From 1st April 2019 letting agents in England will be required by law to belong to an approved client money protection scheme to protect landlord money. Failure of letting agents to comply carries heavy fines of up to £30,000 but also has major implications for landlords.
What is client money protection?
Client money protection is designed to protect client money held by property agents and professionals.
The aim of client money protection is to give peace of mind to landlords and tenants that their money remains secure and safe when being handled by an agent. In the event that monies are misappropriated, client money protection helps to return these monies to landlords and tenants.
How does client money protection affect landlords?
As a landlord rental income is vital, it may be your primary source of income or may be being used to pay off your personal or rental property mortgage. It is therefore important that all of your assets are protected. For landlords, using a letting agent that does not have client money protection can be costly as this means that your money is not adequately safeguarded. This puts you at risk of facing lengthy court cases to attempt to retrieve your rental income.
It is important that landlords keep up to date with changing industry regulation and are also mindful of changes that indirectly influence them to ensure that they are always complying with their legal obligations. For landlords, having an understanding of client money protection helps to uphold industry standards while also securing protection for their own assets.
What does a compliant agent look like?
A good agent should already be aware of the impending client money protection legislation. Many good letting agents will already be a member of an agent body such as ARLA, RICS, NALS or UKALA giving them access to client money protection as a result of their membership.
Client Money Protect – part of Hamilton Fraser, parent company to mydeposits, has been running a voluntary client money protection scheme since 2014 with over 800 agent members. It has now been announced by the government that Client Money Protect is one of the first schemes to be authorised to provide mandatory client money protection.
In order to join a client money protection scheme agents will need to comply with certain standards and prove that this is the case. In relation to Client Money Protect membership letting agents are required to;
- Have a segregated client money bank account
- Have membership of an external consumer redress scheme
- Have professional indemnity insurance
- Agree to abide by the Terms and Conditions of Client Money Protect
- Agree for Client Money Protect to display their membership details on their website
- Display the Client Money Protect logo in every lettings branch
- Provide landlords and comprehensive information about client money protection and their membership of the scheme
In addition, credit and fraud checks carried out on potential members to help to identify whether money is being held correctly by the agent in question.
This helps to ensure that landlords and tenants monies are adequately protected and agents remain compliant. For landlords, this can greatly help to reduce the probability of encountering issues with your rental income and gives peace of mind that in the event of an issue you are covered.
How do landlords use client money protection?
Landlords who are worried about the safety of their money and have been unable to settle issues directly with their agent can seek support from the client money protection scheme that the agent adheres to. An agent can be claimed against providing the money has been stolen by the business owner and no longer resides within the designated client account. Claims cannot be made if the business is still currently trading.
For landlords looking for letting agent support, it is important to do your due diligence to find a reputable and compliant agent to help you rest easy knowing your money is secure.