Gove brings Bill banning excessive commission to parliament

Michael Gove
Photo: Houses of Parliament

Michael Gove, Secretary of State for Levelling Up, has brought a Bill to give leaseholders more power, while banning opaque and excessive buildings insurance commissions for freeholders and managing agents.

The Leasehold and Freehold Reform Bill, introduced to parliament today, will “help more leaseholders take over the management of their property if they wish to instead of being stuck with the freeholder’s management choice”, according to the government announcement issued alongside it.

This has been a long-running subject for the Financial Conduct Authority and the government, trying to bring about new regulations to ensure customers are treated fairly, and leaseholders are considered more as the end customer of multi-occupancy buildings insurance.

There has been some progress, with the FCA telling brokers not to pay commission to third parties without justification, while the government recently announced that five brokers had agreed to cap their commissions on certain policies.

But for many, these measures do not go far enough. Some have called for the banning of commissions, while others want leasehold as a concept to go altogether.

Broker remuneration

This all came after an FCA report into broker remuneration found some very worrying practices being in force. One unnamed broker was found to have demanded a 62% commission rate on one policy.

Gove previously said he was “outraged” by the FCA’s findings.

Following the publishing of the report, Gove wrote to FCA CEO Nikhil Rathi saying it “must not continue”.

Today marks a landmark moment for millions of leaseholders across the country, as we unveil laws to deliver significant new rights and protections, slash unfair costs and crack down on exploitation.
Michael Gove

He wrote: “You have found that broker remuneration has risen by nearly 40% in the past three years, with £80m of commissions are going to other parties – and that brokers are unable to provide any evidence to demonstrate that this represents fair value.”

Gove stated the findings in the FCA report strengthens his resolve to “ban property managing agents, landlords and freeholders taking commissions on buildings insurance and replace with transparent fees”, which he outlined in a previous letter to Rathi in January 2023.

The Leasehold and Freehold Reform Bill

Well now, it appears that Gove has brought that idea to parliament, which he calls “the most significant reforms to the leasehold system for a generation”.

Among other intentions, the government is hoping the Bill will:

  • Ban opaque and excessive buildings insurance commissions for freeholders and managing agents, replacing these with transparent and fair handling fees.
  • Scrap the presumption that leaseholders pay their freeholders’ legal costs when challenging poor practice that currently acts as a deterrent when leaseholders want to challenge their service charges.
  • Give leaseholders greater transparency over their service charges by making freeholders or managing agents issue bills in a standardised format that can be more easily scrutinised and challenged.
  • Make it easier and cheaper for leaseholders to take over management of their building, allowing them to appoint the managing agent of their choice.
  • Making it cheaper for leaseholders to exercise their enfranchisement rights, as they will no longer have to pay their freeholder’s costs when making a claim.
  • Extend access to redress schemes for leaseholders to challenge poor practice. The government will require freeholders, who manage their building directly, to belong to a redress scheme so leaseholders can challenge them if needed – managing agents are already required to belong to a scheme.
  • Grant homeowners on private and mixed tenure estates comprehensive rights of redress, so they receive more information about what charges they pay, and the ability to challenge how reasonable they are.

Justice for leaseholders

Gove said: “People work hard to own a home. But for far too long too many have been denied the full benefits of ownership through the unfair and outdated leasehold system. That’s why liberating leaseholders forms a vital part of the government’s long-term plan for housing.

“So, today marks a landmark moment for millions of leaseholders across the country, as we unveil laws to deliver significant new rights and protections, slash unfair costs and crack down on exploitation.

“The Bill addresses one of the longest-term challenges that the country faces: fairness in the housing market. The measures in the Bill will put the country on the right path for the future by addressing the historic imbalances between leaseholder and freeholder to give homeowners a fairer deal, greater protections and more rights.”

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