Client Money Protection – a letting agents dilemma
Published 16/07/2012 Should an Estate Agent / Letting Agent have Client Money Protection (CMP) insurance and do the General Public understand (or care about) the risks associated with dealing with an agent that doesn’t have any CMP in place? If an agent does want to implement Client Money Protection Insurance – how easy is this to do?
Following on from my blog on the risks of dealing with “part-time Estate Agents that have opened up lettings departments”, many fellow bloggers commented on the need for having CMP in place to protect landlord’s financial interests and how many of these part-time agents were simply not insured.
Virtually every week we hear about another Estate Agent that is closing down.
If any of these failing businesses have created a letting department (as they desperately look for ways to create more income just before the inevitable administration) but do not have any Client Money Protection insurance – then it is likely that the landlord’s rent money and the tenant’s security deposit money will be lost at the same time as the Estate Agent loses his livelihood.
Remember – letting agencies are engaged to act as agents on behalf of the landlord. So, if the tenant’s security deposit money or the landlord’s rent money is misappropriated (or lost when the business goes bust) – then the LANDLORD remains liable for the loss.
Many Estate Agents claim to use The Deposit Protection Service (the Government approved custodial scheme) to protect the tenant’s security deposit thereby partially negating the need for Client Money Protection insurance. However, landlords only discover that the failing agent hasn’t been sending the tenant’s deposit money to the custodial scheme when it is too late and the agent has finally gone bust!
The Property Ombudsman (TPO) is aware that Client Money Protection is not currently mandatory and has been recently surveying its’ members to see whether there is sufficient support to instigate a change.
As a Letting Agent, myself, I joined the UK Association of Letting Agents and have registered with The Property Ombudsman (TPO). I use MyDeposits (backed by the National Landlords Association) to protect my tenant’s security deposit money as I believe that this schemes offers more flexibility to my customers than the custodial scheme.
I do not have ANY Client Money Protection insurance at the moment though. Why?
I wanted CMP and I wanted to join SafeAgent but my UK ALA membership is not recognised by them – which is ironic when you consider that the UK ALA is owned by the National Landlords Association – the very people that SafeAgent and Client Money Protection schemes should be protecting!
I could join the National Approved Letting Scheme (NALS) and participate in their Client Money Protection Insurance programme but they make no allowance for my business being a member of the UK ALA either (or the fact that I adhere to the code of conduct defined by TPO and UKALA).
What’s the point of joining the UK ALA and TPO if I need reaffirm everything to join NALS?
Additionally, the NALS membership application process is like “sticking pins in your eyes” and after 30 minutes I gave up trying to complete their on-line application forms. I telephoned to ask whether I could save the information that I had entered online for completion later (Answer: no you can’t) and also queried why as a “non-affiliate” NALS applicant was I being presented with a checklist of information that “affiliate” applicants needed to provide (Answer: a bug in the application software).
NALS refusal to recognise my UK ALA or TPO membership (or to make any allowances in their application process) meant that they were demanding references from my solicitor, my accountant and bank manager (all of which have already been provided to the UK ALA). This process is too hard!
Client Money Protection insurance is an important issue for letting agents and landlords alike but the letting industry does not seem to be able to work together to deliver a coherent solution. Until this happens – many reputable agents, including myself, are going to have to continue uninsured!
About Mark Trenfield
An enthusiastic property investor/landlord with investment properties across Wiltshire and Dorset. Started investing in property back in 1998 when I became disillusioned with the stock market and then created his own letting agency - mlettings - in 2002 Member of UKALA)
A regular columnist in the Swindon Advertiser as well as providing expert landlord commentary to BBC Radio Swindon and BBC Radio Wiltshire since 2006. Never afraid to raise and discuss highly controversial topics that affect landlords and tenants.
