Secret commissions are a serious problem for the commercial real estate sector. Millions of pounds are being paid to unscrupulous managing agents and landlords every year without the knowledge of those they are acting on behalf of.
The way the practice works is that the freeholder or managing agent negotiates the commercial property insurance on behalf of the tenant or leaseholder, receiving a commission from the broker in return for the business.
While commissions themselves are a fair and expected feature of such negotiations, all parties must remain fair and open with the various stakeholders involved in the deal. With secret commissions, the amount of the payment is not disclosed to the end party who is paying the premium to the broker, and as such the payment made by the broker in return for the insurance policy is inflated to an unreasonable level to ensure they receive that particular piece of business.
In both cases, the end user, usually the unsuspecting tenant, ends up paying an excessive level of premium for the level of cover they are receiving.
Here at M2 Recovery we are experts in analysing and recovering these unfair secret commission payments, and it was for this reason that our founder, Neil Holloway, was called upon by MPs to speak at a Government Select Committee inquiry into possible reforms for the leasehold market, including what can be done to fight back against secret commissions.
In our experience, the prevalence of secret commissions is widespread within the commercial property sector. Unfortunately, we also know there is widespread reluctance to change due to the fact that these secret commission payments are often financially supporting a business or subsidising other less profitable activities within that business.
Some of the people that our teams speak to within the property insurance industry are unaware of the issue, but in many cases there is simply too much at stake for them to change their practices, and the situation is therefore left to continue.
That, however, must change and it is to that end that M2 Recovery is working.
The bottom line here is that commission generated from a property insurance policy must be reasonable and it must be disclosed if it is paid to a third party, such as a managing agent, for there to be full transparency.
If you are a landlord or managing agent and you are knowingly benefitting from secret commissions, then our professional advice to you would be to ensure that you are upholding your responsibility to deal fairly and transparently throughout the process.
It is just a matter of time before this situation is made public knowledge, and turning a blind eye to unreasonable business practice will not be an adequate defence when this situation is brought into the open and possibly into the courts.
As part of our M2 Recovery service, we can review your commission arrangements without commitment. In some cases this could lead to secret commission payments being identified and the possibility that the previous six years’ worth of payments could be recovered, as we were able to do for a portfolio of more than 150 NCP car parks.