It’s been a challenging time for businesses around the world, and this has been especially true in the property industry with, on average, in excess of ten letting agents closing down each week. However, these agency closures can be really costly for landlords and the tenants if the letting agent hasn’t properly looked after their client’s money…
Less than a quarter of landlords and tenants know what client money protection is
Last year just over £5.2bn was held in rental deposits across the letting sector, with 4.6m tenancies seeing the average tenant fork out £1,139 to secure a rental property.
A recent poll carried out by Client Money Protect, one of the Government approved client money protection schemes (CMPS), found that 77 per cent of landlords and tenants do not know what client money protection is.
It became a legal requirement for letting agents to be part of a client money protection scheme 18 months ago but landlords and tenants are still very unaware of this. Obviously, this puts them at risk if they unwittingly select a rogue agent to manage their rentals, particularly since there has been an increase in letting agents going insolvent since the beginning of the pandemic.
In the poll, only 35 per cent said they checked that their letting agent had Client Money Protection.
According to the Property Redress Scheme, in the eight months since the pandemic started (from mid-March to mid-July), there has been a 66 per cent increase in letting agents ending their redress membership because they had ceased trading in comparison to the eight months prior to the pandemic (Jul 2019 – March 2020).
Whilst the vast majority of letting agents already have comprehensive cover, some still do not. This puts landlords and tenants at risk of losing thousands of pounds if the letting agent goes out of business.
Kate Mutter-Bowen, from Client Money Protect, explained the issue using a travel industry analogy: “Most people know when they book a package holiday to check it is ATOL protected, meaning if the holiday firm goes bust, they do not get stranded abroad or end up out of pocket. However, people often part with far greater sums of money when they let or rent a property and yet they don’t check that this money is protected. The lettings industry must work harder at educating consumers on the importance of checking their letting agents will protect their money.”
With a rise in letting agents ceasing trading, landlords and tenants are being urged to check that their letting agent offers this level of protection, which became mandatory in April 2019. Landlords also have legal responsibilities to protect their tenants’ money under the Tenancy Deposit Protection Scheme.
Tenancy Deposit Protection (TDP) Scheme Overview*
You must place your tenants’ deposit in a tenancy deposit protection (TDP) scheme if you rent out your home on an assured shorthold tenancy that started after 6 April 2007.
These government-backed schemes ensure your tenants will get their deposit back if they:
- meet the terms of your tenancy agreement
- do not damage the property
- pay the rent and bills
All TDP schemes offer you 2 options:
- the scheme holds the deposit for free – known as a ‘custodial’ scheme
- you or the agent holds the deposit and you pay the scheme to insure it – known as an ‘insured’ scheme
At the end of the tenancy
The deposit must be returned to your tenants within 10 days of you both agreeing how much they’ll get back.
If you’re in a dispute with your tenants
The deposit is protected in the scheme until the issue is settled.
If you’re in an ‘insured’ scheme, you or the agent must give the deposit to the TDP scheme. They will hold it until the issue is settled.
If you’ve received a holding deposit from your future tenants (money to ‘hold’ a property before an agreement is signed), you do not have to protect it. Once they become tenants the holding deposit becomes a deposit, and you must protect it.
Deposits made by a third party
You must use a TDP scheme even if the deposit is paid by someone else, like a rent deposit scheme or a tenant’s parents.
You (or your letting agent) must put your tenants’ deposit in the scheme within 30 days of getting it.
Simone Potter Reed, Investigator at National Trading Standards Estate and Letting Agency Team (NTSELAT) said: “It is of the utmost importance that all letting agents are members of a Client Money Protection Scheme to provide security and peace of mind for tenants and landlords.
“NTSELAT advise that tenants and landlords check if their agent is registered with one of the six approved CMP schemes before entering into business with them. Take the time to make those checks to avoid financial detriment.”