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Mark Alexander says:
16/07/2012 at 17:43
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Mark Trenfield says:
16/07/2012 at 18:38
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Mary Latham says:
16/07/2012 at 19:03
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Mark Alexander says:
16/07/2012 at 19:28
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Mary Latham says:
16/07/2012 at 19:38
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Eric Walker says:
16/07/2012 at 20:54
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Paul Barrett says:
17/07/2012 at 02:39
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Paul Barrett says:
17/07/2012 at 06:21
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Eric Walker says:
17/07/2012 at 09:01
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Gilly says:
17/07/2012 at 09:05
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Mark Trenfield says:
17/07/2012 at 10:38
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Paul Barrett says:
17/07/2012 at 11:21
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Mark Trenfield says:
17/07/2012 at 11:25
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Mark Trenfield says:
17/07/2012 at 11:37
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Eric Walker says:
17/07/2012 at 11:38
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Mark Trenfield says:
17/07/2012 at 12:03
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Eric Walker says:
17/07/2012 at 13:06
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Mark Trenfield says:
17/07/2012 at 14:29
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Gilly says:
17/07/2012 at 16:40
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Eric Walker says:
17/07/2012 at 17:14
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Ian Ringrose says:
17/07/2012 at 19:32
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Paul Barrett says:
18/07/2012 at 07:05
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Eric Walker says:
19/07/2012 at 12:10
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muiry says:
30/07/2012 at 14:41
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Mark Alexander says:
30/07/2012 at 14:54
Leave a commentMark, I totally concur with everything you have said. My own view is that Client Money Protection insurance should be mandatory for letting agents. As much as it pains me to say it as I love the NLA, I think UKALA merged with the wrong organisation are now, effectively a dead duck. When I was in the process of loading this article for you I wanted to provide readers with links to all of the organisations mentioned. I did a Google search via my Google Chrome browser on UKALA to find the website and link to them and my broswer told me ”
This site may harm your computer.” How bad is that???
The merger between NLA and UKALA could have been so much better handled in my opinion. All UKALA members should have encouraged their landlord clients to join NLA and NLA should have encouraged all of their members to work with UKALA members. The fact they haven’t got their act together with Client money Protection is frankly ludicrous.
Whilst I’m on my soap box, I will mention The Property ombudsman too. Why is it that Estate Agents must be members but for letting agents it’s not compulsory? As you said in your last article, anybody, literally anybody can set up a letting agents. There is no requirement to join any organisation or to provide any insurance yet these businesses often handle 100′s of thousands of client money. if that’s not inviting a disaster what is.
As SafeAgent continues to rally support and educate the public about CMP I see no future for UKALA unless they can get SafeAgent to accept their members as affiliates and that seems a million miles away. I suspect it’s only a matter of time before all UKALA members realise that they have to bite the bullet (or “stick pins in your eyes” as you put it) and sign up to one of the five affiliate schemes that SafeAgent does recognise.
In your area there are 60 letting agents of which just 8 are members of SafeAgent. As a landlord, knowing what SafeAgent stands for, that would make my life very easy as it would instantly rule out 52 letting agents that I would consider using. I’d then talk to the other 8 if I wanted somebody to manage my properties. They may, of course, all be useless for many other reasons. They may think it’s OK to collect rent with a baseball bat, SafeAgent wouldn’t even look into that but I suspect the bodies their members are affiliated to would take an interest.
In short, SafeAgent isn’t the be all and end all so far as I’m concerned when it comes to choosing which agent to work with. However, a very logical first question for any landlord to ask a prospective letting agent “Are you current members of Safe Agent”.
Good luck with your NALS application – you will be fine I’m sure
Hi Mark, Thanks for your comments which I wholeheartedly agree with.
I hang on to the vain hope that the UK ALA will come good in the end ….. but the signs are not good at the moment ……. as nothing has really happened since it was taken over by the NLA … which is a real shame.
If all else fails, as you say, I will have to put those pins away and re-start (from the beginning) my NALS application!
Mark A, I googled this Government web site last week http://www.legislation.gov.uk/ukpga/1988/50/section/21 I got the message the same “This site may harm your computer”
Now why doesn’t that surprise me? LOL – I have treid but I couldn’t replicate the problem, perhaps they got Barclays to fix it LOL. What was even more amusing was that many Government websites didn’t comply with their own Cookie regulations when they came into force either!
What are your thoughts on UKALA and Client Money Protection?
In my opinion client money protection is the absolute minimum a landlord should expect. Any business can fail but if a Letting Agent fails, and tenants deposits are lost, it is the landlord who will have to repay those deposits, despite the fact that he has not touched the money. If a Letting Agent cannot get Client Money Protection Insurance he should place the tenants deposits into the custodial scheme where it will be protected for the tenant regardless of what happens to the Agents business. Most of the problems I deal with are caused when the Letting Agent has used tenants deposits as working captial and has only taken out protection with one of the schemes that charge a premium to provide arbitration in the event of a dispute – they offer no protection of the funds.
