The Leasehold and Freehold Reform Act 2024 (the 2024 Act) seeks to bring in a range of measures to give more powers and protections to leaseholders. Whilst recent attention has centred on the Commonhold White Paper published on 3rd March 2025, the 2024 Act also created powers to address concerns relating to insurance commissions.
The Ministry for Housing, Communities and Local Government held a 12-week consultation which closed on 24 February 2025 to seek views on what payments should be allowed within the new category of permitted insurance fees in the 2024 Act, to ensure that any costs charged in relation to arranging or managing insurance are transparent and reasonable.
The current issue is that where a landlord places insurance under the terms of a lease as freeholder they do not have to share the benefit of any commission received with the tenant.
Much of the insurance industry works on commission and the cost of the commission is ‘built in’ to the policy cost and it is often hard for flat owners to see the true cost as they are not the insured under the policy.
The proposal is that now the only associated costs that can be passed on to the paying party will be a cost relating to the actual work done to arrange the policy, rather than a commission based on a percentage of value which will be banned.
While much of the detail will be contained in secondary legislation, when the changes take effect landlords will no longer be able to receive commissions for arranging or managing insurance to leaseholders unless such costs fall within the scope of “permitted insurance payments”. The Government will use the results of the recent consultation to inform the drafting of secondary legislation to accompany the insurance provisions in the Act.
While the current system gives benefits to landlords and managing agents who receive commission for arranging bulk insurance policies for multiple occupancy buildings, there are also potential advantages to leaseholders which could be lost as a result of the changes. For example, the landlord may benefit from economies of scale which actually reduce the premium charged by the insurance provider in such situations and so the advantage may not be entirely clear cut.
One of the potential unintended consequences of the proposed reforms set out above is that they will squeeze the already slim margins for managing agents, and this may in the longer term lead to greater consolidation, less consumer choice and potentially higher charges.
The 2024 Act promises to be a game changer for the property management industry and there will be much to do to keep abreast of the 2024 Act’s other requirements.
We will therefore have to wait and see what the outcome of the consultation is and the form of the proposed regulations to see how this will play out in practice.
Contact our Landlord & Tenant team
If you have a query concerning leasehold property, then please contact our expert Landlord & Tenant team by emailing leasehold@bishopandsewell.co.uk or call on +44(0)20 7631 4141.
The above is accurate as at 3 April 2025.
The information above may be subject to change.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.
