Block insurance passed on to leaseholders

dacouch

It should be noted that on a block policy the broker could be receiving commission of upto 40% (Although smaller brokers would receive nearer 20%). If the freeholder does not ask some of it back the broker would retain it so the leaseholders would still end up paying the same.

Obviously the option for the freeholder to accept the kick back from the broker and then distribute it back to the leaseholders or even offset it against maintenance is feasible

chucknorris

dacouch wrote: »

It should be noted that on a block policy the broker could be receiving commission of upto 40% (Although smaller brokers would receive nearer 20%). If the freeholder does not ask some of it back the broker would retain it so the leaseholders would still end up paying the same.

Obviously the option for the freeholder to accept the kick back from the broker and then distribute it back to the leaseholders or even offset it against maintenance is feasible

Good point, I did actually overlook this, that would be a good way of dealing with it. If you received 20% commission I think it would be fair to retain 10% and put the other 10% into a sinking fund for maintenance.

Although for reasons stated above I no longer think this is for me.

de1amo

ther best con on these insurance fees are within properties above commercial properties--it is quite common practice that the leasehold flats above pay the whole block insurance and the freeholder who invariably has interest in the commercial properties which are paying rents that include the insurance premium!

dacouch

chucknorris wrote: »

Good point, I did actually overlook this, that would be a good way of dealing with it. If you received 20% commission I think it would be fair to retain 10% and put the other 10% into a sinking fund for maintenance.

Although for reasons stated above I no longer think this is for me.

You will like this, in the search bar for google type in "Google Won't" and then hit the "I'm feeling lucky" button...

Doozergirl

dacouch wrote: »

You will like this, in the search bar for google type in "Google Won't" and then hit the "I'm feeling lucky" button...

That's random!

glottalstop

Well what an interesting thread. And a complicated one.

Chuck - as you spotted the freeholder does not necessarily control the manager, and the management lease will state who has responsibility for insuring the block, so you may not control any of the kickback. Hidden rebates on block insurance have been as high as 33% where the freeholder, manager and insurance agent have all been from the same company group. There is no definition of what is reasonable (which is why there are so many lawyers) - at one stage it was thought that RICS considered commissions above 15% to be unreasonable, and yet some big freeholders/managers hold out that 18-20% is fair.

Some of the worst offenders have stated that under FSA regulations they do not have to declare hidden rebates until the information is requested by an entitled party.

However it is an offence (against the law of agency etc) to use the position of freeholder/manager to profit from service charges or otherwise cause an increase in charges except to pay for the cost of services provided. There has been one case where the freeholder/manager/insurance agent were unable to justify the massive commissions which they retained, could not demonstrate that they had done any work to earn the commission, and in fact the cost of the policy to service charge paying lessees was 2-3 times higher than comparable insurance available in the marketplace. In this case the whole kickback was ordered to be repaid. And yes the FSA and OFT ought to give companies who do this sort of thing a public flogging.

So you may be on dodgy ground retaining any kickback unless you can demonstrate you are saving the service charge payer some money, or providing value-add services while remaining within the requirements of the lease.

There are several other ways in which freeholders are increasing their incomes beyond ground rents, there are some scandalous "admin fees" being charged which should also be stamped on by OFT.

Maybe as an unconfirmed good guy ( well spotted Doozergirl ) you might want to reconsider trying to exploit being a freeholder ? After all, you own a freehold block which someone else pays to insure and maintain for you, which provides a relatively low risk, very predictable long-term income stream.

chucknorris

glottalstop wrote: »

Well what an interesting thread. And a complicated one.

Chuck - as you spotted the freeholder does not necessarily control the manager, and the management lease will state who has responsibility for insuring the block, so you may not control any of the kickback. Hidden rebates on block insurance have been as high as 33% where the freeholder, manager and insurance agent have all been from the same company group. There is no definition of what is reasonable (which is why there are so many lawyers) - at one stage it was thought that RICS considered commissions above 15% to be unreasonable, and yet some big freeholders/managers hold out that 18-20% is fair.

Some of the worst offenders have stated that under FSA regulations they do not have to declare hidden rebates until the information is requested by an entitled party.

However it is an offence (against the law of agency etc) to use the position of freeholder/manager to profit from service charges or otherwise cause an increase in charges except to pay for the cost of services provided. There has been one case where the freeholder/manager/insurance agent were unable to justify the massive commissions which they retained, could not demonstrate that they had done any work to earn the commission, and in fact the cost of the policy to service charge paying lessees was 2-3 times higher than comparable insurance available in the marketplace. In this case the whole kickback was ordered to be repaid. And yes the FSA and OFT ought to give companies who do this sort of thing a public flogging.

So you may be on dodgy ground retaining any kickback unless you can demonstrate you are saving the service charge payer some money, or providing value-add services while remaining within the requirements of the lease.

There are several other ways in which freeholders are increasing their incomes beyond ground rents, there are some scandalous "admin fees" being charged which should also be stamped on by OFT.

Maybe as an unconfirmed good guy ( well spotted Doozergirl ) you might want to reconsider trying to exploit being a freeholder ? After all, you own a freehold block which someone else pays to insure and maintain for you, which provides a relatively low risk, very predictable long-term income stream.

I am no longer interested, I have made my money, all I am looking for is an investment that offers a decent return to hedge against inflation depreciating my capital. Ground rents definitely offer this but I would concerned about the frustration of having ro continually chase leaseholders for unpaid bills, I have now realised it is not for me.

chucknorris

dacouch wrote: »

You will like this, in the search bar for google type in "Google Won't" and then hit the "I'm feeling lucky" button...

I couldn't see the 'I'm feeling lucky buton' (maybe I missed something obvious?)

dacouch

chucknorris wrote: »

I couldn't see the 'I'm feeling lucky buton' (maybe I missed something obvious?)

You will probably have google running on instants (It predicts what you are looking for as you type it in).