The competition watchdog said that for renters who are already facing huge bills to repair fire safety deficiencies, the sharp increase in insurance costs has "brained their brains."

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As tenants were hit by huge insurance premiums, freeholders and management agents received huge commissions

After homeowners saw a 400% increase in their building insurance premiums, regulators are facing demands to investigate hidden commissions paid to freeholders of apartments.

The Liberal Democrats stated that the sharp increase in insurance costs has plunged hundreds of thousands of residents into potentially unsafe houses, which they could not sell due to fire safety deficiencies discovered after the tragedy in Glenfelta. .

The party, together with the event organization Leasehold Knowledge Partnership (LKP), called on competition regulators to step in and prohibit insurance companies from paying commissions to freeholders and management agents. They argue that these payments provide freeholders with financial incentives to negotiate higher premiums and worse insurance for leaseholders.

Residents have to pay tens of thousands of pounds to remove combustible cladding and repair other fire risks, and their insurance costs have skyrocketed. These increases have created further financial difficulties for the homeowners, while providing paydays for freeholders, management agents and brokers, all of whom have deducted part of the insurance premiums they negotiated but the tenant must pay .

Free holders have no legal obligation to disclose to the lessor how much premium they have added, which may be as high as 72%. A commission rate of 20% is common.

The Liberal Democrats told the Competition and Markets Authority (CMA) that renters in unsafe neighborhoods "have stood on the edge of a cliff."

"Therefore, the unfair way for many tenants to suffer huge hidden premiums from their already overwhelmed high premiums is to sprinkle salt on their wounds.

"Urgent action is needed to protect the already vulnerable social class."

The CMA said it was unable to comment on any potential investigations, but regulators have taken an increasingly tough stance on rental properties more generally, and last year issued a severe report on issues in the industry.

The new Housing Minister Michael Gove said he will take a tougher stance on leasing than his predecessor, and said this week that tenants should not pay for repairs to unsafe buildings.

Joe Douglas, a renter in North London, is one of the hundreds of residents he has developed. Their premiums have risen from £350 per year in 2019 to £1,500 in March this year. He describes this growth as " Robbery during the day".

Mr. Douglas investigated the interest rate hike and found that other blocks in the same development were also found to have fire safety deficiencies, but the premium increase was much lower, although some of the buildings were considered risky and insurance companies provided insurance . The same company, Zurich

"It doesn't make any sense. It doesn't make sense," Mr. Douglas said.

He contacted an insurance broker to get a better offer, but was told that no broker would provide it because the freeholder had already established a policy. "We are just trapped by what we have," Mr. Douglas said.

After investigation, he discovered that E&J Estates, the permanent owner of his apartment, signed a new policy with his existing insurance company Zurich this year. Before the policy becomes effective, the tenant will not be notified of the quotation.

The industry’s standard practice is not to quote on insured buildings, which means that tenants are effectively prohibited from finding better deals. Mr. Douglas was told that the broker needed to obtain permission for the new offer from the insurance company and the permanent holder, and they all benefited from the insurance policies they implemented.

If the permanent holder receives a 10% commission, then its commission will receive a transaction of £25,000, coming only from Mr. Douglas’s block and adjacent blocks.

E&J Estates stated that its broker has contacted 16 insurance companies but failed to find a better deal, and the company always challenges offers that do not match the market.

A spokesperson added: “Compared with previous years, in a very difficult insurance market, this year’s assurance of contract renewal involves a much larger amount of work and requires a lot of additional resources.”

Zurich said it provides insurance for E&J's entire investment portfolio and has no impact on how costs are allocated to individual leaseholders.

A Zurich spokesperson said that due to fire damage from another development project and "previously unknown combustible cladding information changed the risk profile", E&J's premium has increased. They added that the commission rate it paid to E&J in 2021 was “significantly” lower compared to the previous year.

Increasing pressure on freeholders is beginning to persuade some people to reduce the commissions they charge. Karryn Beaumont, a renter of an apartment in New Providence Wharf, London, discovered that her freeholders charge more than 20% of the commission.

After a long struggle, freedom holder Ballymore agreed to reduce its fees. Ballymore will charge a "placement fee," which it says will be based on the amount of work required to obtain a quote, not a commission. However, the developer has not yet provided details of the new arrangement.

The data obtained by Ms. Beaumont shows how profitable commissions are for freeholders. Ballymore raised more than £114,000 for the New Providence Terminal last year.

After a fire broke out at the New Providence Wharf earlier this year, Ballymore temporarily reduced its commission to 6.1% of its premium. The broker who arranges the policy charges a commission of approximately 4.5%.

"The broker does have to enter the market and arrange insurance, but I don't know what Ballymore has to do for the money," Ms. Beaumont said. Ballymore has separately collected management fees related to the insurance policy from the lessor through service fees.

Ballymore stated that it manages its estate “all for the benefit of the tenant, not for profit” and charges a commission lower than the highest level recommended by the Association of British Insurers.

A Ballymore spokesperson said: "It is intended to be a non-profit income only to help provide management services in our portfolio.

"Nevertheless, we are still constantly looking for ways to reduce insurance costs. This includes all Ballymore properties that switch to a toll system in 2021/22, which is expected to further reduce costs because the costs will not fluctuate when insurance premiums rise.

Ballymore added that it has helped many residents' associations find their own offers, but none have been able to find a better deal.

LKP hopes that the Financial Conduct Authority will adjust its insurance rules to treat tenants as parties to building insurance policies purchased by free holders. For many years, FCA has resisted this change.

The regulator stated that it was “aware” of the issues related to commissions and was working to resolve these issues.

A spokesperson said: "We recently introduced new rules that require companies to deliver products with fair value, including whether commission payments are consistent with this. In addition, our rules prohibit commission arrangements that are not in the best interests of customers."

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As tenants were hit by huge insurance premiums, freeholders and management agents received huge commissions

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