28th March 2024 - Upper Tribunal rules 65% of Landlords’ commissions not payable by leaseholders

Following a hearing that took place on March 7th 2024 the Upper Tribunal has issued its decision on the Landlords’ appeal against the FTT decision of December 2022.

Judge Martin Rodger KC ruled that Leaseholders were only liable to pay £579,039 of the £1,638,709 that had been charged to them between 2010 and 2020. The £1,059,570 ruled not payable relates to the entire Estate (albeit FTT rulings do not apply to the commercial leaseholders). The average amount repayable by the Landlords to residential leaseholders is c.£2,500 per flat - ie, residential leaseholders had been overcharged an average of £250 per year per flat.

In his decision Judger Rodger KC observed that the FTT hearing had been delayed by several years due to the Landlords’ refusal to disclose information about their insurance arrangements and noted:

“Information that the Landlords did supply in 2020 in purported compliance with the FTT’s directions was later shown to be false (the FTT charitably described it as “woefully inadequate)”.

“The Landlords’ complete lack of transparency regarding the commission payments since 2010 had been “lamentable””.

Regarding the amount of the commission that had actually been received by the Landlords’ agent, WMS, Judge Rodger KC noted that the Landlords “advanced no positive case about the quantum of fees and commissions which they and their agents had received. They also declined to agree the apportionments and estimates that the leaseholders’ representative, Angela Jezard, had “reverse engineered” from the minimal material eventually provided by CREM and their insurance brokers. Reich” and added:

“Given the way the Landlords have conducted these proceedings it can be inferred that they perceived it to be in their interests not to dispute Ms Jezard’s calculation”. [ie, that the calculation probably underestimates the actual amounts received].

The original application challenging the commissions was made in July 2019, and 98 leaseholders were joined as parties.

17th January 2024 - Canary Riverside Insurance case raised by MPs at parliamentary committee discussing Leasehold reform.

Canary Riverside’s on-going challenge of £1.6M of unreasonable insurance commissions paid to WMS, a Landlord-owned company, continues to be quoted by MPs as an example of why leasehold law must be reformed. At yesterday afternoon’s select committee hearing MP Barry Gardiner quizzed Matt Brewis, the FCA’s head of insurance, as to how at Canary Riverside there was no contract or documentation between Reich (the insurance broker) and WMS (the Yianis Group-owned company that was paid £1.6m) outlining the sharing of insurance commissions and fees [according to the Landlord’s oral and written evidence to the FTT].

Asked by Gardiner if the idea that an FCA regulated broker was unable to provide a FTT with a written contract was “strange” Brewis simply answered: “Yes”.

Scott McGee of the Insurance Post provides a summary of Matt Brewis’s evidence to the Select Committee here.

29th September 2023 - update on insurance reform

The FCA has confirmed that, from 2024 insurance firms will be forced to act in leaseholders’ best interests, treating them as customers and banning them from recommending policies that are based on favourable commissions/remuneration arrangements for landlords and brokers. This should bring to an end the situation whereby leaseholders are unwittingly paying £hundreds per year in secret commissions to landlords - which for over a decade was the situation at Canary Riverside.

Date set for Landlord’s appeal against the FTT’s decision

The Landlord has been given permission to appeal to the Upper Tribunal against the FTT’s decision that it was not entitled to charge leaseholders £1,517,372 in insurance commissions. The appeal is on two grounds, and the hearing will take place on March 7th 2024. Our challenge to that appeal can be found here. We defeated the Landlord’s attempt to appeal using four additional grounds - the Upper Tribunal’s decision on this can be found here.

21st April 2023 - update on insurance reform

The FCA has today announced proposals to give new rights and protections to leaseholders and improve transparency in the hitherto murky market of hidden commissions included within the buildings insurance premiums paid by leaseholders. As the Insurance Post notes, “[Canary Riverside] was the case that alerted the FCA to these poor remuneration practices and urged it to investigate further.”. See our News item for more details.

