Managing agents and freeholders across England and Wales have historically added substantial, undisclosed commissions to buildings insurance premiums, often taking between 10% and 40% of the policy value. These broker commission-sharing arrangements have inflated service charges without providing corresponding underwriting value to residents. With new regulatory rules from the Financial Conduct Authority (FCA) and provisions under the Leasehold and Freehold Reform Act 2024, leaseholders now possess powerful statutory rights to uncover, challenge, and eliminate these hidden fees.
Key takeaways
- Under FCA rules introduced in December 2023, insurance intermediaries are legally required to treat leaseholders as policy stakeholders, mandating full disclosure of all broker and managing agent commissions upon request.
- The Leasehold and Freehold Reform Act 2024 bans hidden insurance commissions and referral fees, requiring agents to replace opaque markups with transparent, justifiable administration fees.
- Under Section 30A and the Schedule to the Landlord and Tenant Act 1985, leaseholders hold the statutory right to inspect the policy, cover notes, and proof of payment.
- Leaseholders can challenge unreasonable insurance premiums before the First-tier Tribunal (Property Chamber) under Section 27A of the Landlord and Tenant Act 1985, testing whether the cost was reasonably incurred under Section 19.
- Independent market benchmarking and direct broker engagement allow resident-led boards to secure open-market rates without intermediary commission sharing.
The Problem of Undisclosed Insurance Commissions
For years, the multi-occupancy buildings insurance market operated with systemic opacity. Managing agents and freeholders frequently operated as unregulated insurance distributors, receiving generous commissions from insurance brokers in exchange for placing block policies with specific underwriters.
An extensive market study by the Financial Conduct Authority (FCA) confirmed that intermediary commissions averaged 30% of gross premiums, with significant sums shared directly with landlords and managing agents. Because leaseholders pay the premium via the service charge but are not the named policyholder, they bore the financial burden while remaining locked out of pricing negotiations.
The Regulatory and Statutory Framework
Significant legal changes have rebalanced power toward leaseholders:
1. FCA Transparency Rules (In Effect)
Under FCA rules for multi-occupancy building insurance, leaseholders are designated as "policy stakeholders." Regulated insurance brokers must:
- Provide leaseholders with a comprehensive breakdown of the premium, including taxes, broker earnings, and any commissions shared with managing agents or freeholders.
- Disclose alternative quotes considered and summarize the underlying policy coverage.
- Deliver this pricing breakdown promptly upon written request or prior to policy inception/renewal.
2. The Leasehold and Freehold Reform Act 2024
The 2024 Act reforms block insurance by prohibiting insurance commissions from being passed through the service charge. Landlords and managing agents are barred from taking secret commissions and are limited to charging reasonable, auditable handling fees that reflect actual administrative effort expended in placing cover.
3. Statutory Information Rights Under the 1985 Act
Under Section 30A and the Schedule to the Landlord and Tenant Act 1985, leaseholders have the statutory right to serve a formal notice on the landlord or managing agent requesting:
- A written summary of the insurance policy terms, insured sum, and insured risks.
- Facilities to inspect and take copies of the policy, schedules, and receipt of premium payment. Failure to comply without reasonable excuse is a summary criminal offence.
How to Dispute an Inflated Insurance Premium
If an insurance premium appears excessive or carries high intermediary fees, leaseholders can follow a structured challenge process:
- Request the FCA Information Pack: Contact the insurance broker or managing agent in writing, demanding a full breakdown of all commissions and remuneration under FCA rules.
- Obtain the Policy Schedule: Serve a Section 30A request under the Landlord and Tenant Act 1985 to inspect the insurance policy and claims history (loss run).
- Benchmark the Cover: Use the building's claims history and reinstatement valuation (Reinstatement Cost Assessment) to obtain alternative, like-for-like quotes from independent, RICS-aligned brokers.
- Negotiate Prior to Inception: Present comparative market quotes to the managing agent or RMC board to negotiate lower premiums before the policy is bound.
- Tribunal Challenge (Section 27A): If an agent refuses to adjust an inflated premium, leaseholders can apply to the First-tier Tribunal (Property Chamber). Under Section 19 of the 1985 Act, the tribunal can determine that the premium was not "reasonably incurred" and order the excess or unjustified commission deducted from the service charge.
Transitioning to Resident Control
Where managing agents routinely resist transparency or continue to collect opaque commissions, qualifying leaseholders can pursue the Right to Manage (RTM) under the Commonhold and Leasehold Reform Act 2002. Taking direct control enables the RTM company to appoint independent insurance brokers who work on transparent, fixed-fee structures, ensuring every pound paid covers actual risk rather than agency profits.