This is not about Landlords and Letting Agents it is about Tenants money. If an Agent has not got Client Money Protection the landlord has no way of ensuring that his rent is safe.
Some good points well made. Please note – my comments are made in my capacity as MD of Bushells. The issue is that SAFE must have a set of common denominators otherwise it will devalue its principles and create a ‘SAFE light’. This cannot happen. However noble the intentions of UKALA, they do not provide CMP nor do they require membership of an independent redress scheme. As such, UKALA membership offers no exemption from the requirements of membership of any of the regulators. I cannot speak for any of these bodies on their membership criteria – but to have CMP you must have a dedicated, ring-fenced clients account and have it independently audited. This not NALS or anyone else being ‘difficult’ – it a requirement of the insurers who provide the CMP cover. If you think NALS criteria is onerous, try RICS or ARLA – and rightly so. There are, as you say, so many agents failing, stringent checks are essential.
Respectfully, 30 mins of application is not painful when protecting clients. How long do returns take to companies house of HMRC? The difference is that they are compulsory. It took me longer than 30 minutes to complete my CRB checks to coach rugby – but it’s also important as its for the good of others and a one off exercise.
I cannot comment on the benefit or point in joining UKALA – that is for their members to decide. TPOS is different – all sales agents are required by law to be members. It’s not their fault that HM Government neglected to include those who solely undertake lettings from the 1979 Estate Agents act and subsequent amendments.
You state – “Remember – letting agencies are engaged to act as agents on behalf of the landlord. So, if the tenant’s security deposit money or the landlord’s rent money is misappropriated (or lost when the business goes bust) – then the LANDLORD remains liable for the loss.”
This is especially true where an agent goes bust or misappropriates funds and is lying on a beach in Corfu.
Yes – if they use a UKALA member, the Landlord must take the loss. But if they use say, an ARLA member, then the CMP covers this loss, subject to limits of the respective scheme.
Respectfully, I ask, where is the protection from UKALA? In order to provide this protection then of course extensive checks are required in order to make the CMP costs affordable and viable.
Nevertheless, I agree we should all work together and I actively campaign for this as MD of Bushells and also as a member of SAFEagent steering group. We don’t undertake this role for fun – we do it because we believe in consumer protection and awareness. Nevertheless, we must apply the same basic principles to all and continue to strive to spread the message for the good of the industry and our customers.
This is about tenants money – and consumer protection as you will agree.
You may well consider yourself reputable but there is no way I would even consider using you if you did not have CMP.
That would be just one of the requirements that you would have to comply with before I would use you.
If more of your customers were aware of the risks in using you your business would disappear overnight.
So far you have been lucky due to the ignorance of your customers.
For your sake let’s hope your customers’ ignorance continues.
Yes Mark I very much tend to agree with all your thinking on these issues.
I think your suggestions of how things should be managed are insightful and the way to go.
Unfortunately following such an appropriate stategy would force thousands of LA out of business because they can’t or won’t conform to what I think are eminently sensible ideas from you.
I would not even countenance instructing a LA ,unless the criteria you have suggested all LA should subscribe to was in force.
I know LA like NPG are how all LA should be but I would say about 60 % of the industry is not and would not wish to comply with any of your suggestions.
The reason they get away with it is become tenants and LL don’t know how exposed they are to LA that do NOT conform to your suggested policies.
Until all tenants and LL are aware of how a LA should be they will continue to be ripped off by wrongun LA.
Govt is not minde to regulate the sector so I am afraid the rogues will continue to defgame the good LA out there.
Caveat emptor must be exercised but too few people fail to appreciate what sort of enquireis they should make about the probity of LA.
An intractable problem.
Your forum amongst a few other forums are the only way to fight battles in the war.
Knowledge is the key and I don’t really see what more you can do apart from the site gaining increasing exposaure and hopefully informing the naive like I was and probably still am; though I reckon to a substantially lesser degree based on all the info I have picked up from your site.
Knowledge is power and all that and I can’t see youn being able to do anymore than that you are.
You keep on onforming and hopefully the message gets out there on an increassing scale.
In the present climate I think that this is all we can expect to achieve.
