In leasehold blocks, it is the landlord’s responsibility – and perk – to arrange the building’s insurance, though as with everything else, it is the residents who pay.
Where Peverel is the management company, it has until very recently used its sister company Kingsborough – which was also also part of the Tchenguiz Family Trust – not as broker, as was previously thought, but as an undefined “insurance service” to arrange insurance and offer claims-handling support.
Over the past couple of years, leaseholders have become aware of the high commissions which have been charged by Kingsborough. In fact, Kingsborough does not do the work of finding a suitable insurance company – they pass this task onto Oval Insurance, which charges a reasonable commission of 3.45% for this work.
For the work Kingsborough has done on claims-handling assistance, however, it has historically charged commissions as high as 33.05%, nearly 10 times that charged by Oval.
However, interestingly, for what would logically seem to be the same volume of work each year, commissions have varied widely.
Kingsborough has tried to “justify” this by saying that, when the business was transferred to Zurich, they were required by Zurich to beef up their systems and back-office resources to fulfil additional functions so demanded a higher commission (33.3%) to pay for this.
Leaseholders were not told that this would be the consequence of transferring the business to Zurich and the increased commission was not disclosed.
Why should leaseholders have to pay for Kingsborough to re-equip its own business? That’s its shareholders responsibility. CarlEX have tried, without success, to discover on what basis these commissions are charged, and what they are levied to pay for. Letters have been sent to the legal department of the Peverel Group to ask further specific questions on this subject. Some developments have now achieved much lower rates of commission, but this is not consistently offered across the board, and some developments have been given a blanket ‘no’ when trying to open negotiations.
Some time ago, Kingsborough assured some CarlEX members in writing, that commissions would be reduced to 5 per cent in the current (09/10) year. This appears not to have happened. Instead, Peverel announced that in future “Commissions will be a transparent figure of 14%”, (which rather implies it agrees that its previous practices were anything but ‘transparent’).
We do not believe that any managing agent should profit by placing insurance on behalf of leaseholders and paid for by leaseholders. If there is a modest amount of administration involved, this should be covered within the overall management fee. Leaseholders can then compare one manager’s charges with another “transparently”, without the undisclosed commissions and kick-backs buried in the insurance premium and other service costs.
There are two official channels for taking complaints:
1. Leaseholders Valuation Tribunals. There is a fee for using LVTs.
2. Financial Ombudsman Service (because Kingsborough is financially regulated). This is a free service.
Whichever route you decide to take, you must complain to Kingsborough first, to give them an opportunity for redress. If any of you have already had success obtaining direct redress from Kingsborough, please post a comment on this site.
NB As we do not believe Kingsborough are involved any more with buildings insurance, any complaint against them would be an historic one, covering previous years of overcharges. However, the information below applies whenever you wish to escalate a complaint about an organisation to an Ombudsman service.
As far as the Financial Ombudsman Service (FOS) is concerned, you must first obtain a ‘deadlock letter’ from the company concerned, to prove you have done all you can to reach a satisfactory resolution, before they will look at your case. The question of your right to take a case to FOS is not entirely straightforward, as leaseholders were not Kingsborough’s direct customers.
However, leaseholders are beneficiaries of the buildings insurance policy and pay the premium, so you should be entitled to use the service. Make sure you make this point if you write to the FOS. If anyone has successfully complained to FOS, please can you let us know by posting a comment. Similarly, if you have tried to use FOS, but had your case rejected, we’d like to know about that too, as FOS has previously admitted after lengthy discussions that your complaints should be within their remit.
The scam of inflating insurance charges to leaseholders has been going on for years, with press publicity and the involvement of a number of MPs. But it is very lucrative for freeholders, who will continue to get away with it if they are not challenged.
Jamie Elliott’s excellent article in the Observer (‘Now Angry Leaseholders Kick Back at the Brokers’ 1st March 2009) provides a comprehensive summary. He points out that in 2008, there were 2,141 complaints to Leasehold Valuation Tribunals about this issue alone.
In 2010, the LVT (CAM/00KF/LSC/2010/0133) records: “The question of insurance premiums claimed by landlords under long leases has vexed Leasehold Valuation Tribunals for some time. This is a fairly typical application where a tenant is charged an insurance premium and, when asking for alternative quotations from other insurers, he finds that the alternatives are much lower.” The determination in this case was: “The insurance premium claimed …… is unreasonable. …. Any insurance administration fee or other fee related to this item is also unreasonable. Such work forms part of the management fee being charged by the managing agent.”
