Handling Client Monies

Client Money Protection

From 1 April 2019, all property agents carrying out work concerning housing must be a member of a mandatory client money protection scheme under The Client Money Protection Schemes for Property Agents (Requirement to Belong to a Scheme etc.) Regulations 2019.

Interpretation

Client money means money received by a property agent in the course of an English letting agency work within section 54 of the Housing and Planning Act 2016 or English property agency work within the meaning of section 55 of that Act and held on behalf of another person.

A letting agent is a person who engages in letting agency work (whether or not that person engages in other work). It doesn't include staff who work for a letting agent, so only the letting agent company (or individual) requires the client's money protection.

"Letting agency work" means things done by a person in the course of a business in response to instructions received from--

  • a person ("a prospective landlord") seeking to find another person to whom to let housing, or
  • a person ("a prospective tenant") seeking accommodation to rent.

But letting agency work does not include all of the following things (as long as the letting agent does nothing else):

  • publishing advertisements or disseminating information;
  • providing a means by which a prospective landlord or a prospective tenant can, in response to an advertisement or dissemination of information, make direct contact with a prospective tenant or a prospective landlord;
  • providing a means by which a prospective landlord and a prospective tenant can communicate directly.

Property manager and property management work means things done by a person in the course of a business in response to instructions received from another person ("the client") where--

  • The client wishes the person to arrange services, repairs, maintenance, improvements or insurance in respect of or to deal with any other aspect of the management of premises on the client's behalf, and
  • The premises consist of housing in England let under a tenancy.

"Property agent" means a letting agent or property manager.

Membership of an approved scheme

Any property agent who carries out letting agency or property management work related to housing in England must be a member of an approved client money protection scheme.

The cover held must result in a level of compensation being available, which is no less than the maximum amount of client money that the agent may hold from time to time.

The client money protection provider must be one that the government has approved under The Client Money Protection Schemes for Property Agents (Approval and Designation of Schemes) Regulations 2018.

Transparency

A property agent must obtain a certificate in respect of their membership in the scheme and display it:

  • At each of the agent's premises in England at which the agent deals face-to-face with persons using or proposing to use the agent's services as a property agent; and
  • At a place in each of those premises where the certificate is likely to be seen by such persons;
  • Publish a copy of the certificate on the agent's website (if any); and
  • Produce a copy of the certificate for any person who may reasonably require it, free of charge.

Regarding this latter requirement to produce a copy of the certificate to any person who may reasonably require it …, we believe this is a proactive production of the certificate by the agent and is not "on-demand".

Therefore, any enquiring landlord should be provided with a copy, and it should form part of any terms and conditions that are to be agreed upon by the landlord to employ the agent's services.

In addition, the agent must notify each client in writing -

  • if the agent's membership of an approved or designated client money protection scheme is revoked; or
  • if the agent ceases to be a member of a particular approved or designated client money protection scheme and becomes a member of a different approved or designated client money protection scheme.

Each client must be notified within 14 days of the event. Notifying each client of every renewal of the membership won't be required. Only if revoked or changes to a different scheme require notification.

Enforcement and penalties

It is for the local authority to enforce the regulations. The penalty for failing to hold client money protection will be a maximum of £30,000. The penalty for failing to notify each client of a change in membership or for failing to obtain, provide or display the membership certificate is a maximum of £5,000.

More than one penalty may be imposed on the same property agent in respect of a breach where--

  • the violation continues after the end of 28 days after the final notice in respect of the previous penalty for the breach was served, unless the property agent appeals against the final notice within that period; or
  • if the property agent appeals against the final notice within 28 days of the notice, the breach continues after the end of 28 days, beginning with the day after the appeal is finally determined, withdrawn or abandoned.

Before a penalty is payable, a notice of intent is to be served on the agent, after which the agent or an appeal can make representations that can be lodged with the First-tier Tribunal.

The notice and appeals procedure is in Schedule 1 to the regulations.

Basic good practice on keeping a separate client account:

  • A detailed record of all transactions relating to a client account.
  • Detailed receipts for all money received.
  • Accounts must be examined and reported on by a qualified auditor within six months of the end of the accounting year.
  • Be able to produce your latest auditor's report if asked.
  • Retain accounts and records for six years after the end of the accounting period to which they relate.
  • When taking over the accounts and records from someone else, ensure they are completed to the end of the transaction and are kept for six years.

Deposit protection

Agents who take deposits must be members of a deposit protection scheme, and deposits must be handled following the Housing Act 2004 and scheme rules.

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