Keep up the good work.
As an aside to CMP is the subject of just what is a regulated agent. I saw recently an agents website which claimed the following: ”
As members of The Property Ombudsman Scheme for Estate Agents and Letting Agents, you can be assured that you are dealing with a responsible, professional and regulated agency. ”
This statement is clearly untrue and misleading as the agent in question is not a member of anything other than TPOS. There is a world of difference between a redress scheme and a regulator as this agent will NOT have CMP and indeed may not have PI Insurance or subscribe to any clients account audit nor controls on the way it operates the same. There is simply a body to whom you can complain, but this is of no use in the event the agent goes bust or is intent on misappropriating funds as all TPOS can do is impose a financial award.
This is the sort of clarity SAFE agent seeks to achieve; an unambiguous signpost to indicate which agents have CMP and those which do not. SAFE is not perfect – after all it was only launched one year ago, however SAFE is listening to consumer stakeholders and evolving for the benefit of consumers.
Be thankful you do not live in Wales (could we have an article/discussion on this please Mark?). If the Assembly gets its way all letting agents (and landlords of course) will not only have to be accredited, but be licensed and registered – but I fear that even with all that bureaucracy and expense (although I would agree that some regulation is needed) it would not address the issues to which you are referring.
Please will everyone fill out the consultation by August 16th as the proposals are just not going to work and we all need to object NOW. http://wales.gov.uk/consultations/housingcommunity/proposalprivaterentsector/;jsessionid=1l91P6GSL542LTrQyWVJjMY93Lrj4gKZCxHLgBQlv7VSS5LrNV6T!545803488?lang=en
I make no apology for going off on a slight tangent here and including this link, as this is important for everyone.
I fear that this government will only be happy when every rented room and house in Britain is monitored by some official in the council, who will insist on every regulation under the sun or even better when there are no private landlords whatsoever and we have donated our properties to the state to manage…….(please, I am joking….just!)
Hi Paul,
I think your comments are a little harsh.
The point of the article was to highlight the fact that we are reputable and we would like to have CMP insurance in place but the UK ALA (owned by the National Landlords Association) does not provide it – and we cannot buy it in the open marketplace unless we join another organisation – such as NALS.
We continue to support the UK ALA because of it’s link to the NLA as, being letting agents, we think of ourselves more as Landlord than Estate Agents.
There must be many many UK ALA members in the same position as us – wanting to buy CMP insurance – but not having a product to offer us. Without CMP we can’t join SAFEAgent either.
Joining NALS wouldn’t be an issue if they would work with the UK ALA to verify all the professional references that we have already provided to them (rather than us having to go back to square one and submit everything – again – to NALS as if we had just started trading).
My business is reputable – our client monies are segregated – we want to buy CMP but we can’t without joining NALS – which is not the right answer to the problem.
The right answer is for the UK ALA to provide CMP to it’s members and I will be calling them today to tell them this!
I just spent ages doing a response but lost in when internet connection went down
Basically said you sound like a good guy but if it did all go wrong the LL would be stuffed.
All these different schemes are just ridiculous for LA and LL alike.
WE need Mark’s suggestion for insurance etc to be enacted counrtywide.
Hi Eric, Thanks for your comments.
I’ve just come off the phone from the UK ALA – too risky to use their web site still because of the virus affecting their web site (although their IT department are now working on the removal of the malware!) – and I can confirm that the UK ALA will be launching a CMP scheme for ALL of their members “within the next few weeks”. Watch this space……
All UK ALA members will be contacted and the new UK ALA membership scheme will encompass full CMP insurance as well as UK ALA agents being enabled as NLA “preferred supplier status”.
What this means is that we should not only be able to join SAFE Agent because we have CMP – but the NLA are also taking steps – as per your comments – to encourage NLA members to use UK ALA members and also getting UK ALA agents to recruit NLA members.
The question is “Will SAFE Agent accept UK ALA members once Client Money Protection insurance is in place”?
Thoughts ?
I totally agree that this mess needs sorting out. UK ALA now confirm that they will be launching a CMP scheme for their members in “a few weeks” – I’ve posted more details of this in reply to Eric Walker above.
