Insurance Commission Shake-Up

In a landmark move to improve transparency and fairness in the leasehold sector, the UK Government has confirmed it will ban hidden commissions on buildings insurance for leasehold properties. The reform, part of the Leasehold and Freehold Reform Act 2024, is targeted to come into effect on April 1, 2026 (see *Note at foot of article), and is expected to reshape the financial relationship between landlords, managing agents, and leaseholders.

The changes will apply across England and Wales, affecting approximately 4.8 million leasehold homes.

 

Why the System Needed Reform

For years, leaseholders have unknowingly paid inflated insurance premiums - often subsidising large commissions for freeholders and managing agents. These commissions, sometimes exceeding 50% of the premium, were rarely disclosed.

A 2022 Financial Conduct Authority (FCA) report revealed a 40% rise in broker remuneration between 2019 and 2022, with no clear benefit to leaseholders. In some cases, managing agents and freeholders earned tens of thousands of pounds annually from commission alone.

Leaseholders described the system as “opaque,” “unfair,” and “impossible to challenge.” The Government has now agreed.

 

What’s Changing - and When

From April 2026 (See *Note at foot of article) , landlords and managing agents will be prohibited from recovering insurance commissions via service charges. Instead, they may charge “permitted insurance fees” - transparent, itemised costs for specific services related to arranging and managing buildings insurance.

Permitted insurance fees may include:

• Handling claims
• Administering premiums
• Sharing risk data with insurers
• Conducting fire risk assessments and documentation

These fees must be reasonable, proportionate, and clearly disclosed. They can no longer be hidden within premiums or recovered through indirect broker arrangements.

The reforms are enabled by Sections 61–64 of the Leasehold and Freehold Reform Act 2024, with detailed definitions to follow in secondary legislation.

 

Transparency at the Core

The new rules introduce a major shift in transparency. Landlords and agents will be legally required to provide leaseholders with insurance documents and cost breakdowns within a set timeframe after renewal.

Leaseholders will be entitled to request:

• Full policy details
• A breakdown of any permitted fees
• Disclosure of any commissions paid to brokers or insurers — even if not charged to the leaseholder

This marks a significant step toward clearer, fairer insurance practices.

 

Winners and Losers

For leaseholders, the reform is a hard-won victory. It ends years of frustration over unexplained insurance hikes, poor-value policies, and the inability to challenge costs at tribunal.

For freeholders and managing agents, however, the ban on commissions will require a radical overhaul of contracts, income models, and client communications. Many relied on commissions to subsidise management fees - now, they’ll need to invoice separately for legitimate insurance-related services.

Propertymark, has cautiously welcomed the reforms, but says they raise challenges for managing agents, advising they will have to be more transparent and detailed in their billing, and could face increased scrutiny over what constitutes a reasonable fee. The industry body also warns there are unanswered questions around costs and concerns over tax implications. Permitted insurance fees will be subject to VAT at 20%, compared to the 12% Insurance Premium Tax (IPT) applied to insurance premiums - potentially increasing overall costs for leaseholders.

 

Looking Ahead: Enforcement and Risks

Tribunals are expected to see a rise in disputes as leaseholders challenge the legitimacy of newly introduced fees. The Act gives tribunals the power to:

• Order repayment of prohibited charges
• Award compensation of up to three times the amount wrongly charged

The reforms are part of a broader Government effort to clean up the leasehold sector, which Housing Minister, Matthew Pennycock, recently described as “a Wild West” of poor regulation, hidden profits, and unaccountable practices.

Insurers and brokers are also under pressure. The FCA has introduced its own reforms requiring brokers to:

• Act in leaseholders’ best interests
• Disclose commissions on request
• Avoid recommending policies based on remuneration

 

A Long Overdue Reform - But Not Without Risk

The decision to ban commissions is a landmark moment — a clear shift away from profit-driven opacity and toward consumer-focused transparency. But it also introduces new uncertainties:

• What counts as a “reasonable” fee?
• How will smaller agents adapt to the loss of commission income?
• Could leaseholders still end up paying more?

These questions may take years to resolve. But one thing is clear: the days of hidden charges and backdoor deals in leasehold insurance are numbered.

 

Key Points at a Glance

• Effective Date: April 1, 2026
• Legislation: Leasehold and Freehold Reform Act 2024 (Sections 61–64)
• What’s Banned: Recovery of insurance commissions via service charges
• What’s Allowed: Transparent “permitted insurance fees” for defined tasks
• Who’s Affected: Freeholders, landlords, managing agents, and leaseholders in England & Wales
• Tribunal Powers: Repayment of prohibited fees + potential fines up to 3× the amount
• Tax Concern: VAT (20%) applies to fees, higher than the 12% IPT on premiums

 

*Note: Whilst the reform, which is part of the Leasehold and Freehold Reform Act 2024, is targeted to come into effect on April 1, 2026, the Government is still finalising the definitions of ‘permitted insurance fees’ and enforcement mechanisms and the exact date is yet to be formally confirmed through statutory instrument.

This article is for informational purposes. Always seek professional advice before making any property decisions.

 

 

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