Leasehold and Freehold Reform Act 2024: Government publishes response to permitted insurance fees consultation
The Government has recently reported on the responses it received to a December 2024 consultation on “Permitted insurance fees for landlords, freeholders and property managing agents”. The consultation aimed to seek views on what payments should be allowed within a category of permitted insurance fees under the Leasehold and Freehold Reform Act 2024 (“LAFRA 2024”). For more information on the consultation, please see our insight: Leasehold and Freehold Reform Act 2024 – Government opens consultation on permitted insurance fees.
When the relevant provisions of LAFRA 2024 are brought into force via secondary legislation, landlords of residential property will only be able to recover “permitted insurance payments”. The consultation examined whether any commissions receivable by a landlord or managing agent for arranging or managing insurance could fall within the scope of “permitted insurance payments”.
The Government’s response records that 84% of respondents to the consultation were leaseholders and representative groups. Freeholders, managing agents and Housing Associations made up nearly 6% of respondents. Surprisingly, only 0.84% of replies were from brokers and insurers.
The Government asked respondents whether a permitted insurance fee should be defined to allow remuneration for specific activities by freeholders and managing agents and prevent other payments incurred in relation to arranging insurance by freeholders and managing agents being chargeable. Interestingly, responses to this from leaseholders were divided with 47% answering “yes” and 51% responding “no”. 24% of freeholders responded “yes” and 57% said “no”. Again, managing agents were almost equally divided with 52% in agreement and 43% against the proposal.
Unfortunately, in the response to the consultation, the Government does not set out a definitive analysis on the payments which should be included within the scope of permitted insurance payments. They acknowledge that building needs differ widely and note a need for clarity in mixed-use buildings.
The Government confirms that the way forward is for them to “continue to work with industry to establish what activities are required and what remuneration is proportionate.” In addition, they want to ensure that there is alignment between “excluded insurance costs” and “permitted insurance payments” under LAFRA 2024 with the wider existing regulatory landscape for insurance distribution activities. LAFRA 2024 envisages secondary legislation to confirm what type of payments fall within the definition of permitted insurance payments and those regulations will be awaited in due course.
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Landlords, freeholders and property managing agents were generally of the view that their activities in the chain were substantial and merit remuneration. Although most property managing agents were using the commission model, a number of respondents said they were already operating a fee-based model. They also highlighted that in most cases their insurance distribution activity is subject to regulation via the Financial Conduct Authority (FCA) or the Royal Institution of Chartered Surveyors (RICS) Designated Professional Body scheme.