Landlords with larger portfolios are being urged to spread the risk by using several different agents after it emerged yesterday that when mandatory Client Money Protection comes in next April, insurers will not have to cover all the money in an agent’s client account.
The Government has attempted to address issues raised by industry groups about mandatory Client Money Protection regulations – but has failed to allay some significant concerns.
An update sent to organisations such as the Residential Landlords Association and ARLA Propertymark said that a number of amendments would be introduced to avoid increasing costs for tenants and landlords.
One amendment allows a 12-month grace period, until April 2020, for agents to sign up to a CMP scheme.
This begs the question as to when the fees ban will actually be implemented, as the Government has previously said that compulsory CMP must be implemented first as it recognises the possibility of a fees ban putting some agents out of business.
Concerns have previously been raised after the Government had said there would be no limits on liability for insurers, with ARLA Propertymark warning that it might have had to close its own scheme.
There were also concerns that mandatory CMP – due to be introduced next April – would have to cover both the amount in a lettings agent’s client account and the amount protected in a deposit scheme.
But the Ministry of Housing, Communities and Local Government update has now clarified that money already protected through an approved tenancy deposit scheme is not required to be doubly protected by a CMP scheme.
The update also said CMP schemes will not have to pay out where certain risks are excluded by insurers such as war, terrorism or confiscation of the state.
The Government has also said the level of insurance held by schemes should be proportionate to the risk of client money loss rather than providing cover for every penny held in an agent’s client account.
Schemes will be allowed to set individual limits of cover “at least equivalent to the scheme’s maximum probable loss”.
The update said: “Allowing schemes to set a limit per individual claimant ensures that they are not required to pay out without limit.
“It will ensure that more sophisticated large corporate landlords take responsibility for the control of client money held on their behalf.
“The Financial Services Compensation Scheme similarly have individual claim limits and we are seeking to replicate this accepted practice.”
The message also reveals that agents will have a transitional period of 12 months from introduction of the CMP regulations in 2019 to join a scheme.
David Cox, chief executive of ARLA Propertymark, said the clarifications meant the trade body’s own scheme would now be able to operate, if approved by Government.
He told Eye: “These amendments provide clarity to our concerns.
“It wasn’t until the different interpretations came to light in October that anybody realised there would a problem.
“The Government has listened and moved fast.”
Landlords are still unhappy with the changes, though.
The RLA warned that schemes will still not cover the full value of rental money and will be able to cap payouts.
It is advising members to reduce risk by spreading their properties across a number of agents so that they reduce the need to go over whatever limit will be guaranteed with each one.
David Smith, policy director for the RLA, said: “It is right that money provided to agents by tenants for landlords should be protected.
“It is disappointing that the Government’s plans will not offer full protection and we urge ministers to think again or they will undermine confidence in the scheme.
“Otherwise we will encourage landlords to ensure that they do not put all their eggs in one basket and spread the risk.”