The prospect of managing agents facing multiple group actions from leaseholders, resulting in their paying out significant, potentially ruinous damages, grows ever nearer, as new legislation outlaws the historic practices of managing agents in relation to insurance commissions. opens the floodgates for historic claims.
Indeed for some managing agents, the prospect of heading to court is already a reality. “We are already seeing some claims being pursued by leaseholders following Michael Gove’s recent focus on eradicating ‘secret’ commissions,” said Richard Glover, one of the UK’s leading property litigation lawyers.
The Financial Conduct Authority (FCA)’s new legislation – due to go on the statute books December 31, 2023 – is specifically designed to protect leaseholders against brokers who overcharge and hand so-called “secret” commissions to managing agents and landlords.
Insurance for multi-occupancy buildings, which covers residents against events such as water leaks, has become a key issue in a mounting scandal over the excessive service charges landlords are alleged to have levied on leaseholders.
Tenants of flats are usually obligated to pay towards a buildings insurance policy they have no control over selecting, nor transparency over the contract and any commissions that may be paid. In recent years these policies have increased in price, particularly for residents of cladded buildings after the 2017 Grenfell Tower tragedy.
“Claims may go back as far six years as a minimum, and in some cases, it could be 12 years,” explained Richard. “Which means we’re talking very significant sums of money.
“The FCA has said it expects brokers to cease paying commission to third parties – including property managing agents and freeholders – where they do not have appropriate justification and evidence for doing so in line with the FCA’s rules on fair value.
“We have been advising our managing agent clients on historical liability and the so-called secret commissions and assisting those clients to challenge the claims against them,” he added. “We anticipate many more coming forward in the coming months as the industry gets to grips with this new legislation.”
There are 4.98 million leasehold dwellings in England, representing 20% of the English housing stock, according to the department of Housing, Communities and Local Government (DHCLG).