Rent and other monies paid to letting agents in England and Wales will soon have to be placed in an independent bank account to protect the funds from rogue agents or those who go bankrupt.
MPs are working on plans to legally mandate the measure for estate and letting agents into the Housing and Planning Act 2016, following a consultation period of almost a year and pressure from activists working to protect tenants’ rights.
The move will mean all estate and letting agents in England and Wales will be legally obliged to sign up to the Client Money Protection scheme – or face fines or even be shut down.
According to research by the housing charity Shelter, people hand over around £600 on average in deposits when renting a house or flat. If, subsequently, the agent ceases trading, that money may not be recoverable and the tenant will suffer the loss.
It is the same story for landlords who use the services of letting agents and pay them sums for future maintenance and other costs associated with rentals. If they are unknowingly dealing with an unscrupulous letting agent, they may not even get all the rent they are due from tenants.
Speaking in the House of Lords as the government agreed to amend the Housing and Planning Act to better protect landlords and tenants, Housing Minister Lord Bourne said it would mean improved services from letting agents.
“This will ensure that every agent is offering the same level of protection, giving tenants and landlords the financial protection that they deserve. The government will consult on how mandatory client money protection should be implemented and enforced.”
Up to now, it is believed many victims of unethical letting agents have not spoken out or even taken action. Indeed, according to the Local Government Association, just 5% of overall scams are even reported, largely due to feelings of embarrassment or naivete.
In one case last year, a letting agent was jailed by the Harrow Crown Court in London for four and a half years for fraud. The LGA says scams, including those concocted and carried out by letting agents, cost people around the UK some £9.4 billion every year, and that five million fell victim in 2015.
The head of the LGA’s Safer and Stronger Communities Board, Simon Blackburn, said these kinds of scams hurt people not only financially but also emotionally, and that dodgy agents and others “just want to rip people off”.
“Victims of fraud can lose thousands of pounds and feel anxious and scared due to being harassed by people every day,” he said. “It also creates significant costs for taxpayers as elderly victims in particular often require more care and support after they have been scammed.”
To become a member of the Client Money Protection programme, firms must have a segregated client bank account, be a member of an independent redress scheme for consumers, have professional indemnity insurance and agree to the terms and conditions of the scheme.
Shelter policy chief Kate Webb, meanwhile, said letting agents would no longer have full control over clients’ money paid to them as it would be held in bank accounts separate to the agents’.
“It’s good news that the government has taken action … to make sure landlords and private renters are better protected if a letting agent goes bust, tries to steal from them or commits fraud,” she said.
“We’ve been campaigning hard at Shelter to improve the lives of private renters and this is a positive step forward alongside the proposed ban on letting agent fees.”
Estate agents involved in the lettings business will soon be legally obliged to display an official sign in their on-site windows or websites informing people they are members of the Client Money Protection scheme. So those looking for letting agents in Hammersmith, for instance, or anywhere else in England and Wales, will be assured that their deposits and other monies will be safe.