The UK leaseholder system is arguably one of the biggest causes of conflict and argument in the property market, except for shared driveways. The concept that you can buy and therefore own a house, but rent the land beneath it for 999 years seems like nonsense to most people. But there it is. Feudal law from the middle ages that persists like a parking enforcement team on Sunday overtime.
When buying a flat, or apartment as the modern jargon goes, the situation is even worse, since you obviously don’t own the building. But someone elese can own the lease on that parcel of land under the tower block, or another lease on the residents car park land. All this poxy Game of Thrones cod-medieval law is designed to create expensive, long running disputes about subsidence, floods, car park repairs, fire damage and much more.
Apart from drumming up lucrative work for solicitors it’s difficult to see the benefits of any of this land grab leaseholder racket. It also adds layers of complexity for insurers and their law firms when a tragic event occurs, when the main focus should be healing lives, not paying peppercorn fees to offshore landowners or their agents.
The move by the FCA to ban commission sales on leasehold insurance is perhaps worthy, at least in its aim. But the reality is that the entire house of cards surrounding land leases needs to be dragged into the 21st century, along with the insurance wording that defines responsibility and payments for specific scenarios; fixed term repair schedules, replacement furnishings via agreed values or loss of life, medical expenses etc.
Something needs to be done on tenant insurance too, the lack of alternative accommodation cover is arguably one of the primary reasons why few tenants buy home insurance. That IS the loss which tenants want covered, not a laptop and bicycle off eBay worth £180.
Here’s the latest statement from the FCA, which confirms leasehold insurance reforms, here are the details;
The FCA has confirmed new measures to support leaseholders in the multi-occupancy buildings insurance market. From the new year, insurance firms will be forced to act in leaseholders’ best interests, treat leaseholders as customers when designing products and will be banned from recommending an insurance policy based on commission or remuneration levels.
Insurers will also be required to ensure that their insurance policies provide fair value to leaseholders and provide important information about their policy and its pricing, including the detail of any commission paid, for leaseholders. The FCA’s action follows its review of the multi-occupancy buildings insurance market, which found that leasehold buildings insurance premiums had risen significantly since the Grenfell tragedy, with leaseholders facing substantially higher costs and poor value.
Sheldon Mills, Executive Director of Consumers and Competition, said:
“Insurance firms must now act in leaseholders’ best interests and ensure that their policies provide fair value. Our reforms will help to strengthen the insurance market by providing new protections for leaseholders. We will not hesitate to take action if firms breach these rules.”
Following a review into broker remuneration practices, the FCA expects brokers to immediately stop paying commission to third parties (including property managing agents and freeholders) where they do not have appropriate justification and evidence for doing so in line with our rules on fair value. The FCA will undertake further reviews across various products and will consider the full range of regulatory tools available to it as this work is progressed.
In addition to these measures, the Department for Levelling Up, Housing and Communities has announced that it intends to ban the payment or sharing of insurance commissions with property managing agents, landlords and freeholders. The FCA will work with DLUHC to ensure that this action is fully delivered, including changing FCA rules if required.