Secret commissions

[Stacker]

This is the problem with a lot of regulations etc. that are supposedly in place to protect leaseholders.
'Best practice' isn't decided by organisations that are there to protect the interests of leaseholders, it is decided by organisations like RICS, ARMA and ICAEW - organisations whose primary objective is to protect the interests of managing agents, accountants, etc. who will be making money off leaseholders.

The illusion that the are " professional", work to mandatory codes,its the same with the property ombudsman in fact all Ombudsmans are a joke! Even the FSO..they have often been accused of failing the consumer...time for a change

[Gordon999]

During the previous Labour Government, disputes between L & T were brought to the LVT ( Leasehold Valuation Tribunal ) and many of the LVT Tribunal panel were recruited from RICS members and lawyers,
When Conservative were elected to power in 2010 , the LVT seemed to be replaced by the FTT which is under the Courts.

The Tribunals, Courts and Enforcement Act 2007 created a 2-tier tribunal system: a First-tier Tribunal and an Upper Tribunal. The new structure brought together individual tribunals that had similar interests or operating practices into Chambers.

The seven First-tier Tribunal Chambers are:

• Immigration and Asylum
• Social Entitlement
• War Pensions and Armed Forces Compensation
• Health, Education and Social Care
• General Regulatory
• Property
• Tax

Each Chamber is headed by a Chamber President; overall responsibility for the tribunal system and judiciary rests with the Senior President of Tribunals.

[Gordon999]

I have only ever witnessed the strong support they have given, and continue to give to leaseholders trapped in appalling situations. Along with exposing some of the worst offenders.
If they had been allowed involvement in FTT, perhaps the system would be more balanced.

Michelle,

I think you may be mistaken in quoting FTT.

LKP has wanted to get onto the Board of Leasehold Advisory Service ( LEASE ) to represent the leaseholders side..

Eagle 2 is confusing the situation by objecting to you ( Michelle) representing LKP and getting involved with FTT .

This is a total misunderstanding of LKP whihch is operates as a charity trust. to promote "leasehold reform"..

The APPG for Leasehold Reform (in Parliament ) has 3 MPs as honorary chairmen and .has support from about 160 MPs as members..

. .

[fos333]

RICS are always biased and in favour of protecting their own, its a sham!

Hi Stacker,

I had concluded this thread was dealing only with insurance commissions hence no further reply, however I feel I have to reply to the above.

RICS are a sham and my initial investigation took 22 months from raising the issue to receiving a letter in review of the complaint from the Service Complaint Reviewer.

He concluded "I have serious concerns about the handling of this case, partly for reasons given by the complainant, but more importantly for reasons that have emerged as a result of my examination of the file.

This case has taken far too long to reach completion and the service to the complainant by way of contact and update has been inexcusable.

My estimation of the quality of the service is that it was very poor. While I am unable to say whether disciplinary proceedings against the managing agent would or should have been justified by the facts presented, many points raised by the complainant time and time again were not addressed or examined adequately or properly responded to. At times the complainant was misled as to the progress of the investigation. The review by the senior manager did not properly address these failures.

I find that the service provided to the complainant was affected by fundamental flaws.

The allegations the complainant raised in his letter of 5 April 2018 have not been addressed and should be investigated, and that investigation should encompass other issues relating to the conduct of the managing agent as far as possible after an assessment of what is possible under RICS’s rules and regulatory framework.

The complainant rejected the offer of financial compensation for the poor handling of his complaint. I can understand that he put a higher premium on seeing the managing agent held to account for what he believed to be serious failings than on being offered financial redress for poor service. He may not have been aware how poor the service actually was.

Given the seriousness of the failings I have found, I recommend that RICS reconsider making a substantially higher offer of compensation to the complainant."

The subsequent investigation was another 'white wash' by RICS, however due to having by this time successfully managed to be appointed as director of the RMC the managing agent was removed.

I would recommend this action for any other leaseholder who has the opportunity of taking control of his/her own forward solution, rather than through any flawed redress scheme.