Here is a sample of particularly relevant cases, three of which relate to Consensus Business Group companies; all awarded refunds. Although LVT decisions don’t create precedents, other LVTs do take them into account when considering other cases. They also give a guide to commission figures considered reasonable by the Tribunals. Here they are:
1. Leaseholders Valuation Tribunal (LON/00BK/LSC/2008/0493). This is directly relevant to the position leaseholders in Peverel-managed developments have found themselves, with Kingsborough charging commissions as high as 33.05%. The Tribunal found: “…. real concerns about the insurance commission.” (para 60), and could not be satisfied that the commission to Kingsborough was reasonably incurred (para 62). It therefore disallowed the commission for the previous seven years.
2. LVT (LON/00BE/LIS/2006/0512) was not actually against Kingsborough, but another broker linked to a managing agent, and is therefore relevant on a point of principle. This Tribunal considered that the commission charged had been too high, and that 10% was the maximum acceptable figure (para 3).
3. LVT (LON/00AX/LSC/2004/0021) found that the definition of ‘cost of insurance’ did not permit the adding of any additional premium by the landlord.
4. The case (BIR/00FY/LSC/2008/0031) is highlighted on The Truth About Solitaire website (www.thetruthaboutsolitaire.co.uk), and represents Britain’s largest ever LVT case. It concerns insurance commission to Solitaire (another Peverel Group company). In common with commissions taken by Kingsborough, Solitaire had been taking moneys described as ‘premium rebates’ as high as 33.05% from the gross amount charged to residents. (This is exactly the same figure as Kingsborough has historically taken from our premiums.) As with retirement developments, Oval placed the insurance with Zurich. The residents discovered they could have obtained insurance significantly cheaper than Zurich (para 18). Para 23 explains the case that “the rebate from the gross premium is a payment for services such as the claims handling and risk assessment, and is not a commission.” Also, that the Landlord & Tenant Act states that: “Monies paid by way of service charge are to be held on trust by the lessor”; it is part of the general law that a trustee may not profit from his trust.
The LVT determined (para 25) that: “The level of the rebate is considerably in excess of the cost of this work, and that a proper fee for it is represented by a sum equal to 15% of the gross premium.” It therefore ordered that all premium rebates in excess of 15% be credited to the service charge accounts for the 126 families concerned, for the past six years.
5. The most recent case (LON/00AX/LSC/2011/0220) concerns Charter Quay, who had been charged excessive insurance commissions by a Tchenguiz company. The Tribunal ruled that: “The most which we consider reasonable is 10%”.
It seems that the Peverel group companies have entered into a national agreement covering 500 estates to keep buildings insurance with Zurich, in return for “excessive” commissions. There are now successfully being challenged, and we would be most interested to hear of any experiences – successful or otherwise – which we can publicise on this website, for the information and assistance of all.
Whether-or-not you are tangled in the Peverel web, a logical way forward is to obtain your own insurance quotation for comparable cover. Assuming this is cheaper, you can use this as a starting point for negotiation. Secondly, as you are paying a management company to manage, they could try and negotiate a better deal on your behalf with the freeholder. If the management company is inadequate – consider Right to Manage as a way of replacing them. Finally, how about considering enfranchisement, by buying the freehold, or obtaining commonhold? This would really put you in the driving seat.
Important: if you decide to make a complaint, it is wise to send all letters by Recorded Delivery, and keep a dated copy and log of all correspondence and phone calls.
The whole question of excessive commissions – paid for by leaseholders – can only be regarded as a scam. While landlords can claim ‘reimbursement’ of insurance costs, we believe that ‘reimbursement’ means just that, and does not mean they can inflate the figure.
However, this is exactly what they are doing, and it is one of the reasons proper Government regulation is so badly needed. So, whatever other action you take in your own development, please contact your MP as well – preferably by visiting at their surgery. This is the most powerful way to approach them. If you write to your MP, copy the correspondence to the Rt Hon Grant Shapps (Housing Minister). Your MPs work for you, and all of us need to make sure they know the issues which badly need addressing.