It seems quite likely that the other insurance TDS will have to impose a similar requirement on its members. If so, unregulated agents will have no choice but to use the sole custodial scheme, which is arguably not what was envisaged when the regime started.

If someone has to change to a different TDS, even with three months’ notice, will this be possible in every case? For example, if certain wording has to be included in the tenancy agreement in order to join that scheme, it won’t be possible to meet this requirement with an existing tenancy.

As an aside, it seems that the custodial scheme is at least partly funded from interest earned on the deposits. If interest rates remain very low for long, the government might have to provide extra money, which probably won’t be too popular when finances are tight.

As I understand it, there has been no consultation with the membership prior to this decision being made and, more crucially, being publisized to their tenants. The membership rules require an Agent to give 6 months notice if it wished to leave the scheme. Surely a blameless unregulated member, who has an otherwise unblemished record and who had been accepted for membership, is entitled to a similar period of notice. The unregulated members have also not been given any period in which to make representations before this decision was published to their tenants.

If the real issue is CPMB then the appropriate way for this to have been dealt with would have been to make this clear to the unregulated members and give them an opportunity to comment and/or put in place their own CMPB arrangements.

However this has come as a huge shock to many people. It is unfortunate that the postal service let you down, so the letters to tenants have in some cases arrived before the letters to agents.

Speaking as someone regulated by the Solicitors Regulation Authority, I do understand the value of regulation of professionals, to their clients and customers!

I’ve seen your article on Landlord Law, and hope that you will allow me a reply.

Let me emphasise that we were required to take this action by our insurers. I appreciate that there has been cost and disruption to the firms concerned – as there has indeed been to us. It would not have been our choice to force valuable members to leave TDS. As you say, many of them are blameless. Only a few of our members have gone into liquidation, but unfortunately by far the most significant was of an unregulated agent. Our insurers consider that the risks posed to them by agents who do not belong to bodies which require them to have Client Money Protection Bonding (CMPB), are too high.

You ask if we considered finding alternate insurers. We know from experience in constructing our tender for this service how specialised an area of insurance this is, and how little interest and appetite there was for it then. You are quite right to acknowledge that it would be difficult in the current economic climate, and there is no reason to consider that other insurers would be any less rigorous.

We despatched letters to agents before those to their tenants, using the Royal Mail’s 3-7 day delivery service for the latter. I am not perhaps surprised that letters to some agents were delivered late, but I am surprised that some to tenants were received early. In any event, we didn’t want there to be too big a gap in case tenants got wind of these changes from elsewhere together with completely the wrong story. We also wrote to the bodies whose members were affected.

We have given the members affected three months notice. This gives them the opportunity for an orderly transfer to another scheme; or to join one of the professional bodies which does carry CMPB – which, as you rightly point out, does include the Law Society – at a substantially lower rate of subscription than they pay as unregulated agents.

Kind regards

Lawrence Greenberg
Independent Case Examiner