Thanks Mark. as you know, SAFE agent is run by a steering committee and it would be improper of me to comment on behalf of all without consensus. I am of course pleased to offer a personal opinion. SAFE is and has always been about CMP and if UKALA supplies a policy which meets the criteria met by the 5 regulators, then it will of course be looked at. Nevertheless, there is more than one common denominator which I am sure the Steering Group would require to be met. Membership of a recognised INDEPENDENT redress scheme being one. All RICS, NFoPP, Law Society and NALS members will also have PI Insurance, a ring-fenced clients account, and an annual audit. I would feel uncomfortable for SAFE to make any exceptions from the criteria met by existing members. Regards
EW
Hi Eric – but this is a step in the right direction?
All UK ALA members already have PI insurance as a condition of membership as well as ring fenced client accounts (that are audited by MyDeposits annually assuming the member uses that scheme).
I would expect the UK ALA member’s accountant to have to audit the member’s client accounts as well annually …..
It will be interesting to see what other conditions the UK ALA demand from their members when CMP is introduced …….
Would TPO for letting membership address your independent redress concern?
I am sure it will be a discussion we will have with UKALA, but certainly movement in the right direction. I agree over TPOS.
Gilly, Were you asking for a blog on the merits of living in Wales (free to cross over the Severn Bridge into England comes immediately to mind) …. or a blog on how the Welsh Assembly are controlling Welsh landlords and letting agents?
I could probably do a “comedy blog” on the benefits of Wales … that might upset a few Welsh readers …. but you might be better placed to do the blog on Welsh letting agent / landlord issues!
Cheek – Mark, I should have known! The usual comment is that the fee to enter Wales is to keep the English out….. of course….. (plus I think the maximum licensing fee I have heard of is £700 compared to your massive fee in Norfolk of £1400 was it? – what is it with these councils?…ever felt unwanted?…)
If you would like me to do a separate blog on this issue then I am happy to oblige – I am not a huge expert but know various people who are. I would need to do a bit of research before I tried to explain it to others… let me know.
I understand that payment is requested on the way in as people seldom pause on the way out……
I understand that the Welsh licensing model may be less onerous than others proposed elsewhere. I also sincerely believe the proposed London scheme may also prove of benefit to the PRS rather than a burden.
Personally I very unlikely to use a letting agent that is
not a member of ARLA; there are enough good agents that are members of ARLA, to
remove the need to consider using any other agents.
I don’t know what SafeAgent provides above ARLA membership,
I believe that ARLA covers a landlord if an agent runs off with the money.
I know there are other options to ARLA, but way brother when
most good agents are members of the ARLA anyway?
I reckon English councils will be watching with interest the Welsh licencing experience.
I could easily see the English councils saying what a good idea it is working well in Wales , we will introduce it to England.
Can you see many councils passing up the opportunity of fees from about 31/2 million rental properties!!!!
Defacto the UK will have LL licencing and property licencing.
The wonga that each council could obtain is just too good to pass up.
I don’t think they would lose many votes when they advise the local electorate that they will be charging LL fees to operate as a business!!!!!………and so assisting the council to keep libraries and swimming pools open!!!?
I am afraid we as LL are going to be royally -crewed under this localism agenda which ALL councils will adopt regarding LL and their properties.
You are probably correct Paul. However, we at SAFE agent have been engaging with those who are researching such plans and hope to positively influence any decisions – we are not alone. ARLA and RLA are working hard on this as well and contrary to popular belief, we work together.
Am I missing the point here? If an agent belongs to an approve body they can have client money protection. If they fail to live up to the ideals of the approved bodies are they still allowed to trade? So what’s the point.
Hi Muiry
There are several points but the main ones are:-
1) The Estate Agency Act needs to be changed to make it illegal for letting agents to trade without Client Money Protection Insurance
2) In the meantime it’s buyer beware. If an agent doesn’t belong to one of the 5 organisations that insists on client money protection insurance then you as a landlord or tenant are putting your money at risk. Make sure you check.
There are several honest letting agents that are not members of an organisation which insists on Client Money Protection Insurance. Like Mark Trenfield, they are unlikely to go to the hassle and expense of joining one of the 5 organisations unless it becomes law or unless they can see that they are losing too much business by not becoming a member. If the law doesn’t change then it’s up to the industry and the 5 professional bodies to let landlords and tenants know about the risks of dealing with a letting agents which refuses to join their organisations. sadly, this is a slow process and lots of people will lose lots of money in the meantime.