Client Money Protection Scheme set to become Mandatory
The Client Money Protection Scheme is set to become mandatory for all letting agents in England that handle client money. The move, announced early last week, aims to safeguard private sector rents that are paid by tenants to letting agents, thereby giving both tenants and landlords increased protection from unscrupulous and insolvent agents.
The next step in the role out of the Client Money Protection (CMP) Scheme is for the Government to consult on how best to implement and enforce the scheme. This is a clear move towards a more regulated industry that has been welcomed by groups like the Association of Residential Letting Agents (ARLA) and the National Landlords Association (NLA).
Why is the scheme necessary?
It's estimated that £2.7billion worth of tenants' and landlords' money is currently held by letting agents. This includes money that has been paid in rent and money to cover the cost of maintenance. Of this money, around £700milion is thought to be currently unprotected by the CMP scheme, which is leaving landlords and tenants vulnerable to agents that fall into insolvency or are involved in criminal activity.
The letting agents that are not currently signed up to the CMP scheme represent a greater risk to landlords and tenants. They also present a risk to the reputation of a sector that has already been undermined by the small number of letting agents that take money they are not entitled to from landlords and tenants.
Security is too important to be left to chance
The private rented sector is continuing to grow and is increasingly housing vulnerable older people and families with children, so clearly the security of tenants is too important to be left to chance.
As the legislation currently stands, letting agents are required to belong to a redress scheme. However, this may provide little assistance in the event that an agent becomes insolvent or runs off with money, as in this case, there would be no one to pay the compensation and no return for the landlord or tenant.
The scheme will not deter start-up businesses
One concern groups representing letting agents have had is that the additional costs of joining the CMP scheme could deter start-up businesses from entering the industry. However, the costs of joining the scheme for letting agents are relatively small. It's also true that new letting agents only acting as introducers and who do not handle client money will not have to join the scheme.
In this case, the general consensus is that the end justifies the means. Without mandatory security in place, tenants risk losing the deposit for their next home, while landlords could lose the income they rely on to pay their mortgage. All too often, the actions of the agent only come to light after the money has disappeared, but the CMP scheme will provide protection before problems can occur.
What recommendations have been made?
The Government report, which you can read here, makes a number of recommendations about how the CMP scheme should be implemented and enforced. This includes:
- Providers of CMP schemes, redress schemes and Trading Standards share information to ensure that compliance can be checked;
- Minimum terms and conditions of cover are dictated by either the Government or a lead enforcer to ensure schemes are consistent in their approach;
- CMP schemes are enforced by local authorities, primarily Trading Standards but with flexibility to allow enforcement by local authority private sector housing teams;
- If an agent is found to be handling client money without being part of a CMP scheme, they should be fined or shut down.
Anything else you need to know?
If there's anything else you'd like to know about the CMP scheme or any questions you may have about how we handle rent from tenants and money from landlords, please get in touch with our team today.
t: 01276 691510