No4 – How managing agents/freeholders game the leasehold system – Energy contract commissions

1. How the Commission System Works

Energy Brokers as Intermediaries

Brokers negotiate energy contracts for blocks of flats or estates. Their revenue model is typically commission-based, paid by suppliers and embedded in the unit price or standing charge.

Managing Agents and Freeholders’ Role

These parties often hold authority to place communal energy contracts. Brokers attract their business by sharing part of the commission with them—creating a financial incentive that may conflict with leaseholders’ best interests.

2. Hidden Layers and Lack of Transparency

Layered Commissions

Multiple intermediaries (broker → managing agent → freeholder) can each take a slice of commission. This inflates costs without adding real value. Leaseholders ultimately pay through service charges but rarely see the breakdown.

Standing Charge Manipulation

After COVID and during the 2021 energy crisis, brokers increased commissions on standing charges to guarantee income regardless of consumption. Even as wholesale rates fell, many retained inflated prices—effectively “hidden profiteering.”

3. Why It Persists

Legal Gaps

Leaseholders have no statutory right to demand disclosure of commissions on communal energy contracts. This leaves them “at the mercy” of parties with vested interests.

Conflict of Interest

Commissions incentivised

Decisions based on remuneration rather than value for leaseholders. FCA and government consultations have flagged this as systemic in insurance and energy markets.

4. Recent Legal Developments

Court of Appeal Rulings (2025)

Cases like Expert Tooling v Engie Power confirm that;

brokers owe fiduciary duties and must obtain informed consent for commissions. Failure to disclose the amount or impact on pricing breaches these duties. Businesses can now reclaim hidden fees, and similar principles could apply to property management scenarios (Given that RMC’s and RTM’s are limited companies) although this hasn’t been tested in the courts at the time of writing

Key Takeaway

Managing agents and freeholders often benefit from opaque commission-sharing arrangements with energy brokers, which inflate costs for leaseholders. While historically tolerated, recent legal rulings and FCA guidance are pushing towards transparency and accountability.