[michelle230]

Thank you Gordon - you are spot on! I did mean LEASE not FTT. And yes - LKP would have been excellent if they had been allowed to be involved in LEASE which of course is meant to support leaseholders. How strange (or not!) that they were turned away. And yet Roger Southam was given the position of chaiirman!
Hoping the CMA report and subsequent actions will not disappoint!
Thanks again.
Michelle

[eagle2]

Disclosure is required so that the leaseholders know how much the policy has been inflated by. FTT tribunal cases state no more than 10% is acceptable because its to cover the claims handling should there be a claim so they can hardly charge hundreds for doing the work, the FTT know this and apply this....they base it on the time taken to manage any claims and if there are no claims then claiming a high commission is not justified. Also I found out that the brokers receive a commission from the insurance company for the volume of business they place with the insurer...so possibly the managing agent, freeholder and broker benefit at the expense of the leaseholder..

The FTT has been known to allow commissions in excess of 10%, I am not convinced that we shall see full disclosure of all commissions payable under an insurance policy and I am not sure how the new regulator will have the jurisdiction to require connected companies to declare commissions.

[eagle2]

So why aren't the Financial Ombudsman Services doing anything about this? They could help oversee and regulate the commercial insurance business for flats as they do with all other financial products?

It is a much broader issue than insurance commission as fos333 has stated. There is no limit to the charges which freeholders and agents can invent to extract monies from the pot of funds which they hold. It can be extremely difficult to prove that part of the service charge expenditure has ended up in the hands of those holding the funds.

[eagle2]

The solution is transparency and accountability, stop inflating the cost of the insurance to the leaseholders.

Transparency and accountability is only part of the issue. Proving that all commissions have been declared is another matter. Proving that 3rd parties are connected with the freeholders and agents is another matter.

Insurance only scratches the surface, what about all the other expenditure and particularly contractors being connected with the freeholders and agents? Direct connections may be obvious, indirect connections are extremely difficult to spot. Multi million contracts are issued each year, those contractors can be "grateful" in many different ways.

[Stacker]

The FTT has been known to allow commissions in excess of 10%, I am not convinced that we shall see full disclosure of all commissions payable under an insurance policy and I am not sure how the new regulator will have the jurisdiction to require connected companies to declare commissions.

Bribery ACT 2019 Commission

Can a payment of commission be classed as a bribe under the Act? In situations where a party has a conflict of interest and accepts a commission on the basis that he or she will improperly direct more business to a party, yes it can. An example of this could arise where an insurer and a broker have entered into a contingent commission agreement on the understanding that the broker will direct business to the insurer. If as a consequence a broker improperly performs his duties by placing business with that insurer instead of other more suitable insurers, he could have arguably been bribed under the Act.

In contrast to English agency law, disclosure of a commission is not a defence under the Act. In fact, disclosure of a commission could result in the admission of an offence. Insurers and brokers need to be mindful of not only the conduct of their own staff but also the conduct of any agents or other representatives that carry on or arrange business on their behalf.

[Stacker]

Secret profit commissions are a criminal offence under the Bribery Act 2010 and if an insurance broker is found to be liable, the courts may also charge the Directors and other Officers of the company. Therefore, there is an added incentive for insurance brokerage firms to tighten up their systems and controls and to encourage transparency, which would be a welcome development. Recovering secret profit commissions

For those affected, there are options. When a broker lacks integrity and fails to act in the best interests of his principal by accruing secret commissions, the affected parties may have a claim for non-disclosure against the broker and potentially their Directors and Officers. Undisclosed sums may be recoverable going back as far as six years prior to the current claim, so long as secret commission payments were made throughout that period.



A shifting of the tide



Secret profits commissions have been a lucrative feature of the UK property insurance market for many years, however there are signs that the tide is shifting in favour of a more transparent, client focused approach, where landlords, managing agents and insurance brokers are not allowed to unduly profit from revenue-generating schemes at the expense of the client.

In September 2014, in a landmark case, the Supreme Court held that bribes and other secret commissions received by an insurance broker are the true property of the principal and that the broker shall hold the sums 'on trust' for the principal. This decision simplified what was a very complex and unclear area of law and represents a clear shift towards transparency and client duty of care.

