Several councils face legal action to force them to repay part of the premiums, accumulated over periods as long as 13 years. Some flat-owners could be due thousands of pounds.
In one action expected to be heard in court this month, the borough of Hammersmith and Fulham in west London is accused of making a profit of pounds 120,000 because of alleged overcharging. Meanwhile, Lambeth, in south London, is about to authorise the repayment of pounds 1m.
For many years it had been customary for councils to pass on insurance charges at standard premiums to flat-owners who had bought under the Government's right-to-buy scheme, while retaining any bulk discounts. But since a test case against Camden, settled out of court in September, the north London council has been forced to repay almost pounds 2m. Last year it agreed to pass on the discounts that had accrued since 1993, but the council has now accepted legal advice that it must also repay all retained discounts for earlier periods. It says leaseholders are now being charged about half the premium they would pay if they arranged insurance privately.
Patricia Peck, who runs the Association of Camden Council Leaseholders, took the test case against Camden that forced it to change its practice. The council settled out of court and agreed to repay Mr and Mrs Peck more than pounds 500 of premiums dating back to 1986.
"On my estate we got together because we were not happy with our service charges," said Mrs Peck. "We brought along our bills and found we were all paying different insurance premiums for the same types of property and policy. I was paying pounds 278, and my neighbour was paying pounds 136."
The Camden case, though not strictly setting a precedent because it was settled out of court, could nevertheless help thousands of former tenants in similar situations, particularly in London. Flat-owners who bought leasehold properties from former council tenants who exercised their right- to-buy are equally affected, as are commercial leaseholders where a local authority is the freeholder.
While right-to-buy legislation gave tenants the option to buy the freehold, those living in blocks of flats were only able to buy their leaseholds with the local authority keeping freehold ownership. About 200,000 of these tenants bought the leasehold of their flats.
Right-to-buy flat-owners have started, or are about to start, action against a number of other councils, including Enfield, Islington, Southwark and Lambeth. A spokesman for Lambeth said: "Like most other boroughs we have this problem. We will report this to councillors shortly and expect them to offer due recompense.
"We know there is about pounds 1m due. [But] we did feel we were doing nothing more than [simply] earning commission, so it did come as a bit of a shock to all the councils involved."
A spokesman for the Waltham Forest council in east London, where flat- owners are also talking of starting legal action, said its situation was different from other councils. Although discounts on insurance premiums were not passed on to flat-owners, they were not retained by the council either but used to reduce the size of the flat-owners' service charges. He said the council would defend any legal action taken to recover discounts.
Other councils and housing action trusts, which took over some run- down tower blocks from councils, also argue that they did not make a profit from retained discounts so they should not be required to make any repayments.Reuse content