Freeholders are facing a class action from leaseholders over claims that they have pocketed up to £480m in secret commissions for building insurance.

Solicitor Liam Spender, of law firm Velitor, is bringing the claim on a no-win-no-fee basis with backing from litigation funders.

Spender, who is also a trustee of the campaign group and free advice service Leasehold Knowledge Partnership, argues that leaseholders could be owed up to £480m if the claim is successful.

He estimates that this would amount to a payout of between £1,500 and £3,500 for every leaseholder who takes part.

Spender claims that charging secret commissions on insurance premiums is unlawful, as leaseholders were never told and therefore have not given “informed consent” to these additional charges. 

As a result he believes these commissions remain the property of the leaseholders and should be returned to them.

A review by the Financial Conduct Authority found that between 2019 and 2022 £1.6bn was paid out by leasehold homeowners in insurance premiums.

The FCA estimated that on average leaseholders were paying an extra 30% of the premium in hidden commissions and in the worst cases as much as 60%.

Spender has already successfully challenged a £100,000 insurance commission from the freeholder of his own property on behalf of himself and other leaseholders.

He says: “I was able to expose and recoup the secret commissions through which freeholders took money from unknowing leaseholders.

“Through this group action, Velitor is now looking to help others recover secret commissions they may have paid.

“The plight of leaseholders and their unconscionable and unlawful treatment by some freeholders is nothing short of a national scandal. This legal action will be a significant step in addressing it.”

Giles Grover, a leaseholder, investigated the insurance commission charged to residents in his own block in Manchester.

It was found to have the same type of cladding as Grenfell Tower, which meant the building’s insurance premiums rose 500%.

Grover says: “It is disgraceful that, while residents were dealing with unsafe cladding in the aftermath of the Grenfell tragedy, insurance brokers and freeholders were splitting hidden commissions on our building insurance.

“In just three years our insurance costs rose more than five times to over £440,000 a year.

“Charging high rates of commission on such huge sums for doing next to no work will have made them a packet.”

As part of the no-win-no-fee deal, leaseholders taking part in the group action will have to agree to passing 40% of any damages won back to the law firm and its funders.

If the claim succeeds, they must also pay the funder £100 for expenses, rising by £10 for each year that the action is ongoing.

But there is no fee for joining the action and anyone who has owned a leasehold property since 1997 can take part.

The claim will seek to reclaim the hidden commissions, any resultant increase in Insurance Premium Tax and interest going back at least six years.

Velitor hopes this six-year period could be extended, if the High Court agrees.

Leaseholders can find out more about the claim and sign up at leaseholdaction.com.

The Leasehold and Freehold Reform Act 2024 will introduce a ban on secret commissions, but this is not yet in force.