Disclosure of Insurance Commission

The leaseholder raised a number of concerns with the insurance for the block which they asked TPO to consider:

• The agent’s failure to voluntarily disclose receipt of insurance commission. According to the leaseholder, it was only after a number of requests that the agent finally revealed that they received a commission of 10%.
• The agent had arranged bulk insurance across their portfolio of properties, and therefore the leaseholder complained that the commission the agent had received was not representative of the administrative work involved in arranging the insurance.
• The leaseholder felt that the insurance policies that the agent arranged were uncompetitive overall and on conducting a comparison of other building insurance policies, several cheaper quotes were identified. As such, the leaseholder complained that the agent had failed to undertake an adequate market comparison.

The agent did not respond directly to TPO in respect of the leaseholder’s claims.

The Investigation

Whilst the agent did not respond to the adjudicator’s requests for evidence, the leaseholder had provided numerous items of correspondence that allowed the issues to be investigated. Furthermore, although the leaseholder was aware that they were able to challenge the actual amount of the insurance in the service charge via the First Tier Tribunal (FTT), the agent’s behaviour was key in the dispute arising and, as such, was a matter the adjudicator could consider.

The adjudicator noted that the freeholder was responsible for matters such as insuring the block and was entitled to pass the cost of this on to the leaseholder via the service charge. The freeholder had a statutory obligation to ensure that the cost of delivering communal services was reasonable.

The agent had been appointed to manage the block on behalf of the freeholder. Their duties were set out in a management agreement with the freeholder and would have included tasks such as carrying out the freeholder’s obligations under the lease, including the arranging of the block’s insurance.

In the performance of their duties, the agent was required to act in accordance with the terms of the management agreement and the terms of the lease. They also had an obligation to provide a service that was fair, reasonable and in accordance with best practice and legal requirements.

In relation to the disclosure of commission, the adjudicator noted that although the leaseholder had asked the question the agent had omitted to answer the same. Following the leaseholder raising the issue again, the agent then provided a response divulging that they had obtained a 10% commission. It was also noted that there was no indication that the agent’s receipt of commission was disclosed elsewhere, such as in the annual service charge accounts.

Regarding the level of commission received in relation to administrative work done by the agent, no evidence was provided to indicate whether this was a reasonable cost for all the leaseholders to pay. Furthermore, in relation to the cost of the insurance and the claim that the agent did not carry out an adequate market comparison, again no evidence was provided for the adjudicator to be able to reach an informed decision. However, in respect of both issues, the leaseholder was informed that both claims could be considered by the FTT given that the core question was whether costs were reasonable.

The Outcome

This case was a good example of where leaseholder issues could have been resolved at an early stage had the agent been transparent with their insurance arrangements and communicated this to all leaseholders in a formal manner. That they did not, caused the leaseholder to question the insurance arrangements whereupon their frustration grew as it became apparent that the agent had obtained commission but had not disclosed the same. Had the agent acted in a transparent manner, it is likely that the dispute would never have arisen in the first instance.

In respect of the agent’s failure to disclose the commission, an award of £100 was made. This was based on the understanding that the leaseholder retained the right to challenge the commission and insurance amounts, contained within the service charge, through the FTT.