Tribunal rules £1.6M of service charges were not reasonably demanded

After a three+ year legal battle regarding the reasonableness of insurance premiums demanded by the Canary Riverside Landlord, culminating in a three-day tribunal hearing in September 2022, the First Tier Tribunal (FTT) has determined that £1,638,710, being the total of:

  • £1,517,372 paid to WMS* and included within the insurance premiums demanded via the service charge between April 2010 and March 2020; and

  • £121,338 IPT (insurance premium tax, similar to VAT) on the sums paid to WMS

was not reasonably demanded by the Landlord.

The Decision means that the 98 Canary Riverside leaseholders (“the Applicants”) represented by RACR are not liable to contribute towards payment of the £1.6M. The full FTT Decision dated 21st December 2022 can be found here.

*WMS (Westminster Management Services) is a Yianis Group company that sits outside the Yianis Group but employs its staff and directors. CREM and Octagon Overseas, the landlord and freeholder companies that own Canary Riverside (together referred to as the Landlord), are part of the Yianis Group which is owned and controlled by billionaire John Christodoulou, The Yianis Group and WMS offices are located at Canary Riverside (50 Westferry Circus, Berkeley Tower).

The issue at the heart of the S27A application was the commissions the Applicants believed were being paid by the CR insurers to the Landlord and its insurance broker. Secret commissions are a known issue, as this Times article highlights.

At Canary Riverside the Applicants were concerned that excessive commissions were hidden within the insurance premiums charged to them via the service charge. Throughout the tribunal proceedings the Landlord failed to provide information on insurance commissions included within the premiums, claiming to the FTT that the Applicants were ‘on a fishing expedition’ - and unfortunately the FTT agreed with them. When directed by the FTT to disclose commissions the Landlords’ written submission stated that, aside from a £6k nominal broker fee paid to Reich (their insurance broker) they did “not have access to, and neither are they aware of, any other insurance related income that is received by either Reich or WMS”. The absurdity of this statement is laid bare in paras 26, 45 and 55 of the FTT’s decision. The FTT heard that Yianis Group companies’ staff/directors are employed by WMS, that YG companies (including CREM and Octagon, the CR Landlord companies) do not have any employees, and that the CR Landlord’s financial controller, employed by WMS, was significantly involved in work associated with the Canary Riverside insurance policy.

Having hit a brick wall in attempting to obtain disclosure from the Landlord, in December 2020 RACR made an application to the FTT to order Reich to disclose commissions and fees (under Rule 20(1)(b). The FTT dismissed this first application and it took a second application in 2021 and a one-day FTT hearing in 2022 (at which Reich was represented by a KC, the Landlord a barrister, and the Applicants by the RACR lay-representative) to secure the disclosure from Reich that showed between April 2013 - March 2019:

  • WMS, a landlord-company, received over £1M in respect of the Canary Riverside estate

  • Reich, the broker, received over £348k in respect of Canary Riverside.

Reich’s disclosure on 15th March 2022 was a solitary page*, containing a table that covered a block policy for four Yianis Group properties (with a fifth property added in 2019). Such was the lack of detail provided RACR had to calculate itself the sums attributable to CR for each of the years, using the commission percentages for WMS and Reich. To calculate commissions for the years 2010-2012 RACR applied the 2013 percentages. Our analysis of the commissions included within the Canary Riverside insurance premiums which was used by the FTT when making its Decision can be found here. *The Reich disclosure has now been extensively referred to in open court.

As stated in para 123 of the FTT decision, it is clear that had it not been for the determined effort made to pursue the Rule 20(1)(b) order that eventually resulted in Reich being ordered by the FTT to provide the information on commissions the extent to which the Landlord (through WMS) had benefited would never have been known. Many FTT hearings proceed with the FTT making a stab at what commissions might be [in the absence of a landlord disclosing them] and will be woefully underestimated.

