Are you a landlord or a tenant? Think you've heard something about new laws to protect your money when held by an agent? If you want to know more, read on...
New regulations mean that by 1 April 2019 all private rented residential property agents that handle client money in England will have to sign up to a government-approved scheme to protect landlords' and tenants' money, or they will face fines of up to £30,000. Currently membership of such schemes is voluntary.
Under the new regime, an estimated £2.7 billion of client money held by property agents in England will be protected.
Client money protection schemes enable landlords and tenants to be compensated if all or part of their money being held by property agents (such as rental payments) is not repaid. Causes of non-repayment include misappropriation of funds by the agent and the agent becoming insolvent. The regulations stipulate that membership of a scheme must allow for a level of compensation at least as high as the amount of client money held by the agent. The changes bring the property sector in line with the legal and travel operator sectors, where there are already stringent rules regarding the handling of client money.
Under existing laws, anyone can operate as a property agent without any qualifications or professional oversight. Membership of professional bodies, which usually require their members to participate in a client money protection scheme, is currently voluntary. Around 60% of agents are already members of schemes, which usually charge agents between £300 and £500 a year for membership.
The new law is intended to boost consumer confidence and ensure that the same minimum level of protection is enjoyed by all landlords and tenants in England, regardless of who their property agent is. It follows the introduction of equivalent regulations in Wales and Scotland. Property agents will have to join an approved scheme and, under transparency rules, display in its premises a certificate of the scheme joined and publish the certificate on its website. Agents will also have to inform all their clients of their membership. These new rules will be policed by local weights and measures authorities, who can fine agents £30,000 for not joining an approved scheme and £5,000 for breaching the transparency requirements. As of now, five schemes have been approved.
The new rules will not apply to tenancy security deposits, which are already subject to legislation requiring them to be held in a government-approved tenancy deposit scheme.