Is your letting business still compliant?

Is your letting business still compliant?

Being a letting agent today means keeping up to date with an ever-changing long list of rules and regulations which govern how a property may be let and managed whilst ensuring fair treatment of all parties. This, whilst also 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 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 are likely to have crossed all of their T’s and dotted all of their I’s, however there are many ‘accidental letting agents’ who may not be 100% sure of their obligations. These are estate agents who have, possibly reluctantly, moved in to 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 in to a business.

These ‘accidental letting agents’ may have little or no industry experience and, whilst the information is out there, it’s not particularly easy to find out exactly what needs to be done to stay compliant.

At The Letting Partnership we have worked with countless new entrants to the lettings industry and understand how complicated the multiple rules and regulations around compliance are.

So here’s an 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:

As of the 1st April 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 your business holds or has received on behalf of a client which it is not beneficially entitled to. It includes tenants’ deposits, rents & fees. You should ask for a letter from your 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.

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 Safeagent (previously NALS). However knowledgeable or skilled you and your team are, human error can lead to a negligence claim being made against you and your company. Professional Indemnity insurance covers companies and individuals for mistakes made as part of people’s day-to-day roles.

It is important to note that PI only covers you for what you disclose when you arrange the policy. Unless you disclose the full extent of your business activities you may find yourself exposed and at risk of invalidating your policy. So check that it covers ‘Lettings’ as a business activity.

From 1 April 2019 all lettings and management firms handling clients’ money must be part of a Government approved CMP Scheme in order to continue to trade. These schemes make sure landlords and tenants are compensated if you cannot repay their money, for example if you go into administration.

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. Agents in England and Wales who do not have membership of a professional body can get their CMP through Money Shield, or ClientMoney Protect instead.

Due to the wording of the regulations, the requirements for agents who use a CASP (Client Accounting Service Provider) are arguably open to interpretation. However, it is strongly recommended, and may be a contractual requirement of a CASP, that there is CMP for all lettings businesses.

All deposits taken on Assured Shorthold Tenancys (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 3 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.

For more information go to: https://www.gov.uk/deposit-protection-schemes-and-landlords

Agents with properties rented at or above €10,000 (or equivalent) per month 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 The Letting Partnership that all 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 they 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. Report any suspicious activity via a Suspicious Activity Report (SAR) to the National Crime Agency.

You can get more information here:

Your responsibilities under money laundering supervision

Estate agency business guidance for money laundering supervision