Landlords and tenants to receive greater protection thanks to new law
The Government has tightened regulation on letting agents' handling of payments. But what will it mean for buy-to-let landlords and those renting? Our Q&A explains...
Rental payments made to landlords through a letting agent will be protected after the Government set out regulations that all property agents must hold funds in a safeguarded scheme.
Letting agents currently hold an estimated £2.7billion, which includes rental payments as well as money held for repairs and maintenance to property.
Should the money be stolen, or the agent go bust, there is currently no law in place to protect that money. This means both the tenant and landlord can be left out of pocket.
Around 60% of agents are currently in a scheme voluntarily. But the remainder - often smaller agencies - offer no protection for their tenants’ money.
Here’s what you need to know about the new regulations:
Q: What is the change?
A: Following a consultation in November, new draft regulations mean that all property agents in England must become members of Client Money Protection (CMP) schemes by April 2019.
These new measures are part of broader push for greater regulations to improve confidence in the growing private rental and leasehold sector.
Scotland and Wales already impose compulsory membership of a client money protection scheme.
Q: What’s the problem?
A: Rental payments, while in the custody of the agent, although belonging to the tenant or the landlord, lie unprotected.
It is estimated that agents typically hold rent for 5-7 days before passing it on to the landlord.
However, the working group, set up to consider whether CMP schemes should be made mandatory, heard evidence of rent being held for far longer.
Some foreign students are asked to pay a year’s worth of rent in advance, for example.
While fraud isn’t a common occurrence, it does happen. One couple in Birmingham conned clients out of hundreds of thousands of pounds.
In 2016, Amy Williams and her boyfriend Glen Austin were convicted of targeting people looking to rent homes - letting out the same property to many different people.
The pair stole more £400,000 from the business. As a result of the fraud, one couple lost a £10,000 deposit, another victim lost her savings while many were left homeless.
Equally, if the estate agency goes bust – the money is gone forever.
Q: What does the CMP scheme do exactly?
A: Client Money Protection (CMP) is a compensation scheme which recompenses landlords and tenants should an agent misappropriate their rent, deposit or other client funds.
Around 60% of estate agents are already members. Many professional bodies that represent estate agents such as ARLA Propertymark and the National Approved Letting Scheme make it compulsory for members to join a CMP scheme.
It is a legal requirement for letting agents in England to display whether they are a member of a CMP scheme or not.
Q: How will the CMP rules be policed?
A: Agents found to be handling client money without CMP will receive heavy fines or be shut down.
The draft regulations give Local Authorities the powers to impose fines of up to £30,000 on agents who do not belong to a scheme beyond this date, and fines of up to £5,000 on agents who fail to display scheme membership details on the business premises and on websites.
Q: Will this affect my deposit?
A: Tenants’ deposits are protected under separate arrangements.
Since 2007, it has been the law in England, Wales and Northern Ireland that your deposit must be protected in one of three government-approved tenancy deposit schemes (TDPs).
A landlord or letting agent must put a deposit in the Deposit Protection Service, My Deposits or The Dispute Service - rather than pay it into their own bank account.
Tenants are given a tenancy deposit protection certificate which includes a unique code to prove the money is legally tucked away.
Q: What do the experts say?
A: The industry sees it as good news. David Cox, chief executive of ARLA Propertymark says: “This is a vital step forward in improving consumer protection in the rental sector; probably more so than the myriad of other laws passed over the last two decades.
“We look forward to working with the Government to guarantee that the level playing field we’ve fought so hard to create becomes a reality on April 1 next year.”
Q: But will extra costs be passed on to tenants?
A: It costs estate agents around £340 a year to join a CMP scheme, but ARLA Propertymark doesn’t expect to see an increase in costs to tenants.
At Simple Estate Agents we are part of NALS and SafeAgent and have client money protection scheme in place.
Artcile Taken From https://www.zoopla.co.uk/discover/property-news/landlords-and-tenants-to-receive-greater-protection-thanks-to-new-law/#C6YAVkmcFODmRlhM.99