Compliant Or Not – Lets Check
Being a letting agent today means keeping up to date with the long list of rules and regulations governing how a property may be let and managed to ensure fair treatment of all parties, whilst looking out for the best interest of their landlords and also earning a living. On top of this, agents must ensure that their business itself is compliant with wider industry regulations. Failure on either of these fronts can lead to financial penalties, consequences and damage to reputation, which could be disastrous for a small agency.
Letting agencies run by experienced agents with years of history in the industry is likely to have all of their T’s crossed and the I’s dotted. However, there are many ‘accidental letting agents’ – estate agents who have, possibly reluctantly, moved into lettings rather than turn down business, financial consultants, mortgage advisers and private landlords who have found themselves looking after several properties and decided to turn it into a business. These ‘accidental letting agents’ may have little or no industry experience and whilst the information is out there, with the lack of industry regulation, it’s not particularly easy to find out exactly what needs to be achieved to stay compliant.
We at Branded Bricks work with countless new entrants to the lettings industry and understand how complicated the multiple rules and regulations around compliance are.
Here’s a brief overview of the basic business compliance requirements for new agents. Experienced agents may also want to carry out a routine check to make sure their agency is still compliant.
Hold a ‘client account'
As of April 1 2020, it has been a legal requirement for all letting and property management agents to hold a segregated ring-fenced client account’ to handle client money. Client money is any money that the business holds or has received on behalf of a client which it is not beneficially entitled to. It includes tenants’ deposits, rents and fees. You should ask for a letter from the 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.
Join a Redress Scheme
Anyone who works in residential property in the UK, whether they are an estate agency, lettings agency or property management company must be a member of an independent approved redress scheme for the purpose of dealing with complaints. Failure to comply could result in a fine of up to £5,000. Information about the redress scheme should be provided when a lettings agency enters into an agreement with its customers.
If an estate agent is already a member of a redress scheme, they should make sure that the terms of their existing membership cover 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, 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 ARLA, NAEA, UKALA, Propertymark and Safe agent (previously NALS). However knowledgeable or skilled you and your team are, human error can lead to a negligence claim being made against you and the company. Professional Indemnity insurance covers companies and individuals for mistakes made as part of people’s day-to-day roles.
Have Client Money Protection (CMP)
From April 1 2019, all lettings and management firms handling clients’ money must be part of a government-approved CMP Scheme in order to continue to trade. Agents that belong to an industry trade body may already be covered for CMP. The following trade bodies offer comprehensive CMP cover to their member firms: Propertymark, RICS, UKALA and SafeAgent so it’s worth checking this first.
Register with an approved Deposit Protection Scheme
All deposits taken on Assured Shorthold Tenancies (ASTs) must, by law, be protected in one of the government-approved deposit protection schemes within 30 days of receipt. As the majority of 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 three times the amount of the original deposit and could invalidate any Section 21 notice served at a later date to gain possession of your property.
Register with the Information Commissioner’s Office (ICO)
Under the Data Protection Act 2018, 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 they must renew every year. Failure to comply could land a letting agent with a penalty of up to £4,000 on top of the fee. Agents can check if they need to register on the ICO Self Assessment.
Comply with Money Laundering Regulations (MLR)
If agents have properties rented at or above €10,000 or equivalent per month, then they 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. It is our opinion at Branded Bricks Ltd that letting agents should register for AML supervision irrespective of this limit. Certainly, if any properties straddle this rental value we would advise they register to avoid this grey area.
Whilst the UK government opted out of the EU’s 6th AML Directive (the €10,000 limit was the 5th AML Directive), it is likely that the government will create further UK AML regulation and enhance it. We would advise agents to get ahead of the game by registering for AML supervision now. Furthermore, even if properties are rented out for less than €10,000 per month, agents still have a legal obligation to be mindful of the transactions they are facilitating. They should report any suspicious activity via a Suspicious Activity Report (SAR) to the National Crime Agency.
Keep your office and website compliant
Agents should clearly display the following in their offices and on their website: · A statement indicating membership of a redress scheme · The name of the redress scheme belonged to, logo and membership number · Name and logo of CMP provider and a viewable certificate · Landlord and Tenant fees and charges
Letting agents should also publish a privacy statement to comply with GDPR and state they are registered with the ICO.
Even for established letting agents, it’s all too easy to forget something occasionally. It might be as simple as an agent’s industry trade body membership lapsing, with the knock-on impact that their CMP would be cancelled, and the certificate should not, therefore, be displayed on their website.
Letting agents, whether new or established, should make a habit of checking these main points to ensure they remain compliant.
It’s also worth noting that this article does not cover all aspects of legislation, so it’s important to ensure compliance across other areas.
At Branded Bricks Ltd, we are an independent property management company, helping property people focus on growing their portfolio while keeping them compliant. We understand that you will have your own unique set of requirements, that is why we don't offer a one size fits all. Our experience and sector knowledge has helped us shape cost-effective solutions that will meet your needs - services you can rely on. For further details please email email@example.com