Is your letting business still compliant?…
Agents with years of industry experience are likely to have this nailed down, but there are many ‘accidental letting agents’ who may not be 100% sure of their obligations. These include estate agents who have moved in to lettings rather than turn down business, and private landlords who have inherited a property.
The information is out there, but it’s not particularly easy to find out exactly what needs to be done to stay compliant.
The Letting Partnership has worked with countless new entrants to the lettings industry and understand how complicated the multiple rules and regulations around compliance are.
So, here’s an overview of the basic business compliance requirements:
Hold a ‘Client Account’
It has been a legal requirement since 2020 for all letting and property management agents to hold a segregated ring-fenced ‘client account’ to handle client money i.e. any money held or received on behalf of a client which the business is not beneficially entitled to, such as tenant deposits and rent. You should ask for a letter from your bank confirming that the account is ring-fenced and that the bank has no right to set off funds against any company, business, or personal liabilities.
Be a member of a Redress Scheme
All estate agencies, lettings agencies and property management companies must be a member of an independent approved redress scheme or face a fine of up to £5,000.
Information about the redress scheme should be provided to new clients when entering into an agreement. Estate agents already with a redress scheme should check that the terms of their membership covers their lettings agency work as well as their estate agency work. The two approved redress schemes are:
Hold Adequate Professional Indemnity (PI) insurance
Whilst PI insurance is not currently a legal requirement in England & Wales it is strongly recommended and is a prerequisite for membership of The Property Ombudsman as well as most other recognised industry trade bodies such as Propertymark (ARLA, NAEA), UKALA and Safeagent (previously NALS).
However experienced you and your team are, human error can lead to a negligence claim being made against you and your company, so why risk it.
Tip: Check that the business activities stated on your PI policy include “Lettings”
Have Client Money Protection (CMP)
All lettings and management firms handling clients’ money must be part of a government approved CMP Scheme in order to continue to trade. These schemes make sure landlords and tenants are compensated if you cannot repay their money, for example if you go into administration.
If you are a member of one of the following trade bodies you may already have CMP: Propertymark (ARLA), RICS, UKALA and SafeAgent so it’s worth checking this first.
Agents in England and Wales* not members of a professional body can get their CMP through Money Shield or ClientMoney Protect.
Due to the wording of the regulations, the requirements for agents who use a CASP (Client Accounting Service Provider) are arguably open to interpretation. However, it is strongly recommended, and may be a contractual requirement of a CASP, that CMP is held by all lettings businesses.
Register with a Deposit Protection Scheme
All deposits taken on Assured Shorthold Tenancies (ASTs) must be protected in one of the government approved deposit protection schemes within 30 days of receipt. As most residential lettings are on ASTs it is recommended that all letting agents (and landlords) register with one of the schemes. Failure to properly protect a tenant deposit can result in a fine of up to 3 times the amount of the original deposit and invalidate any subsequent Section 21 Notice.
Register with the Information Commissioner’s Office (ICO)
Every organisation or sole trader which processes personal information needs to pay a data protection fee to register with the ICO, unless they are exempt, and renew every year. Failure to comply could result in a penalty of up to £4,000. See if you need to register with the ICO Self-Assessment.
Comply with Money Laundering Regulations (MLR)
Agents with properties rented at or above €10,000 per month must register with HMRC for Anti Money Laundering (AML) supervision and carry out enhanced due diligence on the parties carrying out the transaction – the landlord and tenant.
Even if properties are rented out for below €10,000 per month, agents are still legally required to be mindful of transactions they are facilitating and report any suspicious activity.
It is our opinion at The Letting Partnership that all letting agents should register with HMRC, irrespective of the limit, especially if any properties straddle this rental value. It is very likely that the government will create further UK AML regulation, therefore we would advise agents to get ahead of the game by registering now.
Keep your office and website compliant
All offices and agency websites must clearly display the following:
- a statement indicating membership of a redress scheme
- the name of the redress scheme belonged to + logo + membership number
- name and logo of CMP provider and a viewable certificate
- landlord and tenant fees & charges
Agents should also publish a privacy statement to comply with GDPR and state they are registered with the ICO.
Whether new or established, agents should carry out regular checks to ensure they remain compliant. It is all too easy to forget something occasionally, such as renewing a trade body membership, but the knock-on impact could be cancellation of their CMP and a fine.
DISCLAIMER! This article is based on the rules currently in place in England only, and does not cover all aspects of legislation. You could still be non-compliant in other areas.