Caroline Pickering: Wise Up Tenants and Landlords!
December 1, 2010
Chair, National Approved Letting Scheme (NALS)
Letting agent fraud and complaints to the Property Ombudsman are at an all time high – it has never been more important for landlords and tenants in the Private Rented Sector (PRS) to make sure that their rents and deposits are safe.
You can do this by only using agents that have client money protection insurance and, particularly for landlords, ring-fenced client
money accounts with access to an Ombudsman scheme for dealing with complaints and compensation.
The last couple of years have not been easy for anyone, and this is true of the PRS which experienced its own consequences of the economic downturn. As the recession took hold the sector was victim to a series of incidents carried out by unscrupulous individuals operating in letting agencies, who misappropriated client monies. The volume of the number of cases shocked the industry and NALS believes that consumers must be better informed with regard to how they can protect themselves, whether they are renting a property or are a landlord protecting their investment.
Know the Dangers
What these incidents instantly highlighted was the undeniable value and overriding importance of using an agent who is part of a Client Money Protection Scheme and who offers independent redress through membership of an Ombudsman Scheme, and the incredible vulnerability of those consumers who are unaware of what to look for in an agent. The dangers of using an unregulated or uninsured agent are, as many can now sadly testify, high.
For those consumers using the services of a licensed NALS agency or, any other organisation operating a CMP scheme, the effect is lessened as they are able to claim back monies, but not everyone is that lucky.
Not only is this avoidable but the vast majority of reputable agents who do adhere to best practice are at risk of being ‘tarred with the same brush’ as the unscrupulous operators.
Know What You Can Do
Client money protection insurance (CMP) is of course a vital insurance, but it can not prevent these incidents from happening. What is needed is awareness of the dangers and for everyone operating in the sector to take individual responsibility for the part they play. For example, landlords need to spend more time asking the critical, and straightforward, questions of their prospective or existing agents, and they need to stop making decisions on which agent to go with based purely on cost. It could end up costing them far more than they bargained for if the agent misappropriates their money.
We have seen too many cases where landlords are willing to wait inordinate lengths of time for their rent before alarm bells start to ring about the agent. Amazingly, we have even heard of some landlords accepting a delay in rent payment being passed on due to the agent’s cash flow problems! Rent and deposits should be in ring-fenced client accounts and inaccessible to agents – cash flow should NEVER be an issue.
Landlords need to know what questions to ask of agents, for example: are you covered under a Client Money Protection Scheme? Are you part of a regulatory organisation? Are you a member of an Ombudsman scheme? And if the agent cannot answer YES to all of these, the immediate question next should be WHY NOT?
The Future of the Industry
Taking individual responsibility is even more important as the Government has indicated that they have no plans to regulate letting agents. However, as an industry there is much we can do to inform landlord and tenant consumers of the risks and this is exactly what NALS will be doing over the coming months.
With the heightened importance of the PRS in meeting housing need, consumers need to know that they are secure and protected. To help protect the consumer and the future of this resilient sector we are calling for unified, industry wide action to raise awareness in the consumer market of the role of organisations promoting strict codes of conduct for anyone operating in the sector.
We need all industry organisations to simplify for the consumer what they should look for in an agent. Top of this list is a recognisable kitemark to ensure that, in the same way consumers choose travel agents with the ABTA logo, they look only to use a licensed letting agent.
We believe that to make sure that letting agents can be relied upon by landlords, tenants and investors – and in order to secure an increase in institutional investment in the PRS – there must be a minimum of three statutory requirements for all practicing lettings and management agents.
- Secure ring-fenced accounting for all monies held for clients;
- Client money protection insurance cover to provide a crucial safety net so that should an agent misappropriate clients’ funds, the consumer is protected;
- Access to an independent complaint and compensation scheme through an Ombudsman scheme.
In the meantime, the critical question all consumers should be asking is does my agent have Client Money Protection cover, belong to an Ombudsman Scheme and have a ring-fenced account for client monies. If the answer is no, they should walk away and not put themselves at risk. Instead, choose an agent that DOES.