By Harry Scoffin
A leaseholder established in tribunal that he had been overcharged on insurance between 2011 and 2019, but he is not going to get any of the money back.
Nilesh Solanki, a 58-year-old motor industry professional who owns a flat in a development of 10 in Harrow, north-west London, argued that he was paying an extortionate amount for buildings insurance when the commission to the broker and freeholder-linked managing agent represented 66.6% of the premium net commission.
Mr Solanki established before the tribunal the “market rate” of 20% after presenting three rival quotes from established brokers, which would have meant dramatically cheaper premiums.
“The gross insurance premium (inclusive of commission) is excessive and therefore the insurance is be [sic] unsatisfactory insofar as the commission exceeds 30% the total sum paid or 49% of the net insurance premium”, said the ruling.
But because Mr Solanki’s freeholder, and therefore the respondent in the case, does not directly place the policy on his behalf and does not recoup the costs of buildings insurance as a service charge, the first-tier tribunal (FTT) determined that it is “not satisfied that it has jurisdiction … to award the Applicant a refund of commission paid”.
The FTT has refused to give Mr Solanki permission to appeal.
The decision disgusts Mr Solanki, who also had to pay the £300 of costs for the hearing, and write to property chamber head Siobhan McGrath to complain.
“As someone not born in this country, may I point out that it involved considerable effort on my part to mount this challenge to insurance costs, and call in favours to do so. To then find that I had in fact won the argument but that the tribunal ruling is of no practical use was disappointing,” wrote Mr Solanki.
Timothy Powell, the regional judge for London’s first-tier tribunal property chamber and a former housing solicitor, wrote an extended letter to Mr Solanki in response to his complaint.
Judge Powell dismissed the complaint on the basis that it did not concern an allegation of “judicial misconduct”, and he rejected Mr Solanki’s suggestion that the tribunal decision is “of no practical use”.
But he did concede:
“I have sympathy with your frustration that you brought a claim challenging the insurance premiums, that you sought a reduction and repayment of them, that you won the case when the tribunal determined the premiums were excessive, and yet you have not received any money back.”
He went on to advise Mr Solanki to invoke other tribunal rules to mount a follow-up challenge for a determination to force a change of broker by the landlord. This would, of course, involve Mr Solanki in further expenditure on court fees and time.
In his letter, Judge Powell also assured Mr Solanki that insurance commissions going forward should be capped at “30% of the total sum paid or 49% of the net insurance premium”.
While the freeholder and broker both maintain that the commission received amounts to 40%, the true rate of commission is actually 66%.
LKP understands that it is commonplace across the industry for the level of commission leaseholders pay in their buildings insurance premiums to be misrepresented. The issue was raised by Mr Solanki in his complaint to the Financial Services Ombudsman, where he explained the trick as follows:
“While the explanation by [brokers] Stride does explain the way the figure was arrived at, I feel it is totally misleading to state a 40% commission and then collect through this explanation a 66.67% commission. As a very minimum for transparency and treating customers fairly, a true and accurate statement should be made about the cost and its value in % terms.
“If I saw an advert for a product at £200 with a VAT rate at 40%, I would expect to pay £280 – not £333.30!
“In summary my complaint is that, by using the calculation the way it has been described and then claiming the commission rate is at 40% is false, misleading, not treating customers fairly and is so far from transparent that the calculation is opaque to almost all users. I would suggest it would be a struggle to find a user who would be able to determine how a sum of £228.67 charged against a premium of £137.20 can in any way be determined as 40% in commission.”
Mr Solanki believes that the tribunal has given the freeholder and their broker the “green light” to charge what he still deems a very unfair rate, one where the commission of up to 49% should be considered as a percentage of the insurance premium net of commission, down from 66%.
In spite of Mr Solanki providing three brokers stating that 20% commission is what they would be happy to accept for being involved with the buildings insurance, Judge Naomi Hawkes and Mr M Cairns MCIEH, the surveyor panel member, cited no case law to justify why the commission should not exceed 49% of the net insurance premium at 2 Trevor Close.
The judgment also fails to outline or discuss the three comparable quotes presented by Mr Solanki.
Mr Solanki had also engaged the services of the director of one of the firms that quoted, an insurance professional with more than a decade of experience in working for both landlords and leaseholders. In a written statement for Mr Solanki, the broker said:
“Whilst cases can differ, generally we would earn 20% commission (average) on cases plus our normal policy admin fee which is restricted to £25.00 for new business … The process of simply issuing out additional invoices to each Lessee and receiving payment is relatively simple and we would not consider this to be an additional cost. Certainly not at the levels that your landlord agents are charging.