In March 2016, the Competition and Markets Authority (CMA) published its long awaited paper on 'Residential Property Management Services' concluding that a greater emphasis should be placed on transparency and integrity and recommending that property managers "disclose what is included (i) within the core management fee and rates of management charges, [IMG]file:///C:/Users/yperr/AppData/Local/Temp/msohtmlclip1/01/clip_image002.jpg[/IMG]administration and supplementary charges, and (iii) commissions (including commissions earned by the property manager for arranging the buildings insurance)."

This is good news for lessees and reflects the changing tide, which insists on greater integrity from insurance brokers and an increased clarity in their disclosure to clients of all commissions received when placing business.

[michelle230]

So do you get to see the policy, invoice and are you able to ask for sight of/ disclosure of the commissions?

I have a copy of my policy but often you won't be given it. Or you may just get the page showing basic insurance details of your particular block but not the full policy details.
I was told my F/H doesn't add on commission but I dont believe that. There's so many ways they can inflate the cost. More so when LEASE hold seminars for Freeholders explaining how they can maximise insurance profits from leaseholders.
The invoice (If you want to traipse to wherever their offices are) may only show for the total multi block cost.
Every case is different I suppose. And if they are using their own - or a 'mate's' insurance brokerage - then it's easy to be less than transparent.

[eagle2]

The need for transparency is not new, the RICS code of practice 3.6 states that “all other sources of income and benefits … should be declared … to the leaseholders”. I accept that the wording could be improved by an amendment to “must be declared”.

Transparency in itself does not assist leaseholders and it only relates to the freeholder or the agent, it does not include all persons who have received commissions under an insurance policy.

The time for leaseholders to celebrate will be when the actual cost of insurance is reduced.

[leaseholder64]

The need for transparency is not new, the RICS code of practice 3.6 states that “all other sources of income and benefits … should be declared … to the leaseholders”. I accept that the wording could be improved by an amendment to “must be declared”.

The RICS guide uses should and must in specific ways. They only time they use must is when there is legislation that requires it. In that case they also include a reference to that legislation.

There may be the odd mistake, particularly where legislation is on the books but has not been commenced.

If you want a should to be changed to a must, you need to get legislation passed and commenced.

The Highway Code uses the same convention. E.g. rule 243 says DO NOT, when listing places where you should not park, because there are no laws. There is no list of laws at the end of that section. On the other hand, rule 240 says MUST NOT, in relation to places were parking is forbidden by law, and contains a list of 14 pieces of legislation to back that up. The Highway Code and RICS Guide serve similar roles in their relative spheres. There are referenced as best practice, by the legislation, but don't create any offences in themselves.

[eagle2]

I accept the distinction and agree that it would be better if there were specific legislation. The new regulator may well make it a requirement for disclosure to be made.

There is nothing to stop a leaseholder applying now to the freeholder or agent and asking them to comply with the RICS code. They could also apply now to the FTT and seek a direction that disclosure is made to them.

The point though is that disclosure is unlikely to assist the leaseholder unless the freeholder or agent admits that the rate of commission and benefits is unreasonable, which is highly unlikely. It is important to add "benefits" because freeholders and agents have found ways other than receiving commission when arranging insurance.

The subject is much wider than insurance though, it relates especially to the appointment of contractors, connected companies, kick-backs etc

[eagle2]

During the previous Labour Government, disputes between L & T were brought to the LVT ( Leasehold Valuation Tribunal ) and many of the LVT Tribunal panel were recruited from RICS members and lawyers,
When Conservative were elected to power in 2010 , the LVT seemed to be replaced by the FTT which is under the Courts.

The Tribunals, Courts and Enforcement Act 2007 created a 2-tier tribunal system: a First-tier Tribunal and an Upper Tribunal. The new structure brought together individual tribunals that had similar interests or operating practices into Chambers.

The seven First-tier Tribunal Chambers are:

• Immigration and Asylum
• Social Entitlement
• War Pensions and Armed Forces Compensation
• Health, Education and Social Care
• General Regulatory
• Property
• Tax

Each Chamber is headed by a Chamber President; overall responsibility for the tribunal system and judiciary rests with the Senior President of Tribunals.

I think that the LVT was created by the Housing Act 1980 when the conservatives were in office. The FTT replaced the LVT in July 2013.