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Government proposes ‘fair and transparent’ insurance fee to protect leaseholders
The government has launched a consultation on a permitted insurance fee to reduce charges for leaseholders.
It is proposing to ban landlords, freeholders and property managing agents from charging insurance payments to leaseholders.
Instead, they would only be able to charge “a fair and transparent permitted insurance fee to leaseholders”, with the exact figures to be worked out at a later time.
The fee will form part of the variable service charge, which means that leaseholders may challenge its reasonableness under the provisions of the Landlord and Tenant Act 1985.
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The consultation aims to address the issue of leaseholders being charged “significant insurance costs” while having “little influence or ability to scrutinise” them.
The government said it wants to ensure that any costs in relation to the management and arranging of insurance charged to leaseholders by landlords, freeholders or property managing agents are “fair and transparent”.
According to the consultation document: “The [Leasehold and Freehold Reform Act 2024] created powers to address longstanding concerns that some leaseholders are being charged for the arranging and managing of insurance by their landlords, freeholders or property managing agents when they cannot properly justify and fully account for the work undertaken.
“The concern for our governments is that these leaseholders are being charged significant insurance costs while having little influence or ability to scrutinise these costs, or to challenge those costs if they are unreasonable.
“This could include disproportionate remuneration for services in the arranging and managing of insurance, or even commissions – and other financial benefits – being given to landlords, freeholders or property managing agents that are unconnected to the services provided.
“This consultation looks to put forward proposals to address the issues above.”
The new act allows for the replacement of the current practice of paying landlords, freeholders and property managing agents for arranging and managing insurance, which at the moment is most commonly done through an insurance broker sharing a proportion of their commission.
It instead allows for a new permitted fee that landlords, freeholders and property managing agents would charge leaseholders separately from the insurance premium.
“This fee would be fair, transparent and reflective of the work contributed. We want to understand with the help of responses to this consultation what payments will be permitted within this fee so as to inform secondary legislation,” the document said.
The consultation is open until 24 February 2025.
