Client money protection is a hot topic in the letting industry. The private rental sector in Scotland is an increasing and critical part of the housing mix and as a result the Government is looking at ways to improve the quality of private rented property. This means as well as changes to legislation that make properties better for tenants, there are most likely changes to legislation on the way to improve the standard of landlords and letting philosophy agents in the sector too. The quality of service that tenants get from landlords and letting agents in the private rented sector is a very broad range. There are a number of measures that have been introduced over the last ten years to try to raise the baseline for private landlords and letting agents. Most notably these have been the introduction of the private landlord register, the tenancy deposit scheme and (where relevant) tightening regulations for home of multiple occupancy (HMO) properties. However, these measures have lacked the necessary bodies and capacity to monitor and clamp down on landlords and agents who do not do as they should. In many cases the onus is left on the tenant to hold their landlord and agent to account and, unsurprisingly, most tenants are not aware of the obligations on their landlord nor have the appetite to hold them to account.

Letting Agent Regulation

The next thing being considered by the Scottish Government is compulsory letting agent regulation that will include client money protection being one of the criteria that licensed letting agents will have to meet. This would create a significant raising of the bar for letting agents in the private sector as currently only a handful of Letting agents in Edinburgh have client money protection in place.

What is Client Money Protection?

Client money protection is where a letting agent holds client funds completely separate and distinct to its business funds. There must be an audit-able accounting system running in parallel to the client bank account so that at any time the letting agency should be able to identify every penny of client funds that they hold and reconcile it with their separate client bank account. This prevents any use of client funds for the lettings business cash flow and safeguards the tenants and landlords using that letting agent from any malpractice or failure in the business of their managing agent. This kind of regulation already exists in a voluntary basis via membership by letting firms with either ARLA (Association of Residential Letting Agents), RICS (Royal Institution of Chartered Surveyors) or The Law Society. If the Scottish Government does decide to make client money protection mandatory then whether it would appoint one of these existing bodies as a compulsory regulator or create a new body is a decision for much further down the road. The timescales for letting agent regulation remain unclear along with the detail of what will be required. Equally important will be what the powers would be of such a regulator to monitor the activity in the sector. In the meantime, the best advice for any landlord or tenant in the private rented sector is to use the services of an agent that subscribes to voluntary form of regulation that is offered from professional bodies like ARLA.