Compulsory Protection of Client Money for English Property Agents
August 1, 2018
On 21 June 2018, new regulations were passed setting out the process for the approval of new Client Money Protection (CMP) Schemes. Hot on their heels, parliament is now considering further regulations which would make it mandatory for letting agents to join one of these schemes by 1 April 2019 or face fines imposed by their Local Authority.
What is a CMP Scheme?
The purpose of a CMP Scheme is to give landlords and tenants confidence that their money is safe when handled by an agent. Where an agent is using a CMP Scheme, a landlord or tenant can recover any funds held on their behalf if the agent fails to repay all or part of their money. This addresses concerns many have following a number of agents going into administration and widespread reports concerning a few others who have misappropriated funds.
What current CMP requirements are there for Letting Agents?
It is already a requirement for Letting Agents in Wales to be a member of a CMP Scheme and to display this to consumers as part of their Rent Smart Wales registration. The Consumer Rights Act 2015 made it a legal requirement for every letting agent in England to display whether or not they were a member of a CMP Scheme, even though CMP Schemes are currently voluntary in England.
Government Consultation on Protecting Landlords’ and Tenants’ Funds
The Government carried out a consultation during the winter of 2017 regarding the introduction of mandatory CMP Schemes for letting and managing agents in England. Following analysis of the responses, it was concluded that regulations would be made to introduce privately-led CMP Schemes, approved by the government in a similar way to the tenancy deposit protection schemes, membership of which would then become mandatory.
To implement this scheme, two sets of regulations need to be passed. The first to set out the process and conditions for approval of scheme providers. The second to impose a mandatory requirement for property agents to join an approved scheme.
New Regulations for Approval of CMP Schemes
The CMP Scheme for Property Agents (Approval and Designation of Schemes) Regulations 2018 (SI2018/751) came into force on 21 June 2018. These set out the conditions that Scheme Providers need to meet in order to be granted approval and represent the completion of the first step of the two-stage process.
Letting Agents’ Mandatory Membership of CMP Schemes
The government has laid before parliament regulations that, if passed, will require all agents in England to belong to an approved CMP Scheme by 1 April 2019. The regulations will also give the Local Authorities power to:
- impose a fine of up to £30,000 on any agent not joining the scheme by that date; and
- the power to impose a fine of up to £5,000 for agents who do not have the correct scheme membership details displayed at their business premises and on their website by that date.
The government response stated that it would not require agents to belong to a professional body or to be a member of a specific redress scheme in order to obtain CMP membership. Lettings agents are already required to be member of one of the three Government-approved redress schemes.
More Regulation of Letting Agents
The government reiterated in their response that there is a commitment to regulating agents and, as part of this, agents will have to comply with legal requirements, one of which will be membership of a CMP scheme. This would suggest that they are not done with letting agents yet and we can expect to see yet more regulation of that sector going forwards.
Written by Property Dispute Resolution Partner, Claire-Elaine Arthurs
If you have any questions or queries regarding this subject or any other dispute resolution matters, contact Claire-Elaine directly and she will be more than happy to help.
DD: +44 (0) 7791 143 284