Homeowners who have been paying hidden insurance commissions to the owners of their freeholds are getting a chance to recover some of their money.
Law firm Velitor has secured funding from Balance Legal Capital LLP for leasehold homeowners to bring a no win, no fee claim against freeholders and insurance brokers for unlawfully charging hidden commissions on building insurance premiums for years.
Millions of leaseholders were charged large sums for buildings, terrorism and other insurance every year.
However, for years these insurance premiums have included a hidden commission which is often split between the freeholder and the insurance broker.
Leaseholders pay these commissions without realising they are being charged, paying more for insurance than they should.
Since the Grenfell Tower tragedy in 2017, some freeholders have had a ‘Grenfell premium’, as the costs of insurance – and therefore the commissions charged – have risen.
These increased costs have compounded the distress of leasehold homeowners living in blocks of flats blighted by unsafe cladding and other building safety issues.
The Financial Conduct Authority (FCA) reported in February 2024 that between 2019 and 2022 £1.6bn was paid out by leasehold homeowners in insurance premiums.
The FCA estimated the average hidden commission charged was 30% of the premium, and there was evidence some leaseholders were facing an uplift of up to 60%.
Velitor said charging secret commissions on insurance premiums is unlawful, as leaseholders were never told and therefore did not give ‘informed consent’.
Velitor confirmed that, as a result, these commissions remained the property of leaseholders.
Liam Spender, head of real estate litigation at Velitor, recently successfully challenged a £100,000 insurance commission taken by his own freeholder, relating to the block of flats where he lives.
This alerted him to the wider issue faced by many other leaseholders across England and Wales.
Velitor estimated that the same issue may affect up to 900,000 flats owned by the largest freeholders.
The aim of this action is to recover secret commissions paid by other leaseholders.
Spender said: “I was able to expose and recoup the secret commissions through which freeholders took money from unknowing leaseholders.
“Through this group action, Velitor is now looking to help others recover secret commissions they may have paid.
“The plight of leaseholders and their unconscionable and unlawful treatment by some freeholders is nothing short of a national scandal. This legal action will be a significant step in addressing it.”
The claim, to be pursued in the High Court on behalf of leaseholders who ‘opt-in’, will seek to reclaim the hidden commissions, any resultant increase in IPT (Insurance Premium Tax), and interest going back at least six years.
It is hoped this six-year period could be extended, if the High Court agrees.
The claim is open to any leaseholder who owns, or has since 1997 owned, a leasehold flat in England and Wales.
