildings."

The other two freeholders were approached for comment.