Leasehold and Freehold Reform Act 2024 - Government opens consultation on permitted insurance fees
The Leasehold and Freehold Reform Act 2024 (“LAFRA 2024”) was passed during the wash-up in May 2024, just before Parliament was dissolved to allow the General Election to take place. The new Labour Government has recently opened a consultation about one aspect of LAFRA 2024: insurance fees. The consultation entitled: Permitted insurance fees for landlords, freeholders and property managing agents, seeks views on what payments should be allowed within the new category of permitted insurance fees in LAFRA 2024.
LAFRA 2024 contains restrictions on the elements of insurance fees which can be charged to leaseholders of residential flats. These will be known as “excluded insurance costs” but these provisions are not yet in force.
When the relevant parts of LAFRA 2024 are enacted, where a tenant is charged and pays an excluded insurance cost, the First-Tier Tribunal (Property Chamber) (“the FTT”) may order that it is repaid and also has the power to award damages to the leaseholder of between one and three times the excluded insurance cost. However, LAFRA 2024 will also imply a term into a long residential lease that if the landlord incurs a permitted insurance payment, the tenant must pay the landlord those costs, whether or not the lease contains such a provision already.
Landlords will no longer be able to receive commission and will be prevented from passing on any costs incurred in arranging or managing insurance to leaseholders unless such costs fall within the scope of “permitted insurance payments”.
However, much of the detail will be contained in secondary legislation. The Government suggests that this consultation will help it to draft the secondary legislation to accompany the insurance provisions in LAFRA 2024 based on the Government gaining an understanding of current practices. Within the consultation, information and views are requested around what specific activities relating to arranging and management of insurance, freeholders, landlords and managing agents currently carry out and what activities should they be able to recover services charges for.
There are currently benefits to landlords and freeholders in arranging insurance policies in bulk including the receipt of commission. However, there are also advantages to leaseholders in that scenario as premiums can often be reduced by arranging insurance policies in respect of multiple buildings. Clearly, there is a cost to arranging insurance and reviewing the market with the assistance of brokers for a suitable policy at a reasonable premium.
At this stage, until the results of the consultation are known, it is difficult to predict exactly what costs will be permitted for arranging insurance by landlords within the permitted insurance payments allowed by LAFRA 2024. At present, much depends on the terms of the leases, but when the secondary legislation is published, this will be governed by statute. Landlords and tenants may wish to respond to the consultation to ensure that the Government has the full picture available to it when drafting secondary legislation. The consultation closes on 24 February 2025.
We are tracking developments on our Essential Residential hub and timeline: Changing landscapes in residential leasehold. Please contact Lauren Fraser, Laura Bushaway or your usual Charles Russell Speechlys contact if you have any queries.
We want to hear from all interested stakeholders on this permitted insurance fee. This consultation is intended to build a greater understanding of current practices and views on what kind of activities should be permitted as part of a permitted insurance fee. We would particularly welcome views from leaseholders, freeholders, property managing agents and parties involved throughout the insurance supply chain such as brokers and insurance companies.
