Landlords must beware of compliance risks for protecting tenant deposits – Cleary

by: Alan Cleary, managing director of OneSavings Bank
  • 04/06/2020
  • 0
Landlords must beware of compliance risks for protecting tenant deposits – Cleary
Those of you who know me will know how committed I am to creating a private rented sector that treats tenants fairly and provides them with quality accommodation.

 

You’ll also know that I’m fully behind any measure that weeds out those unscrupulous landlords and letting agents who can give the rest of the market a bad name.

It’s why I was so pleased to see it made a legal requirement on 1 April 2019 that all letting or property management agents in England who handle clients’ money must sign up to a government-backed client money protection (CMP) scheme in order to continue trading, or face up to a £30,000 penalty.

These CMP schemes are vital as they give landlords and tenants the peace of mind they will be compensated if a letting agent cannot repay their money, for example if they go into administration.

Any client money must be held in an account with a bank or building society authorised by the Financial Conduct Authority, and the agent must obtain a certificate confirming membership of a scheme which must be freely available to anyone who asks to see it.

 

Still relevant

If this was introduced back in 2019, why am I talking about it again now, more than a year after it was rolled out?

Well, agents were given a grace period of 12 months to set up a pooled account where they could hold all of their clients’ money, avoiding the need to set up hundreds, possibly thousands, of individual accounts.

However, due to the difficulties some agents are having obtaining pooled accounts, the grace period has been extended for a further 12 months, this time to 1 April 2021.

According to government figures, there were still 251 letting agencies who were struggling to find a bank which could provide them with a pooled account.

 

Thorough due diligence

So where does all of this leave landlords and their tenants?

It goes without saying that landlords should always undertake thorough due diligence to ensure their property agent is compliant with the regulations and signed up to one of the government-approved CMP schemes.

Furthermore, if your client is a landlord with a large number of properties, the Residential Landlords Association suggests they should spread their portfolio across a number of letting agents to ensure they’re fully covered by the scheme.

As with any scheme of this complexity, it was perhaps inevitable there were going to be teething troubles.

So while we wait for the government to iron out the flaws, landlords can ensure their clients’ money is protected by carrying out the proper checks and making sure they don’t put all of their eggs into one basket.

 

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