Are your building insurance charges inflated?

Look down your service charge statement and buildings insurance is usually near the top by value. In many blocks it is the biggest single item — sometimes larger than repairs, cleaning or management combined. Because leaseholders pay the premium but rarely arrange the policy themselves, it is also one of the easiest places for costs to be quietly inflated. This guide explains the "commission problem", the reforms designed to fix it, and the practical steps to check whether you are overpaying — and to challenge it if you are.

The commission problem

Here is how buildings insurance typically works in a leasehold block. The freeholder (or the managing agent acting for them) arranges a single policy covering the whole building. The premium is then divided among leaseholders through the service charge under the terms of the lease. So far, so normal.

The problem is what sat inside that premium. For years, freeholders and managing agents received substantial commissions from the insurer or broker for placing the business — frequently 20%, 30%, sometimes far more of the premium, and often not disclosed to the leaseholders footing the bill. Because the person choosing the policy was not the person paying for it, there was little incentive to shop around for the cheapest cover, and every incentive to favour the policy that paid the biggest commission. Leaseholders ended up paying an inflated premium that reflected a hidden kickback rather than the true cost of insuring the building.

This is not the same as legal expenses insurance, which is an optional protection you can buy for yourself to cover the cost of a dispute — we explain that separately in why legal cost insurance might be right for you. Here we are talking about the compulsory buildings insurance for the block that you pay through the service charge whether you like it or not.

The FCA reforms — from 31 December 2023

The scale of the problem prompted the Financial Conduct Authority (FCA) to act. Following its review of the multi-occupancy buildings insurance market, the FCA introduced new rules that took effect from 31 December 2023, aimed squarely at the commission problem.

In plain terms: a freeholder can no longer be paid a slice of your premium simply for being the freeholder. Payments to a party must reflect a real, valued service actually provided, and information about the policy and relevant remuneration must be passed on to leaseholders. The reforms do not, on their own, hand you a refund — but they remove one of the main engines of inflated premiums and give you much better information to check what you are paying for.

Insurance is still subject to the reasonableness test

The FCA rules sit alongside, not instead of, your existing rights as a leaseholder. Buildings insurance is a relevant cost recovered through the service charge, so it is caught by the Section 19 reasonableness test: under Section 19 of the Landlord and Tenant Act 1985, the premium counts towards your service charge only to the extent it was reasonably incurred.

Importantly, the courts have long held that a landlord is not automatically entitled to recover whatever premium they happen to have paid. The question is whether the cost was reasonably incurred — and a premium bloated by an excessive commission, or one far above what comparable cover would have cost, is open to challenge. A landlord does not have to obtain the absolute cheapest quote on the market, but they cannot recover a premium that is out of line with what a reasonable landlord in the same position would have paid.

Use your information rights to see the detail

You cannot challenge what you cannot see. Your statutory information rights let you get behind the single "buildings insurance" figure on your demand:

• Request a summary of costs. Under Section 21 of the Landlord and Tenant Act 1985 you can require a written summary of the costs behind your service charge.
• Inspect the supporting documents. Under Section 22 of the Landlord and Tenant Act 1985 you can then require facilities to inspect the invoices, receipts and documents supporting that summary — including the insurance policy itself and the premium invoice — free of charge.
• Ask for the commission breakdown. The FCA rules require firms to disclose relevant remuneration information to leaseholders, so you are entitled to understand what part of the premium, if any, was paid away as commission.

Put every request in writing and keep dated copies. A refusal or a stonewall is itself useful: it is evidence for the tribunal, and it undermines any suggestion that the charge is transparent and reasonable.

Practical steps to check and challenge

1. Find the figure. Locate the buildings insurance line on your service charge demand and accounts, and note the total and your share.
2. Request the policy. Ask for a copy of the policy schedule, the premium invoice, and any commission or remuneration disclosure, using your Section 21/22 rights.
3. Check the sum insured. Is the rebuild value realistic? Both over-insuring and under-insuring can be signs the cover was not arranged with care.
4. Look for the commission. Identify what proportion of the premium was paid to the freeholder, managing agent or a connected broker, and whether any real service was provided for it.
5. Benchmark it. Obtain one or two indicative quotes for equivalent cover on a like-for-like basis to see whether the premium is out of line.
6. Raise it in writing. Put your concerns to the landlord or managing agent, with the statutory basis, and ask for a reduction or explanation — the same approach set out in how to challenge your service charges.
7. Apply to the tribunal. If it is not resolved, apply to the First-tier Tribunal (Property Chamber) under Section 27A of the Landlord and Tenant Act 1985 for a determination of what is reasonably payable.

How ServiceCharges.AI helps

Insurance is one of the lines our audit scrutinises most closely, precisely because it is so often inflated. We check the premium against the building, flag commission and remuneration that may not survive the FCA rules or the reasonableness test, and show you how the figure compares — so you can decide whether to query it or take it further.

Frequently asked questions