Scott Dawes
Scott Dawes

By Scott Dawes

When letting agents go bust: the need for client money protection

When you think about it, renters take a number of risks when they start a new tenancy. For a start, they hand over hundreds of pounds to letting agents in deposit and rent payments, trusting that this will get them a safe and decent home to live in.

Our research, published yesterday, shows that renters typically handover £600 in deposits alone.

Landlords also put their trust in agents who, by law, have to put deposits in official protection schemes. But they also collect and handover huge sums of money to landlords in rent. They can be sat on tens of thousands of pounds of money at any one point.

This shouldn’t really be a problem. All businesses exchange money and doing so is part of the service agents provide to tenants and landlords.

But what happens when agents go bust?

Unbelievably, agents don’t have to keep tenants’ or landlords’ money separate to their own. If the agent has some of their money when their business collapses this could be taken by creditors.

Some tenants who rent through dodgy agents never find out what happens to their money. Like Ruby, who rented a flat with friends at university and lost her money when the agent went bust.

“The house was good, but the letting agents were terrible.  I don’t think they protected our deposit and they just stopped contacting us as the end of our tenancy drew nearer. 

 “We went to their offices but they were empty and the letting agency had clearly closed down.  We tried to contact them for months but got no response.  We were in our second year of university and money was obviously incredibly tight but we were then out of pocket by a really large sum of money.”

If agents were required by law to have client money protection, they would be required to put any money they handled on behalf of tenants – like rent payments – into a separate account.

Why isn’t this law? Well it might be soon.

An amendment has been proposed to the government’s Housing and Planning Bill to make it law that agents have client money protection. This would protect tenants and landlords, as well as help professionalise the sector. Baroness Hayter has put down the amendment and the House of Lords will debate it in the coming weeks.

Shelter has long called for this measure, campaigning on it the last time there was a chance it might happen in 2013. This time around we’ve been supporting the Association of Residential Letting Agents in calling for the change and raised it with MPs and Peers.

We hope the Government takes this opportunity to protect the huge sums of money renters and landlords entrust to letting agents – helping to protect people’s lives and landlords’ businesses from financial shocks out of their control. Shelter wants it. ARLA wants it. Let’s hope Parliament wants it.

3 Responses to When letting agents go bust: the need for client money protection

  1. A Landlord says:

    All letting agents who operate have to part of one of the Ombudsman scheme. As part of this, they have to get indemnity insurance.

    “An amendment has been proposed to the government’s Housing and Planning Bill to make it law that agents have client money protection. ”

    It sounds it should be covered by the indemnity insurance?

    No agents is allowed to operate without been part of the one of the ombudsman.

  2. A Landlord says:

    Shelter fought for the deposit protection. So there is another layer of protection.

  3. A Landlord says:

    I have been cheated by a letting agent. They were taking rent but not passing it on. Extra rules are pointless, if there is no enforcement. The local trading standards knew about the letting agency, but they did nothing. They had a dossier on them. Yet this went on for two years.

    We took them to court on advice of trading standards. When bailiffs went, they claimed it was under new ownership (which it was n’t). They managed to hood wink them.

    The money was lost, when I rang trading standards. I asked them if I should do business with xxxxxxx (another letting agent). They said they cannot disclose such information due to data protection!

    They can have a client account, but it does not stop them to transfer the money to their personal account.

    If someone wants to operate illegally, they will and they will find a way.

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