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New regulations will protect tenants’ and landlords’ money from theft or misuse while being held by property agents
All private rented property agents will have to sign up to a government-backed scheme protecting renters’ and landlords’ money under new laws unveiled today (7 March 2019).
Housing Minister Heather Wheeler MP has brought forward new legislation to strengthen protections for money held by property agents.Under the new regulations taking effect from 1 April, all property agents in the private rented sector will be required to join a government-approved scheme to protect their clients’ money while it is in their possession – with fines of up to £30,000 if they fail to do so.
In 2017, an estimated £2.7 billion in client funds – such as tenants’ deposits and landlords’ rental payments – was being held by letting agents. Yet currently, people may not always be able to recover their money if their agent fails to repay it, for example, due to misuse by the agent or bankruptcy.The new requirement on agents to join an approved client money protection (CMP) scheme will stop tenants and landlords being left out of pocket when uninsured agents unexpectedly go bust or abscond with their money, giving people reassurance that their money is safe while it is with their agent.Minister for Housing and Homelessness, Heather Wheeler MP, said:
“It is not acceptable that some tenants and landlords are being put at risk of losing out financially, simply because their agent had not signed up to a scheme to protect their money.
“Whilst the vast majority of agents act responsibly, this new law will prevent people from losing their hard-earned cash through no fault of their own. This will give tenants and landlords confidence and peace of mind that their money is in safe hands whilst with their agent.”
Membership of a client money protection scheme is currently voluntary with approximately 60% of agents signed up. Making membership mandatory will ensure every agent is offering the same level of security, giving tenants and landlords the financial protection they deserve.So far, five schemes have been approved. All private sector property agents who hold clients’ money are required to register with one of these schemes ahead of the regulations coming into force on 1 April.Separately, a working group is also considering a new regulatory framework – including a Code of Practice and a proposed independent regulator – and the introduction of mandatory professional qualifications for all property agents.This is all part of ongoing government action to crack down on the minority of rogue agents and drive up standards across the property agent sector, so tenants, homebuyers and sellers can be confident they are being charged fairly and getting the professional service they deserve.Note: These measures apply to England only.SEE ALSO - Homes (Fitness for Human Habitation) Act UP NEXT - Letting agent fraud - deposits stolenDON'T MISS - How to vet a lettings agent ... 12 questions to askNOW WATCH:
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
Overall, I will, slightly begrudgingly, accept that this change is positive.
It does add about £400.00 of cost per annum and some more “red tape” to running a property management business but I can see how it may offer some protection to property owners from unscrupulous agents and property managers.
The cost and extra administration will be more significant for smaller operations, so once again another reason for small business operators to get to a level where economies of scale benefit them.
People who manage property as a hobby or a side line business may find the extra cost and administration just another reason to reconsider their continued involvement in the business line, but the larger operators will have already had this insurance in place.
Another, albeit small, barrier to entry.
Something often missed with this regulation is it only applies to management agents that hold client money... I manage my own properties via a Ltd company but the rent is paid to me then I pay the Ltd company the management fee so the Ltd company that is effectively my agent does not hold any client (also me) money.
What does this mean for people with R2Rs who already put their deposits into a custodial scheme DPS or such?