Agents 'using brokers to overcharge leaseholders'

Leaseholders are being systematically overcharged for buildings insurance by managing agents, property industry experts have warned.

"Some managing agents are instructing an insurance broker to place building insurance," said Roger Southam, the chief executive of Chainbow, a property management company. "They should go to the insurance market for the best price.

"However, the insurance company will state the premium they want to receive and it is up to the brokers to fix their commission and fees on top, including money the agent or freeholder wants to make. The leaseholders have no choice but to pay,"

Chainbow's research for The Independent on Sunday has revealed many blocks of flats where leaseholders are being charged 30 to 40 per cent over the odds for buildings cover by their managing agent. Leaseholders have few rights to challenge such charges and are often unaware of any commissions exchanged between insurers, brokers and managing agents. Often the only course open is for leaseholders to combine to force the managing agent out under right-to-manage rules.

Bob Suvan, the managing director of BlocNet, a property company, says some managing agents go a step further than paying commissions to insurers and brokers. "Some managing agents in effect own the insurance broker involved," he said. "The agent's broker often does little more than shuffle papers and pass them on to their preferred insurance company – but not before passing on its inflated mark-up. All this is at the expense of leaseholders."

Mark Fossick, the owner of Kamikochi, a London furniture design company, experienced overcharging first hand. "In my block in Fulham, we were being charged £350 per year each for buildings cover. This, combined with a host of expensive repairs, led to us exercising our right to manage. Buildings insurance was re-tendered and it fell to just £60 per flat overnight. You don't expect reputable insurance companies to have anything to do with such sharp practices," Mr Fossick said.

Chainbow and BlocNet are calling for an urgent investigation by the Financial Services Authority into the relationship between insurers and managing agents.

Chainbow's warning on building insurance overcharging comes in the same week as consumer group Which? said it believed that managing agents could be creaming off average commissions of around 40 per cent on buildings insurance.

Meanwhile, Peverel, the UK's biggest property management company, has gone into administration with debts of £2bn. The company had formerly been owned by a family trust in which property investor Vincent Tchenguiz had an interest.