The private rented sector (PRS) in Scotland is an increasingly important part of Scotland’s housing sector. The PRS accounts for around 14% of housing and will increase to around 20% over the next 5 years. There are many legislative changes happening as the Scottish Government aims to raise standards. Approximately half of private rented tenancies in Scotland are delivered via letting agencies where the landlord appoints a letting agency to act on their behalf. Scottish Government have rightly identified that they must deal with the worst letting agents and provide better protection to landlords and tenants in order to raise standards across the PRS. In January 2018 a new letting agent register will be introduced where letting agencies must meet certain criteria in order to be admitted on to the register. If they do not meet the criteria and successfully register, then they will not be permitted to trade in Scotland.
The criteria Letting Agents in Scotland Edinburgh must meet is as follows:
- Client money (this is all rent money, deposits and floats) must be held in a separate client account from the agencies’ business money. This means that the agency will not be able to use client funds as working capital for business purposes. It means that if an agency went out of business then the client funds cannot be used by the administrators to pay the business’ creditors.
- Agencies must be a member of a Client Money Protection (CMP) scheme. The scheme providers are responsible for verifying the financial practices of the agency relating to their handling of client money. They must also ensure that all clients funds are held separately and can be accounted for via a bank reconciliation. In the event of an agency with CMP in place misappropriating the client funds then the scheme will pay out the necessary compensation to any tenants or landlords affected.
- Professional Indemnity insurance is required by letting agents. This protects the agency and their clients against mistakes made by the agency where a client wishes to pursue a compensation claim against the agency.
- All people employed in an agency that are directly concerned with managing and supervising the day-to-day running of the letting agency work will need to hold one of two recognised qualifications. Where an individual has held their qualification for more than three years, they must be able to demonstrate a minimum of 20 hours of training during this period to ensure their qualification is still valid for registration purposes.
- Agencies must adhere to the Code of Conduct and in the event of a breach of the code, landlords and tenants will be able to seek redress from the new 1st Tier Tribunal service responsible for legal issues relating to the Scottish PRS.
The new standards outlined above are hugely significant. The register is open to agencies from January 2018 with a deadline for registering of September 2018. It is not yet clear how the compulsory registration will be enforced but the clear new requirements on their own will see a significant improved in standards from letting agencies in Scotland. It is not yet clear how enforcement will be dealt with for agencies that are not on the register or found to be in breach of the requirements – time will tell.
This is great news for Umega along with a small number of other Letting Agents in Scotland Edinburgh who are already voluntarily regulated via ARLA Propertymark. Umega already adheres to standards higher than those laid out in the new compulsory rules and our landlords and tenants already have the protection offered by the measures listed above. The new rules will not be good news for all agencies and I suspect we’ll see a number exit the market over the next few years as they struggle to meet the new standards required. Those agencies that are able to raise their game to meet the new required standards will be in better shape as a result and all of this is good news for tenants and landlords.