“Specifically in regards to your case, I would say there may be a potential conflict of interest if the Agent is also connected with the freeholder. Please note the following:
“The case of Havenridge Ltd v Boston Dyers Ltd  notes that there is no implied term within a lease which requires that the insurance charges must be fair and reasonable, therefore there is no obligation on the landlord to go shopping around. Provided that the insurances were negotiated and were obtained at arm’s length (through a broker) and do not represent an unreasonable premium which has been obtained by collusion with an insurer, bad faith or dishonesty then the premium is considered reasonable.”
Mr Solanki claims his expert witness ultimately did not appear before judges because, contrary to what the tribunal ruling says, he never received the relevant directions from the tribunal (which he blames on disruption from the coronavirus pandemic). At the hearing itself, the judge declined to hear the expert witness, who was primed to present his testimony via video link.
The freeholder Dependable Investments Limited failed to convince the tribunal that the supervisory role of its managing agents Dennis Reed & Co., which have the same registered office address and persons of significant control on Companies House, warranted reaping any commission, much less one constituting 43.75% of the premium net commission, nor that the work undertaken by brokers Stride – sending each of the site’s ten leaseholders a letter once a year – was so time-consuming that the firm deserved a commission of 56.25%.
“Mr Leigh’s assertions [for the freeholder] were not supported by any witness evidence. In any event, we do not accept that under the terms of the lease the managing agents are required to deal with queries from lessees concerning potential insurance claims; that they are required to ensure the payment of insurance premiums; or that they are entitled to charge for doing so … There is nothing in the lease to justify the managing agents playing a greater role such as providing advice in respect of potential claims, contacting a mortgagor, or sending out extensive correspondence,” the tribunal found.
“Having carefully considered the nature of the services to be provided by the insurance brokers and by the managing agents, we find that the commission should not exceed 30% the total sum paid or 49% of the net insurance premium (with 2/3 of the commission payable to the insurance brokers and 1/3 payable to the managing agents). We are not satisfied that the Respondent has established on the balance of probabilities that a higher rate of commission is justified.”
One of the country’s most well-known freeholders, the Duke of Westminster, whose Grosvenor Group last year had a property portfolio valued at £6.7 billion, provides transparency to leaseholders by noting online that his broker Realty earns 20% commission for each property across the entire London estate. The landlord also publishes an explanation of the services the broker provides leaseholders to justify earning that level of commission – something Mr Solanki claims he never obtained from Stride.
In November 2018, the tribunal ruled in favour of leaseholder Jeremy Peachey, a chartered surveyor by background, who had disputed a £13,000 insurance cost at a 30-flat site in Northampton where the development came under the Regis Group / Pier Management, the entities of multimillionaire Essex ground rent speculators Nicholas and Peter Gould, slashing the bill by two-thirds to £4,364.
The commission being earnt was a humble 15% but the tribunal was still unimpressed, with Judge JR Morris noting:
“The terms of the ‘block policy’ were not so advantageous as to justify a premium increase from £3,795.36 to £12,998.40 particularly when one of the virtues of a ‘block policy’ for the tenant is that it is supposed to carry a discount.”
Regis Group’s rip-off insurance bill cut down by two-thirds at tribunal – Leasehold Knowledge Partnership
Model example of how to fight inflated insurance costs By Harry Scoffin Leaseholders have been given a model example of how to fight excessive insurance costs following a tribunal victory against the Regis Group. Jeremy Peachey, a chartered surveyor, challenged the £13,000 insurance cost at a 30-flat site in Northampton where the freehold is owned …
Mr Solanki, who bought his two-bed flat in 1999 and soon thereafter became unhappy with buildings insurance when Eagle Star, who he dealt with directly and considered to be a trustworthy provider, was bought out and subsumed into Zurich, who only work through a broker, produced at the tribunal hearing three like-for-like quotes providing the same coverage.
He was informed by each of the brokers he had approached that their indicative premiums include a commission of 20% and that their quotes would cover issuing 10 separate invoices and collecting payment from each leaseholder and even two reminder notices.
Mr Solanki’s testing of the market to find buildings insurance products offering the same coverage but for a fraction of the cost with the brokers proposing to earn the standard rate of commission at 20% also corresponds with the experience of Leasehold Knowledge Partnership, which has insurance contacts and routinely assists leaseholders in challenging unfair premiums and forcing pricing transparency for their buildings insurance.
Unusually for a leaseholder in a multi-block development of flats, Mr Solanki is empowered in his lease to place the buildings insurance and so this allows him, as the policyholder, to establish the commissions or other remuneration fees, which is often kept secret from leaseholders by freeholders and their managing agents and paid through the service charges.
LKP has long called for the Financial Conduct Authority to require its regulated insurers to list residential leaseholders as joint insured parties on buildings insurance contracts to enable them to enter the market and achieve savings. At present, most leaseholders have insurance costs imposed on them by the landlord or managing agent, who enjoy leaseholder-funded kickbacks from the broker.
