The chances of us leaving the EU on the 29th March now appear very slim. An extension would seem the logical outcome following this weeks debacle in Parliament. There is however another ‘clock ticking’ that you are more than likely unaware of. Estate agents who hold client’s money will have to have Client Money Protection (CMP) Insurance in place with effect from the 1st April. Moores have had CMP for many years, but I have learned this week that there are over 4000 estate agents in the UK who not only don’t have CMP, but don’t even have a separate Client Account from their office/business account! That is worrying. Our agency has had separate accounts from the day we opened in 1993; the funds with which we operate our business has never mixed with our client’s money.
Until now, estate agents who collect rent on behalf of landlords, or who hold deposit monies, have not compulsorily had to protect their client’s cash. Many landlords have probably not even considered the implications of this. An agency like ours, with a single office, frequently has up to £750,000 in its Client Account each month. What would happen to that money should we go bust? What would happen if one the partners decided to start a new life in South America? (not that either event is anticipated at Moores!). But these things do happen. Our industry press frequently tells of agency’s closing at a moment’s notice, leaving landlords frustrated at not being able to access their last months rent and their tenant’s bond. On 1st April it will become mandatory for all estate agents to have CMP cover. Without CMP they cannot legally hold money on behalf of clients. This will expose them to fines of up to £30,000, a sum which I can imagine could close-down a small agency in the current economic climate. Any landlord using an agent who doesn’t have CMP has to ask themselves how that agent will collect the landlord’s rent from his/her tenant, and process it both safely and legally after 1st April? This issue prompted me to look closer at what some of our competitors are doing in order to comply with the legislation, with only a couple of weeks to go.
Many commercial banks will not set up a single Client Account for agents, which would allow the agent to separate their operational money from their client’s money. The requirements of the recent Anti Money Laundering Regulations impose an obligation on banks to determine the source of funds and to ‘get to know their customer’. Adopting a ‘sledge hammer to crack a nut’ approach, banks are insisting agents have to open separate bank accounts for each client, and for the respective clients to provide Proof of Identity to the bank. This will be a logistical, administrative and an accounting nightmare.
A small, profitable, agency would need to set up 100+ accounts. We would need to set up multiple 100’s had we not have had a separate Client Account for over 25 years. Setting up 100’s of individual accounts will be very expensive. Getting client’s to provide Proof of ID when they live on the other side of the world will be interesting. Setting up computerised accounting systems to handle 100’s of receipts and payments, with monthly reconciliations, will require a robust and sophisticated accounting system – which many agents may not already possess.
Why these agents have left it so long to put arrangements into place amazes me. It has been mandatory for members of Propertymark to have CMP Insurance to protect their clients for some time – clearly, there are many landlords who do not employ agents who are members of Propertymark. Propertymark not only insists upon its members having CMP but it is a requirement of the agents to have their Clients Account checked and reconciled by an Auditor once a year, and for the Auditor to submit an annual report to Propertymark. As Propertymark has the ear of Government when it comes to all things property related, it does not take a giant mental leap to expect such a mandatory requirement within an organisation like Propertymark to eventually become legislation.
I would urge all landlords to check to see if their agent is a member of Propertymark (NAEA/ARLA etc.) and if not take a close look at how their estate agents protect their rental income. You need to be asking whether your agent will be able to legally collect rent from your tenant, process the rent and credit your bank account in a timely fashion after 1st April, and how your agent will ensure future rents collected will be safe and secure.
If your agent is not taking steps to comply with the legislation what will happen to any future rent they collect in the event the agent is prosecuted and the business folds? Don’t procrastinate. Make sure your money is safe.