The Government has launched a consultation into whether Client Money Protection (CMP) should be made mandatory for letting agents.
Depending on the responses to the consultation, mandatory CMP could be added into the Housing and Planning Act 2016.
The Government estimates that 60-80% of agents voluntarily have CMP.
Government Launches Consultation into Mandatory CMP for Letting Agents
However, the consultation document from the Department for Communities and Local Government makes it clear that the Government is indifferent about making CMP mandatory.
It states: “The Government’s concern about making CMP mandatory is that requiring agents to pay to belong to a scheme would force honest agents to buy insurance against themselves being fraudulent. Something the vast majority of agents are not.
“There are two main reasons why a landlord or tenant could lose their money which is held by a letting agent. The first is that the agent is fraudulent, the second is that the agent has gone bankrupt.”
It continues: “While an agent will not always be aware that they are about to go under, client money held in registered client accounts agreed in advance with the bank will be protected and returned to the client rather than used to settle the agent’s debts.
“This is standard business practice and not expensive, so good agents can protect their client’s money without having to join third party insurance arrangements, which could result in higher rents for tenants.”
At present, under the Consumer Rights Act 2015, letting agents are required to display their fees, whether they are part of a CMP scheme and which redress scheme they belong to in their offices and on their websites.
The consultation document adds: “It was the Government’s view that with this, the balance of regulation for letting agents was about right, and we need to allow time for the transparency measures to bed in.”
However, the document says that during the passing of the Housing and Planning Act 2016, it became clear that there was widespread support for mandatory CMP for letting agents.
As a result, the Government will make CMP mandatory for letting agents if a working group demonstrates the necessity of such measures. The working group is led by Lord Palmer and Baroness Hayter, who co-signed the consultation document, along with the Housing Minister, Gavin Barwell.
The consultation asks 17 questions, including whether CMP should be mandatory and if so, would it affect rents? It will run for six weeks.
The Managing Director of the Association of Residential Letting Agents, David Cox, comments on the consultation: “CMP is an entirely sensible measure that protects both the landlord and tenant in the unlikely event that an agent goes into administration or misappropriates a client’s funds. We have been calling for the launch of this review for some time, so we are very pleased that it has now been announced. It provides an extra, but essential, degree of security for professionals in the industry, as letting agents currently hold approximately £2.7 billion in client funds.
“We hope that the review will finally lead to full, mandatory CMP and look forward to engaging with the review team, including Baroness Hayter and Lord Palmer, who we have worked closely with in the past. It’s really important for members, and the wider industry, to come together as one clear, loud voice to call for full, mandatory CMP through this consultation.”