John Christodoulou, one of the leasehold sector’s most habitual litigants, has lost a £1.6 million case over excessive insurance costs in the war of attrition at the prime Canary Riverside site in London’s Docklands.
The first tier tribunal has criticised his companies’ “complete lack of transparency with leaseholders regarding these commission payments, paid since 2010”. This “has been lamentable”, the tribunal ruled.
“The sums involved are large and constitute a very substantial percentage of the premium towards which leaseholders were asked to contribute, without any notification to them as to the nature and amount of the commissions involved. It was only through these proceedings that the full extent of these commissions became apparent.”
While the victory has been widely celebrated by leaseholders, the first tier tribunal ruling will inevitably be appealed, with the tribunal ruling of 21 December 2022 itself noting: “We anticipate that one, or both of the parties may wish to seek permission to appeal this decision to the Upper Tribunal.”
The tribunal determined that individual leaseholders in Canary Riverside Estate should not have paid £1.5 million to a managing agent for insurance-related services, nor been charged a further £121,000 in linked taxes.
Martin Boyd, LKP chair, said: “No one should minimise the amount of effort required of the leaseholders to achieve this brilliant result.”
The ruling is reported on the Financial Times website today.
The ruling will undoubtedly be of interest to Communities Secretary Michael Gove who ordered a deeply reluctant Financial Conduct Authority to investigate insurance and commissions in the leasehold sector last year. It reported in October:
The tribunal concluded that £483,000 plus taxes paid to insurance broker Reich at Canary Riverside was justified, but that other monies paid in respect of insurance to managing agent Westminster Management Services were not.
“We conclude that all the work said to have been carried out by Westminster Management Services is more accurately described as the provision of services concerning management of the Estate, including obtaining insurance,” said the tribunal.
Liam Spender, LKP trustee and a commercial lawyer whose five-day challenge to FirstPort’s service charges at St David’s Square, another prime site in London Docklands, kicks off from January 16, told the Financial Times that “the decision is important because the most common justification for commission, that valuable work is done to justify the cost, has failed”.
The leaseholders argued that Westminster Management Services was a company that was part of John Christodoulou’s Yianis Group company and that payments to it “were not remuneration for services provided, but rather a rebate, or discount associated with the Yiannis block policy”.
The tribunal paid tribute to Angie Jezard, an accountant and the leaseholder leader at Canary Riverside:
“In her closing submissions, Ms Jezard explained how exhausting the long-running litigation regarding the Estate has been for her. We have no doubt about the sincerity of that remark.
“We commend her for the way in which she has conducted herself throughout the proceedings on behalf of the Applicants. There can be little doubt that the information finally provided by Reich [the insurance broker] regarding the amount of commission it retained, and the fees paid to Westminster Management Services, would not have emerged if not for her determined efforts.”
It added:
“The service charge accounts are silent on the question of commissions and fees; the amount of commission said to have been retained by Reich in the Respondents’ 28 August 2020 statement was woefully inaccurate, as was the figure specified in the schedule provide three months later, in November 2020, which stated that Reich had estimated that from 2013 – 2019 they earned total revenues across all of the [Christodoulou’s] CREM policies (inclusive of broker fees) of an average of £28,725.38 per year.
“The level of commission retained by Reich was, in fact, much greater than that, roughly £50,000 per year …
“We agree with Ms Jezard’s closing remarks about the need for greater transparency in insurance fees and commission charges.
“Paragraph 12.1 of the 2013 RICS code states that Insurance fees (including commissions) and all other sources of income and related income or other benefits in relation to the service charge arising out of the management should be declared annually to the client and to leaseholders and should reflect the level of work carried out. We urge the Respondents to ensure compliance with these recommendations in future.”
Monaco-based John Christodoulou lost the management of Canary Riverside back in August 2016 when the leaseholders argued for a section 24 court appointed manager. This, too, is the subject of seemingly unending litigation, which has been the subject of critical rulings in the courts.
https://www.leaseholdknowledge.com/tag/canary-riverside-estate-management-limited/
The full ruling of 21 December 2022 can be read here: https://www.leaseholdknowledge.com/wp-content/uploads/2023/01/CanaryRiversideInsuranceDecision21122022.pdf
Related posts:
John Christodoulou fails to dump £355,000 gym debt onto the Canary Riverside leaseholders. Insurance commissions to be disclosed. And judge criticises his ‘extremely unattractive’ approach to tribunal
Insurance insiders call for an end to secretive leasehold insurance commissions following Canary Riverside ruling
War of attrition continues between Canary Riverside freeholder John Christodoulou and the court-appointed manager …
John Christodoulou minions get the boot at Canary Riverside
Battle for Canary Riverside resumes after court appointed manager steps down
Railpen: We don’t want to invest in ground rents anymore because ‘there is a consumer on the far end’
Congratulations to Mr. Liam Spender, a good win, and clearly of interest to the Financial Times
Obtaining building insurance quotes is, in my experience, very straight forward. Most established Firms will already include the cost for that service under the cost header “Professional Services” on the service charge invoice
Example of obtaining a quote for building insurance
Step 1, Pick up the telephone and call an Insurance Broker.