Financial Conduct Authority under pressure to force open secretive insurance commissions, so leaseholders can see what they are paying for – Leasehold Knowledge Partnership
By Harry Scoffin The City regulator is facing calls – long made by Leasehold Knowledge Partnership – to close a loophole that allows building owners to inflate insurance premiums, of which commissions as high as 72 per cent are being dumped on unsuspecting flat leaseholders. On Wednesday, the Independent reported that “LKP wants the …
However, because of the way the lease has been worded at 2 Trevor Close, Mr Solanki must also use the freeholder’s preferred broker, meaning he is a “captive consumer” and cannot take out a better deal.
The section on buildings insurance in Mr Solanki’s lease states that “the lessee shall insure in the joint names of the lessor [or freeholder] and lessee”, while the choice of broker and insurer remains within the gift of the freeholder and his appointed managing agent.
In Mr Solanki’s case, the challenge had been transferred from the county court to the tribunal on the basis that it was a leasehold property matter and that the tribunal was the best forum for it to be settled.
In fact, Judge N Hawkes was “double hatting” and performed the role of both tribunal judge and judge of the county court (district judge).
Responding to this concern, Judge Timothy Powell, regional judge of London’s first-tier tribunal property chamber, wrote to Mr Solanki to explain that:
“I cannot alter the tribunal’s decision, but it appears to me to be correct and in accordance with the law. You paid the insurance premiums to a third party, Stride Limited, which was not involved in the proceedings. The premiums were not “service charges” payable to your landlord, which the tribunal had power to reduce. The tribunal’s only jurisdiction to deal with the commission element of the payments you made was under Paragraph 8. That did not give the tribunal power to reduce payments already made, but only to require the landlord to nominate or approve a different insurer. Even when the tribunal had determined that the insurance premiums were excessive, there was no basis (“cause of action”) on which the county court could order damages in respect of payments you had already made to a third party.”
Mr Solanki also raised a complaint with the Financial Ombudsman Service, but was rebuffed because it said it could not sanction the broker Stride Limited because “it wouldn’t be appropriate for our ombudsman to issue a decision that contradicted findings made by the Tribunal”. In fact, Stride was not a party to the legal proceedings between Mr Solanki and his freeholder Dependable Investments Limited in the property tribunal.
Mr Solanki had been referred to the Ombudsman by the site’s insurer, Zurich, which told him “the broker are responsible for dealing with their own complaints” before adding “I am sorry Zurich cannot do any more to assist you but we are not in a position to deal with a complaint about the amount of commission the broker is charging you”.
By contrast, in an article on rampant profiteering in the leasehold sector published in the Sunday Telegraph in August, a Zurich spokesperson was quoted as saying:
“We actively monitor commission levels to ensure they are appropriate, regularly negotiating with our brokers to control them across our portfolio.”
It is normal for managing agents to charge extra for work outside their typical remit, Mr Boyd said. However, he added: “It seems the Government is approving very high levels of fees for pre-contract work.” A lack of official data was an additional problem.
Mr Solanki tells LKP he is considering his options and still wants to recoup the £1,342.55 in excessive commissions and his £300 tribunal fee. He said:
“I won at tribunal, but the decision is as good as me having lost the case. Only in leasehold can this happen.
“Commissions to insurance brokers need banning by law or capped at something sensible – and freeholder landlords shouldn’t get anything. It is grossly unfair that leaseholders, the individual retail customers or flat owners, have to pay for a deal they don’t place and which is dumped on them without value for money considerations. In no other part of the economy would this be deemed acceptable.”
Frustrated by the insurance situation, Mr Solanki – and neighbours in two other blocks nearby with the same landlord – are partway through right to manage actions which, if successful, will give leaseholders control of the insurance costs.
But this is the second occasion within months of leaseholders feeling failed by the tribunal.
MPs are questioning its effectiveness after the property tribunal had to apologise to leaseholders at a site in south London for ignoring emails raising that raised justified concerns about the conduct of Richard Davidoff, a section 24 court-appointed manager.
Richard Davidoff, of ABC Estates, ‘breached his fiduciary duties’ after disastrous performance as a court-appointed manager, rules property tribunal – Leasehold Knowledge Partnership
UPDATE: 5 November 2021 Leaseholders have passed this decision by ARMA to LKP: “ABC Estates expelled from ARMA The Board of Directors have now Under the Bye-Laws of the Association have hereby expelled ABC Block Management Limited as a member as of the 4th November 2021.
The ruling can be read in full here: 2TrevorCloseDecision
Timothy Powell regional judge replies to Mr Solanki’s complaint against the tribunal decision: JudgeTimothyPowellRespondsNileshSolankiComplaint
Proof of 20% buildings insurance commission at the Grosvenor Estate: Oct2018AGuidetoInsuranceArrangements