Client Money Protection – a letting agents dilemma

Client Money Protection – a letting agents dilemma

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17:21 PM, 16th July 2012, About 12 years ago 26

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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!


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10:38 AM, 17th July 2012, About 12 years ago

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!

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11:21 AM, 17th July 2012, About 12 years ago

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.

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11:25 AM, 17th July 2012, About 12 years ago

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 ?

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11:37 AM, 17th July 2012, About 12 years ago

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.

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11:38 AM, 17th July 2012, About 12 years ago

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

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12:03 PM, 17th July 2012, About 12 years ago

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?

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13:06 PM, 17th July 2012, About 12 years ago

I am sure it will be a discussion we will have with UKALA, but certainly movement in the right direction. I agree over TPOS.

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14:29 PM, 17th July 2012, About 12 years ago

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!

Gilly

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16:40 PM, 17th July 2012, About 12 years ago

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.

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17:14 PM, 17th July 2012, About 12 years ago

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.

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