“It was the best of times, it was the worst of times...”
So opens Charles Dickens’ revolutionary novel A Tale of Two Cities, and the words have significance to today’s brewing leasehold scandal into which some insurance brokers have sandwiched themselves.
Dickens’ literary worlds are home to a barrage of contrasts. His books are littered with naive narrators who find themselves in abject pickles, facing down dodgy characters in societies split between rich and poor, the haves and have nots. We see characters rise and fall, beset by chance encounters and situations outside of their control.
We’ve moved on since Dickens, who died in 1870, was writing – the workhouse and the debtors’ prison, for example, are thankfully things of the past. But Dickens would surely still have plenty to say about 21st Century Britain, where not so long-ago 72 people faced their demise in Grenfell’s towering inferno.
Today’s state of play is one in which lax building regulations and a profit-over-people mentality have put lives at risk with deadly consequences. It’s a Britain in which leaseholders have been financially chained to fire risk flats, paying through the nose to insure and fix properties they had no hand in building and were hitherto uninformed could be potential cladding death traps.
It’s also a place in which leaseholders pay to ‘own’ their homes, and yet remain at the whims and mercy of another ultimate proprietor, the landlord.
Writing in 2023, Dickens might have taken a certain grim satisfaction in caricaturing some snot-nosed land baron perched atop a Monopoly-esque stack of real estate counting their bullion and Bitcoins, perhaps wearing noise-cancelling headphones (which wouldn’t necessarily be turned on) to appear to tune out calls from beleaguered residents crying out over the cost of a poisoned investment.
Enter another potential villain of the new millennium’s Dickensian property piece, for this is a murky world in which insurance brokers have been accused of helping freeholders and property managing agents line their pockets, while charging unseemly commissions to leaseholders’ detriments. Meanwhile, everyday people have faced up to spiralling buildings insurance bills – escape of water is one culprit driving up costs – that many cannot afford to pay.
A “significant area of concern” for the Financial Conduct Authority, which might be portrayed as a lumbering-but-well-meaning figure in Dickens land, the leaseholder insurance commissions scandal is not entirely new; the Guardian reported on this back in 2009, for example. The issue, though, has been amplified.
Last September, the FCA drew attention to potential “secret or hidden commission and profits” being netted by property managing agents and freeholders with the assistance of their insurance brokers, something that multi-occupancy building leaseholders have been trying to lift the lid on for years. Further, the regulator said it is often unclear why it has been “appropriate or necessary” for freeholders and managing agents to be bagging these additional funds at all.
On average the absolute buildings insurance commission value more than tripled for brokers between 2016 and 2021, and more than doubled for freeholders and managing agents, the FCA revealed. In at least one case commission capped out at 62%.
Meanwhile, put upon leaseholders have been locked in battles for clarity and sight of how their money has been spent, with just how much their property manager or freeholder, may have tucked away at times remaining cloaked in secrecy.
Cases are now snaking their way through the courts, spearheaded by leaseholders whose plights have been met with some sympathy.
In the case of Canary Riverside, subject to appeal by its landlords, a tribunal has ruled residents should not be on the hook for upwards of £1.5 million in insurance-related payments. In the decision, Judge Amran Vance lambasted a “complete lack of transparency”.
Michael Gove, Secretary of State for Levelling Up, Housing and Communities and Minister for Intergovernmental Relations, has promised a “ban” on managing agents, landlords and freeholders taking commissions and “other payments” when taking out buildings insurance, in favour of “more transparent fees”.
In February, Lord Kennedy of Southwark warned of “a huge insurance scandal coming down the track”.
As ever, not all brokers will have engaged in the practices that are under the microscope, and the FCA found that while average commissions were around 30%, some were pocketing less than 10%. BIBA, meanwhile, has pledged to “burn the midnight oil” on leasehold issues. Not all landlords are Dickensian villains, either.
However, were Dickens to put pen to paper (or fingers to keyboard) today and cover this sorry story, I doubt any broker bit part character would come off well.
It’s too late to unpick the past, but brokers must do better to have any hope of earning any future Scrooge-like redemption. Presently, it seems they will have no choice amid intense scrutiny.
They are, however, just one piece of the pernicious property puzzle as the government looks to tackle a leasehold problem of epic proportions.
Leasehold truly has offered up the best of times for some, and the worst of times for many.
Do you have any opinions on leaseholder insurance commissions? We’d love to hear from you in the comments below.