Insurance commission-sharing ban: Will leaseholders really benefit?

Leaseholders could gain greater visibility over how their buildings insurance is arranged under new rules banning commission-sharing arrangements from November 2027 – but industry figures, legal experts and campaigners remain divided over whether the reforms will ultimately lower costs.

Secondary legislation passed on 25 October 2026 will implement restrictions on commission-sharing under the Leasehold and Freehold Reform Act 2024 from 1 November 2027.

The changes will prevent landlords from recovering insurance commissions and other excluded insurance costs through service charges, unless they fall within a category of permitted insurance payments to be defined through further legislation.

Eleanor Murray, partner and head of residential disputes and enfranchisement at law firm CMS, described the changes as a significant departure from longstanding practices in the leasehold sector.

“From 1 November 2027, landlords will be prohibited from recovering insurance commissions and similar ’excluded insurance costs’ through the service charge,” she said.

”These reforms mark a significant shift away from the traditional property management model of opaque commission arrangements towards a more transparent regime, which should certainly benefit leaseholders and provide greater clarity.”

’Key details remain outstanding’

While the reforms have broadly been welcomed as a step towards greater transparency and accountability, key details remain outstanding.

For example, while leaseholders will gain stronger rights to challenge prohibited charges, Murray warned that landlords would face practical challenges in preparing for new information-sharing requirements, particularly when managing large portfolios.

She added that much of the operational detail is still awaited through further regulations, meaning firms should review existing insurance arrangements well ahead of implementation.

Meanwhile, for brokers, one of the key unresolved questions is how the government will define a permitted insurance payment.

Alastair Blundell, head of general insurance at Biba, said the ban would create a “level playing field”, but stressed that the industry was still awaiting clarity.

“The clause that introduces the ban has been a part of the Leasehold and Freehold Reform Act since it received Royal Assent in 2024 and we will continue to liaise with the Ministry of Housing Communities and local government as we wait for the secondary legislation that sets out what will constitute a ‘permitted insurance payment’,” he said.

Biba has urged the government to ensure brokers can continue to receive fair remuneration from insurers for arranging and placing buildings insurance, with that remuneration recoverable through service charges.

Blundell said arranging insurance for multioccupancy buildings required specialist expertise and remained a complex area of the market.

“That service comes at a cost to the insurance brokers involved in the arrangements for which they deserve fair remuneration for them to be able to continue providing that service,” he said.

Will savings reach leaseholders?

While few dispute the principle of greater transparency, some industry observers question whether the reforms will deliver the savings many leaseholders expect.

Branko Bjelobaba, principal of FCA compliance consultancy Branko, said stronger leaseholder rights were already influencing behaviour across the market, but questioned whether the reforms would address the incentives that historically drove commission-sharing arrangements.

“Clearly there are regulatory and huge reputational risks that arise for non-compliance by insurers and brokers, but are those that play a straight bat losing out to those that don’t?” he said.

Bjelobaba also argued that falling insurance premiums have not always translated into equivalent savings for leaseholders.

“In a soft market, as premiums have tumbled, some brokers have asked for higher levels of commission to maintain their income, in addition to work transfer fees for supposed transferred costs which have been as high as 15%,” he said.

He said brokers and insurers should be able to demonstrate that payments made to property managers are necessary, proportionate and deliver a clear benefit to leaseholders.

He also argued that fair value assessments should examine insurance distribution costs more closely, warning that these could inflate premiums even when the underlying insurance product offers fair value.

Alternative fees under scrutiny

Another concern is whether commission-sharing income could simply be replaced by more transparent, but broadly equivalent, fee structures.

Bjelobaba said property managers who can no longer receive remuneration linked to unregulated insurance activities may instead seek direct payments from leaseholders for insurance-related services, including insurance procurement, claims handling and risk management.

He argued such charges should be reasonable, clearly explained and open to challenge where they cannot be justified.

However, leaseholder representatives remain sceptical that the legislation alone will prevent financial benefits from continuing through alternative arrangements.

Liam Spender, a Leasehold Knowledge Partnership trustee and solicitor organising a group action over insurance commissions, welcomed the reforms but questioned whether they would achieve their intended purpose.

“Whilst the ban is welcome and long overdue, I do not believe it will reduce costs or eliminate landlords and managing agents sharing in commission,” he said.

Spender also questioned whether the legislation’s scope was sufficiently broad and whether leaseholders would find it straightforward to enforce their rights through a tribunal.

He raised concerns about the potential use of captive reinsurers by landlords, arguing that some structures could enable landlords to continue benefiting financially from insurance arrangements despite the restrictions.

The reforms come as leaseholders gain enhanced rights to access information and challenge practices they believe are unfair. Yet the central question remains unresolved – whether the changes will deliver lower costs and greater accountability, or simply alter the route through which insurance-related charges are recovered.