Hundreds of thousands of rental property owners may have been paying hidden insurance fees to their landlords, a legal case alleges.
According to law firm Velitor, an estimated 900,000 rented apartments owned by the largest landlords in England and Wales could have been affected.
It has launched a multi-million dollar class action lawsuit against what it calls the “top 20 companies.” private investors in ground rents and their insurance brokers’, although he has not named the companies publicly.
While tenants are often charged for buildings insurance each year, the case claims that these insurance premiums often include a hidden “commission” that is split between the landlord and the insurance broker.
Class action: Estimates suggest ‘secret insurance kickbacks’ could affect up to 900,000 flats owned by major landlords
Velitor alleges that renters pay these fees without realizing that they are being charged and paying more for insurance than they should.
The law firm offers tenants the opportunity to file a no-win, no-fee claim against landlords and insurance brokers for illegally charging these hidden fees in construction insurance premiums.
This malpractice is believed to have been going on for years in buildings across England and Wales.
If successful, a claim could allow tenants to recover between £1,500 and £3,500 on average, according to tenant charity Leasehold Knowledge Partnership.
The charity also revealed that on the first day the appeal was made public, more than 1,700 renters signed up.
Although “secret” commissions will become illegal as a result of the Leasehold Reform and Freehold Act 2024, the Act is not yet in force and is not retroactive.
Earlier this year, the Financial Conduct Authority (FCA) reported that renters paid £1.6bn in insurance premiums between 2019 and 2022.
The FCA estimated the average “hidden” commission charged was 30 per cent of the premium, and there was evidence some renters were facing an increase of up to 60 per cent.
Since the Grenfell Tower tragedy in 2017, insurance costs (and therefore fees charged to tenants) have skyrocketed.
Giles Grover, a landlord, investigated the insurance fee charged to residents of his own block in Manchester.
His home was found to have the same type of cladding as Grenfell Tower and as a result, the building’s insurance premiums rose by 500 per cent.
Legal case: Homeowners who have been paying “secret” insurance commissions to their property owners have a chance to get some of their money back
He said: ‘It is shameful that while residents were dealing with unsafe cladding in the wake of the Grenfell tragedy, insurance brokers and landlords were splitting hidden commissions on our building insurance.
‘In just three years our insurance costs increased more than fivefold, to over £440,000 a year.
‘Charging such high commissions on such large sums for almost no work will have earned them a fortune.
“I would say that they are nothing more than freeloaders who take advantage of the misfortune of others.”
Velitor says the tenants were never informed and therefore did not give their “informed consent” and that the commissions paid should be returned to the tenants.
Liam Spender, Property Litigation Manager at Velitor, recently successfully challenged a £100,000 insurance fee charged by his own landlord relating to the block of flats he lives in.
This, he said, alerted him to the wider problem facing many other tenants in England and Wales.
“I was able to expose and recover secret kickbacks through which landlords were receiving money from unwitting tenants,” Spender said.
‘Through this class action, Velitor now seeks to help others recover any secret commissions they may have paid.
“The plight of tenants and the unconscionable and unlawful treatment they receive from some freeholders is nothing short of a national scandal. This legal action will be an important step in addressing it.”
Spender says they expect to file lawsuits against the top 20 private land rental investors and their insurance brokers, but will also consider lawsuits against other property owners.
The worst affected blocks are the largest ones in the biggest cities, such as London, Manchester and Leeds.
He says large, purpose-built developments within cities are likely to have paid the highest charges.
Spender added: ‘There are buildings affected in every city and town in England and Wales.
‘But the worst hit blocks are the biggest ones, in the biggest cities, like London, Manchester and Leeds.
‘That’s because the commission is usually a percentage of the insurance premium and those buildings have higher premiums.
‘Insurance is arranged by the targeted owners for multiple buildings, so all buildings whose owners resort to this practice are affected.’
How can you make a claim?
The legal action to be brought in the High Court on behalf of any tenant who chooses to take part will seek to recover hidden fees, any resulting increase in Insurance Premium Tax and interest going back at least six years.
It is also expected that the six-year period could be extended if the High Court agrees.
The claim is open to any existing tenant or anyone who has owned a leasehold property since 1997.
According to Velitor, there is no cost to join the claim and there is no risk for tenants.
Velitor and his backers will receive 40 percent of any compensation awarded by the courts.
To participate in the claim Tenants can register here.
Velitor and his lawyers say they will work on a reduced hourly rate. In addition, successful claimants will pay the funder £100 of their damages in costs, a figure that will increase by £10 for each year the claim is active.
The claim is backed by “after the event” insurance which covers any cost risk. If the claim is unsuccessful, claimants will pay nothing.
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