Letting agents must comply with client money protection legislation by 1 April 2021
Letting and property agents in England must belong to a client money protection scheme by 1 April 2021, when the two-year grace period comes to an end.
It has been mandatory for letting agents in England who hold client money to belong to a client money protection scheme since 1st April 2019, in order to make sure that the funds of both their tenants and landlords are protected. A two-year grace period has been in place for agencies that have had difficulty opening a client money account, however this ends on 1st April 2021. Letting agencies can be fined up to £30,000, if they do not belong to an approved client money protection scheme, and up to £5,000, if they don’t display their certificate of membership or provide it when asked.
"April 1st is the big D-Day, when everybody, regardless of what their situation is as a letting agent - if you are holding client money, you must have client money protection," says Sean Hooker, Head of Redress at the Property Redress Scheme. "In the run up to this, the National Trading Standards have been out and imposing fines on people that are not complying with the legislation and they've got quite extensive powers in terms of fining."
Under the Client Money Protection Schemes for Property Agents Regulations 2020, letting or property management agents in the private rented sector in England must belong to an approved client money protection scheme if they hold clients' money. Client money is any money held on behalf of the landlord or tenant in advance of being due. This includes rent, holding deposits, and security deposits (before they’re placed in a deposit protection scheme), as well as money paid in advance for bills, or repairs or maintenance work.
Client money protection schemes protect landlords' and tenants' money in the event of theft or misappropriation by agents and ensure that they are compensated. Client money protection also protects landlords’ and tenants’ money should an agency experience financial difficulties - if it was to go into administration, for example.
There are currently six government-approved client money protection schemes - Client Money Protect, Money Shield, Propertymark, RICS, Safeagent (previously NALS), and UKALA Client Money Protection. In order to join a client money protection scheme, agencies will need to hold their clients’ money in an account with a bank or building society authorised by the Financial Conduct Authority. Agencies are also expected to have strong client money handling procedures in place.
Agencies will need to display the certificate confirming their membership of an approved client money protection scheme in a visible location in each of their premises and on their website. It’s also recommended that they publish a copy of their membership certificates on third-party websites and alongside listings on portals. Agents must provide a copy of the certificate from their approved scheme to anyone who reasonably requests it, free of charge.
Want the latest lettings new delivered straight to your inbox every week? Sign up to our mailing list and stay up to date, or read our complete guide to lettings legislation in the private rented sector to help your agency stay compliant.