On 11 July 2025 the Ministry for Housing, Communities and Local Government ('MHCLG') published its response to a consultation in which it posed a series of questions primarily directed at leaseholders, managing agents, landlords and freeholders in relation to insurance commission and permitted insurance fees.

It was generally accepted by all stakeholders that the current process of procuring insurance for residential multi occupancy property, is for brokers to identify the appropriate insurer with which to place the insurance and for the brokers to be remunerated by a commission.  It has long been the case that this commission, or discount in some cases, is then shared with the landlord and/or managing agent and ultimately charged back (or not deducted in the case of a discount) to the leaseholders through the service charge.

Of the leaseholders who responded to the consultation, the overwhelming majority considered that there was a lack of transparency as to what was being charged to them and who was benefitting from that.  In fact, only 27% of the respondents said that they were aware of the payments made to the freeholder or managing agent for arranging or managing the insurance. The MHCLG say that this demonstrates the opacity of the system.

The proposal is to introduce, by way of secondary legislation, a ban on commission sharing and instead for there to to be permitted insurance fees to remunerate the relevant stakeholders for specific tasks carried out in the procurement of insurance.  This will be in conjunction with the coming into force of s60 of the Leasehold & Freehold Reform Act 2024 relating to the timely provision of information.  The object being to improve transparency and fair value which will, theoretically, reduce the number of claims brought before the First-Tier Tribunal.  As 93% of the leaseholder respondents feel that challenging costs through these channels is complex, time consuming and does not deliver fair outcomes, this can only be a good thing, right? 

However, it may not be so straightforward; 52% of leaseholders were opposed to the imposition of permitted fees, with those opposed expressing concern that it would have the effect of legalising income currently acquired through commissions and others arguing that the procurement of insurance should be part of the monthly management fee.

It seems that time will tell ultimately whether the proposals will achieve the aims intended, or whether they will just change the nature of the dispute.

If you would like to know more, or discuss the implications of this, please contact a member of our Real Estate team.