Step 2, Have copies of the previous or current insurance providers policy details to hand, and email them to the Insurance Broker.
Step 3, Wait a Day or Two for a written quote for like for like building insurance by email.
Observation
Do not be surprised to achieve a like for like level of building insurance quote, for up to – 70% less than what you are currently paying.
To achieve this kind of cost saving you only need to achieve Right to Manage status, this can easily be done provided your home meets the Legal criteria for RTM.
Most office juniors that i have known have sufficient expertise (when properly trained) to carry out the above task efficiently and correctly in a short period of time
Liam was not part of the main case mentioned above. He is mentioned in relation to his own case at another site where the hearing took place this week.
Commissions and costs on insurance is a matter under detailed review by the FCA at the moment.
Whether the managing agent is paid a commission should depend on their role in organising the policy the complexity of the policy and their role in claims handling. Some agents and some sites will include this under the “professional fees” heading but some will separate it out. For larger sites they need more detail as “professional fees” cover a lot of headings
As part of the agents code of practice they are required to declare any commissions paid
For smaller sites the insurance should be relatively straight forward. For most RTM sites insurance savings can be quite large.. For many large third party landlords commissions are a big earner. When I took the Tchenguiz group to the Tribunal some years ago they were receiving >40% of the total premium
Dear. Mr. Boyd,
Thank you for clarifying Mr. Spenders involvement in that case.
I should of read that article more thoroughly than I did before posting. Thank you to LKP and others for achieving such a positive outcome for Leaseholders. I can only imagine how much hard work, time and a great deal of effort must of gone into bringing this case to such a satisfactory outcome.
I believe that the LKP must have saved Leaseholders many Millions of pounds, and put right numerous wrongs in recent Years?
Please carry on the good fight, I for one appreciate all that LKP do
“As part of the agents code of practice they are required to declare any commissions paid”
To the best of my knowledge and belief the former managing agent of this property did not “declare any commissions paid” to the leaseholders or residents of this property, during the four Years plus that I have resided here.
The major issue with any “code of practice” is it is not a legal obligation, It is essentially binding in honour only, and in reality codes of practice are generally not worth the paper they are written on, especially with regard to certain freeholders and their managing agents, allegedly. Codes of practice are a start, but I believe legislation is the only solution.
LKP and others, including Mr. Gove, have been instrumental in achieving huge improvements within this industry in recent Months, and long may they continue to do so.
I believe that the “rotten eggs” of the freehold industry need to be dealt with in terms of fair regulation, to put an end to “rip off fees, commissions and other improvised charges” levied at leaseholders, has so ably demonstrated and publicised by LKP
The more morally inclined side of the freehold industry and their managing agents, must be completely fed up with the ever increasing “stench” caused by the practices of others. It is very bad for business whether you are a solicitor, surveyor, lender, freeholder or managing agent. No one objects to any one making a fair profit provided it is transparent and completely above board, no one expects some thing for nothing in life. “A fair price for a fair days work” and not money for nothing which seems prevalent in this industry and has been clearly demonstrated on this site many times.
Has a Leaseholder I expect to pay for a quality service, delivered on time at the right price, and that is precisely what I receive now having achieved Right to Manage status.
Stephen,
Your problem is that your former managing agent may not have been responsible for placing the insurance or if they did it may have been placed by a third party company. The trouble with law at the moment -or rather the FCA regulations – is they do little to control landlord commissions. Hopefully that is about to change with the FCA final report on commissions due soon
The RICS service charge code makes clear for managing agents placing insurance:
“Your client and leaseholders should be notified annually of any remuneration, commission and other sources of income and related income or other benefits you receive in connection with placing or managing insurance”
While the code does not have statutory powers it is something the tribunals consider because it is endorsed by the Secretary of State. Its also something agents have to agree to as part of being a RICS or ARMA member
Thinking that higher commissions automatically mean higher prices on leaseholder controlled sites can also be wrong. You pay an agent or the broker to look around the market it gets a lower price or a better product. The larger the site the more complex things get.