Letting agents face compliance risk in their day-to-day work, but there are ways an agency can reduce that risk using technology.
Letting a property exposes agents to various compliance risks, such as mishandling deposits or failing to provide prescribed information on time, which can lead to fines or invalid Section 21 notices. With possible changes in legislation, agents must ensure they are compliant throughout the letting process. Embracing a tech platform like Goodlord can help agents every step of the way.
High demand for lettings during an agent’s busy period increases the chances of errors, but technology can help minimise these risks by automating processes. This ensures your agency remains compliant with legislation and avoids costly penalties.
Compliance isn’t only crucial during the tenancy; agencies must also ensure they meet all regulatory requirements to avoid fines. Propertymark recently reported that HMRC issued fines to agencies breaching anti-money laundering (AML) regulations due to outdated registrations.
So, how can letting agents avoid fines and ensure compliance? Here are a few examples:
- Anti-money laundering breaches
- Draft tenancy agreement
- Deposit caps
- How to rent guide, EPCs, Gas Safety Certificates, and EICRs
- Deposit protection and prescribed information
- Client Money Protection certificates
Anti-money laundering breaches
Since 2020, it has been a criminal offence for property agents to operate without being registered with HMRC for anti-money laundering (AML) supervision.
Non-compliance can result in severe penalties, including hefty fines or even prison sentences. In April 2024 alone, fines totalling £1.6m were imposed on property agencies for AML breaches.
Propertymark reported that over 250 agents were fined this year for failing to comply with AML regulations. Common issues include missing documentation, incomplete due diligence, and failure to identify risks such as Politically Exposed Persons or high-risk entities.
To reduce the risk of fines, letting agents must ensure they are properly registered with HMRC, especially if managing properties with monthly rents exceeding €10,000.
An agent must report any suspicious activity related to money laundering to the National Crime Agency.
Draft tenancy agreement
Letting agents must provide prospective tenants with a copy of their tenancy agreement before taking a deposit, as per the Competition & Markets Authority (CMA) guidance. This allows tenants time to review the terms and make an informed decision before committing.
The CMA advises against pressuring tenants into paying a deposit before they've had a chance to review the agreement.
Letting agents can use platforms like Goodlord to automatically provide tenants with a draft copy of their tenancy agreement, alongside a recorded receipt for an agents’ audit trail. Goodlord asks tenants to review and sign the final tenancy agreement before they pay their security deposit.
This allows letting agents to feel confident they are remaining compliant during the pre-tenancy process, without spending any further time on administrative tasks.
Deposit caps
Letting agents must adhere to legal caps on holding, security, and tenancy deposits.
Under the Tenant Fees Act, holding deposits in England are capped at one week’s rent. Security deposits are capped at five weeks’ rent for properties with an annual rent under £50,000, and six weeks for those over £50,000.
Charging above these caps is prohibited and can result in fines exceeding £5,000 for the first offence. Repeat offences within five years may lead to a criminal charge with an unlimited fine.
Using a deposit cap calculator ensures compliance with the Tenant Fees Act and protects an agency from financial penalties.
How to rent guide, EPCs, Gas Safety Certificates, and EICRs
In England, a letting agent cannot serve a Section 21 notice if they have failed to provide tenants with the following before the tenancy begins:
- "How to Rent" guide
- Energy Performance Certificate (EPC)
- Gas Safety certificate (if applicable)
Tenants must also receive a copy of the Electrical Installation Condition Report (EICR) under the Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020.
Failure to provide these documents not only invalidates a Section 21 notice but can also result in fines of up to £30,000.
Using a property management platform like Goodlord ensures that these documents are automatically sent with the tenancy agreement, helping agents remain compliant. Additionally, Goodlord alerts agents when certificates are about to expire, ensuring all documentation is up-to-date.
Deposit protection and prescribed information
For assured shorthold tenancies (ASTs), any deposit taken must be protected with one of the three Government-backed tenancy deposit protection schemes:
The deposit must be placed in a scheme within 30 days of receipt. Letting agents must also inform tenants where and how their deposit is protected. As the deposit is the tenant’s money, agents must provide evidence for any claims against it at the end of the tenancy.
Failure to protect a tenant's deposit can result in the tenant claiming up to three times the deposit amount through the courts. Not protecting the deposit or serving the prescribed information also invalidates a Section 21 notice.
Goodlord simplifies compliance by automatically sending tenants the required deposit information within the correct timeframe. Agents can also register deposits or explore alternative deposit schemes directly through the Goodlord platform, ensuring compliance.
Client Money Protection certificates
UK letting agents who handle clients’ money must join a Client Money Protection (CMP) scheme. To comply, agents managing rental payments must place these funds in an account authorised by the Financial Conduct Authority and provide a certificate confirming membership in one of the following CMP schemes:
This requirement has been mandatory since 2019, and failing to register can result in fines of up to £30,000. Even if registered, agents must display their CMP certificates both in-branch and online. Failure to do so could lead to civil penalties of up to £5,000.
Goodlord’s rent collection service helps agents manage payments from collection to reconciliation, using a CMP-certified process to ensure compliance while saving time.
