Buildings insurance
Most leaseholders are obliged to maintain buildings insurance as part of their mortgage. It is normal, especially in the context of residential multi-occupancy buildings, for the freeholder/landlord (or property agent if they are acting on their behalf) to reserve the right in the lease to place and manage the insurance of the building and recover the cost of the premium either as a separate insurance rent or as part of the service charge.
	The Secretary of State asked the Financial Conduct Authority (FCA) to review the residential multi-occupancy building insurance market because of dramatic premium increases. In 2022, the FCA published a report 3 that found over the period 2016-2021, premiums for residential multi-occupancy buildings had increased by 187% for buildings which had flammable cladding, and 94% for buildings without flammable cladding.
	The FCA followed up with a report 4 in 2023 that found that commissions were often at least 30% of the total insurance premium, with some commissions being over 50%. In many cases brokers have shared significant proportions of these commissions with landlords, freeholders and property managing agents with limited evidence of the value provided for this commission sharing.
	Under existing legislation, leaseholders do not have to be made aware of the level of any commission being taken throughout the value chain, which gives intermediaries the opportunity to take substantial commissions without needing to demonstrate the reasonableness of the costs. This arrangement may incentivise lessors or those working on their behalf, to maximise their own remuneration as opposed to choosing the best value.
	The measures in the Act prohibit commissions from the placer/manager of insurance from being recovered from leaseholders through their service charge. These commissions are replaced by a transparent handling fee system where those placing or managing insurance can charge for their work, for example, if they are handling claims on behalf of leaseholders. The intent is that the cost reflect the work and time undertaken to carry out the work; both, to understand the basis of the fee and to make it more easily challengeable if considered by the leaseholder as being unreasonable.