What landlords need to know about client money protection
Many landlords use letting agents to help them with various aspects of renting their property. There are several requirements that letting agents have to comply with, that landlords should be aware of.
Since 2007 agents have been required to protect the tenant’s deposit, and since 2014 they have also needed to be a member of a redress scheme. As of April 2019, the requirement to have client money protection in place was added to the list of legal obligations that agents must comply with.
So what exactly is client money protection?
As a concept, client money protection is very simple. It is an additional layer of protection for money the agent holds on behalf of their landlord clients and their tenants.
With client money protection in place an agent’s landlords and tenants can rest assured in the knowledge that their rent monies, holding deposits, maintenance funds or, indeed, any other money held by the agent on their behalf can be recovered, at least in part, should the agent’s business experience any difficulties in the future.
Typically, client money protection will come in the form of an insurance or pooled funds to cover the losses of clients’ money.
But isn’t that why letting agents have a segregated client account?
Well, yes but only to a certain extent. A segregated client account is an extremely important element of any business offering client services and should always be in place for any professional and well-run letting agent. A segregated client account will mean that, should a business ever be liquidated – voluntarily or otherwise, the client monies they hold will not be taken into account as it is not the business’s money.
However, what makes client money protection such a valuable layer of protection is the fact that it protects clients’ money from any misappropriation or wrongdoing by directors, owners and staff of the business. Everyone has heard horror stories of businesses, letting agents or otherwise, paying their staff or expenses out of the client money account.
This is exactly the sort of problem client money protection is in place to protect consumers against.
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Where can my agent get client money protection?
Traditionally, trade bodies such as ARLA, NALS, RICS and UKALA were the only suppliers of CMP. Therefore, in order to gain this valuable added layer of protection for agents’ clients, the agent had to choose a trade body, meet their joining criteria, pay their membership fee and only then would they be eligible to gain CMP.
From there, agents would be required to purchase their CMP insurance or pay into their shared pool of funds, which would be either part of the membership cost or a separate premium or levy.
Should the agent wish to leave the trade body for whatever reason they would therefore also be faced with leaving their CMP scheme and losing this important consumer protection for their customers.
Is there an alternative way to meet the requirement?
Yes, there is. Client Money Protect offers a simple way for your agent to gain client money protection without having to join a trade body.
Client Money Protect is a membership scheme that focuses purely on protecting client money. In the event of a claim you, as the landlord/ tenant, contact Client Money Protect and deal directly with them, recouping any losses where appropriate.
Client Money Protect does not sell individual insurance policies. The only requirement Client Money Protect stipulates is proof of the following:
- A segregated client money bank account
- Professional indemnity insurance
- Membership of one of the two property redress schemes.
Make sure you are up to date with your landlord obligations by reading our latest guidance ‘Legislation for landlords: Everything you need to know‘.
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