Is your letting agent signed up to a client money protection scheme? - Total Landlord Insurance

October 7, 2019
Total Landlord Insurance
Is your letting agent signed up to a client money protection scheme? - Total Landlord Insurance

Letting out a property can be a complicated business, particularly when it comes to keeping ahead of private rented sector legislation. Landlords often choose to minimise their risks by working with a letting agent who understands the market, knows the law and can act as a buffer between themselves and their tenant.

Using a letting agent can also save landlords a considerable amount of time by cutting down on things like paperwork, referencing, handling deposits and managing tenants. However, it is important that landlords take precautions not to fall foul of unscrupulous letting agents, who may withhold rent, misappropriate deposits and carry out insufficient reference checks, as one landlord in Ilford found out.

After years of saving, IT consultant Doni Soeyono decided to invest in a rental property. He thought that working with a letting agent would help him avoid any nightmare tenants. He quickly found out he was mistaken. His rent arrived late each month and his requests for information were ignored. Eventually, he found out that the agent hadn’t carried out any reference checks and his house was now being sub-let on a Romanian website to tenants who refused to leave. To make matters worse, the letting agent then went into administration, leaving Doni struggling to regain control of his property and protect his investment.

In another case, married landlords Monwara and Mohammed hired a letting agent to manage their property, only to discover the agent was refusing to pass on their tenant’s rent payments. The agent then folded the company and reappeared under a different name, claiming not to know anything about the previous company or the missing money.

Both of these cases were shown on Channel 5’s ‘Nightmare Tenants Slum Landlords’, featuring Total Landlord Insurance brand ambassador Paul Shamplina.  Whilst the show represents the darker side of Britain’s rental market, these cases highlight what can go wrong when landlords don’t carry out thorough due diligence on their letting agent. This includes ensuring that they are a member of a client money protection scheme. Not surprisingly, Paul supported the introduction of mandatory client money protection (CMP) for years before it finally came into force six months ago.

Now that CMP is mandatory for all letting agents, greater protection for landlords’ rents and tenants’ deposits is in place, I only hope that Trading Standards takes significant enforcement action and gets some sort of justice for those who have lost money.” – Paul Shamplina, Founder of Landlord Action and CCO of HFIS

In 2017, it was estimated that letting agents in the UK were holding approximately £2.7 billion of clients’ money. The concern was that if a letting agent went out of business, both landlords and tenants could stand to lose all of the money that the agent held. To prevent this from happening, in April 2019 the government made it mandatory for all letting agents to protect clients’ money in one of a handful of approved client money protection (CMP) schemes. And agents who didn’t sign up could fined up to £30,000.

The client money protection schemes are totally separate to deposit protection and should not be confused. Client money protection is about compensating landlords and tenants in the event that the agent goes into administration.

Is your letting agent signed up to a client money protection scheme?

Six months on from the introduction of mandatory CMP, it is estimated that 20 per cent of agents still haven’t signed up to a client money protection scheme. Landlords are advised to check that their letting agent isn’t one of them. Agents who are members are required by law to display the logo on their website and their shopfront and are advised to tell landlords that they are a member. Failure to display the logo publicly can result in a £5,000 fine.

If your agent isn’t displaying the client money protection scheme logo on their website or shopfront, you should contact them and ask whether they’re a member as a matter of priority. Remember, if they’re not protected and they go into administration, all of the money that they hold belonging to you and your tenants could be lost. Agents should be aware that Trading Standards are now cracking down heavily on enforcement.

They have data-sharing arrangements with HMRC who hold comprehensive records of all letting agents. These are being cross-referenced against client money protection membership lists to produce a list of agents who are not protected.

What are the approved client money protection schemes?

HFIS’ Client Money Protect is one of six government-approved schemes that offers protection for letting agents, landlords and tenants.

In order to apply to join, letting agents will need:

  • A segregated client money bank account
  • Membership of an external consumer redress scheme
  • Professional indemnity insurance
  • To agree to abide by the terms and conditions of Client Money Protect

All landlords should look into whether their agent is a member of an approved client money protection scheme as a matter of priority. As mentioned earlier, the logo should be clearly visible on their website and shopfront. If you can’t see the logo, get in touch and ask why. As ever with these things, it’s better to be safe than sorry.

Become a Total Landlord.
Get a quote for our award winning landlord insurance.