Scope of the FTT’s Decision

The FTT’s Decision only applies to the 98 leaseholders at Canary Riverside who jointly made the S.27A application challenging the reasonableness of the insurance premiums. That is a function of the legislation and case law regarding S.27A applications. The first hurdle faced by the 98 Leaseholders represented by RACR was proving to the FTT that they had not previously, by their actions, agreed or admitted liability to pay the insurance premiums that they were now seeking to challenge. Please see the FTT’s ‘Decision on the Preliminary Issue’ here, which followed a one-day hearing on 3rd March 2020.

Appeals

The Landlord appealed to the Tribunal against the Decision, and has been granted permission to appeal to the Upper Tribunal on two of its six grounds of appeal. Please check back here for updates on the appeal.

The applicant Leaseholders’ appeal to the FTT, regarding their findings for ‘Challenge 2’ - the financing charge, was dismissed by the FTT. The Leaseholders’ grounds were straightforward: if £1.6M has been determined by the FTT as not payable then it followed that the financing charges on those £1.6M (estimated to be £49k) should also not be payable. The FTT considered this to be a new point not previously advanced.

Government pledge to reform leasehold insurance

Michael Gove, Secretary of State for Levelling Up, Housing and Communities, has announced he intends to ‘ban’ leasehold commissions paid to freeholders/landlords. He wrote to the FCA CEO on the 30th January 2023. For an analysis of Gove’s intentions please see this article from the Insurance Post which references the Canary Riverside insurance S.27A and this article from the Insurance Post.

Our insurance S27A was raised in a House of Lords debate (22nd February 2022) led by Lord Kennedy of Southwark, who is seeking an amendment to the law that would require landlords to disclose commissions earned on insurance policies. Baroness Claire Fox referred to Canary Riverside and the recent FT article was also referred to.

Media

The decision has attracted media attention, including this article in the Financial Times on February 18th 2023. Links to other articles can be found below.

Our decision also received a lot of attention on Twitter, including from Lord Greenhalgh, the former Minister for Leasehold and Building Safety (2020-2022) who tweeted his support for Canary Riverside.

The Section 24 Manager and insurance

Initially it was thought by CR leaseholders that their successful 2016 S.24 application had secured a remedy for the Landlord’s lack of transparency regarding insurance by making the Tribunal-appointed Manager responsible for insurance. When the S.24 Management Order came into effect on 01/10/2016 it removed management responsibility for Canary Riverside - including in respect of insurances - from the Landlord and placed it with the S.24 Manager.

The Landlord applied to the FTT to regain responsibility for insurance, losing at the FTT to the S.24 Manager but successfully persuading the Upper Tribunal on appeal that their £40M loan with Santander - for which our buildings form part of the loan security - would be put at risk if they did not place the insurance. They did not, of course, mention that their substantial secret commissions had been put at risk by the FTT’s decision to remove from them responsibility for insurance. Documents subsequently disclosed by the then-S.24 Manager showed that between the date of the FTT appeal and the date of the Upper Tribunal appeal the S.24 Manager had received written confirmation from Tokio Marine (the current insurer) that the insurance policies were “on 50% commission” (ie, the insurance premium was being shared with 50% going to the insurer and 50% to the broker and Landlord). This was not shared with leaseholders at the time, nor was it brought to the attention of the Upper Tribunal. It was eventually disclosed to RACR in November 2021, following RACR’s application for a disclosure direction.

The Landlord’s lack of financial transparency was at the heart of the Leaseholders’ S.24 application, and transparency did not improve following the appointment of the S.24 Manager. Following the Upper Tribunal decision the Landlord omitted all details of the premiums paid from subsequent insurance certificates provided to leaseholders. This was the certificate leaseholders were given in April 2017. Compare it with this certificate, dated just two days earlier (disclosed as part of the S.27A), and the previous year’s certificate, 2016/17.

The S.27A application - application and decisions

  • The original S.27A application, made on 25th July 2019, can be found here.

  • Preliminary decision allowing the Applicants to challenge the years between 2010 and 2016 here.

  • Successful Rule 20(1)(b) decision here.