ominent UK property litigation experts are issuing a stern warning to managing agents, cautioning them about the impending surge in historic claims from leaseholders, following the recent leasehold buildings insurance reforms introduced by the Financial Conduct Authority (FCA).
Managing agents find themselves increasingly exposed to the risk of being entangled in multiple group actions brought forth by leaseholders. This poses a significant financial burden and, for some, a potentially ruinous outcome, as they face the likelihood of substantial damages. The catalyst for this emerging legal landscape is the legislative ban on the traditional practices of managing agents concerning insurance commissions.
In fact, the reality of legal action is already taking shape. Richard Glover, a preeminent property litigation lawyer in the UK, stated, "We are already witnessing a surge in claims initiated by leaseholders, triggered by Michael Gove's recent crackdown on 'secret' commissions."
The FCA's forthcoming legislation, slated for implementation by December 31, 2023, is specifically crafted to safeguard the interests of leaseholders against brokers who have been accused of overcharging and clandestinely funneling commissions to managing agents and landlords. The focus of this legal overhaul is insurance coverage for multi-occupancy buildings, which shields residents against perils such as water leaks. It is within this context that a concerning issue has arisen regarding the allegedly excessive service charges imposed by landlords on leaseholders.
Typically, occupants of flats are compelled to contribute towards a buildings insurance policy, despite having no say in its selection or knowledge of the contract's terms, including any undisclosed commissions. Over recent years, premiums for these policies have surged, particularly for residents residing in clad buildings, following the 2017 Grenfell Tower tragedy.
Glover elucidated, "These claims may reach back a minimum of six years, and in certain instances, they may extend up to twelve years. This translates to substantial financial liabilities."
He went on to explain, "The FCA has clearly stipulated that brokers must cease disbursing commissions to third parties, such as property managing agents and freeholders, unless they can substantiate a legitimate justification in alignment with the FCA's fair value regulations."
Furthermore, Glover pointed out, "We have been advising our managing agent clients on the implications of historical liability and the issue of 'secret commissions.' We have been assisting these clients in challenging the claims filed against them. We anticipate a significant influx of such cases in the ensuing months as the industry grapples with the implications of this new legislation."
According to the Department of Housing, Communities, and Local Government (DHCLG), there are approximately 4.98 million leasehold dwellings in England, constituting 20% of the housing stock in the country.
Article from https://propertyindustryeye.com/major-concern-for-agents-as-new-legislation-opens-floodgates-for-historic-claims/