Rumour has it that quite a few letting agents (although not all by any means) are in financial difficulties. What does this mean for landlords, and what can they do to protect themselves? Here are some tips:
1. Make sure that your agent has payment protection.
Ideally all client money should be kept in a special clients account, separate from the agents own money. If this is done, the money will still be available even if the agent becomes insolvent. Most reputable agents will do this, and it is a requirement of codes of practice, for example that for ARLA members.
If you are worried about this, perhaps if your agent is not a member of one of the agents professional organisations and there have been serious delays in the payment of rent to you, you might want to consider changing the arrangements for payment of rent so it is paid direct to you in future, by the tenant.
For information, the main professional bodies are:
ARLA – the Association of Residential Letting Agents
RICS – the Royal Institute of Chartered Surveyors
NALS – the National Approved Letting Scheme
NAEA – the National Association of Estate Agents
The Guild of Letting & Management
2. Check what the situation is regarding the tenancy deposit
All tenancy deposits taken after 6 April 2007 in respect of assured shorthold tenancies need to be protected in a government authorised tenancy deposit scheme. Failing this, section 21 notices will be invalid, and the tenant can claim the return of the deposit and a ‘fine’ of three times the deposit amount. You, as the landlord, will be liable for this, even though it may be the agent who is at fault. So you need to check both that the deposit has been protected, and the tenant has been served the relevant notice containing the prescribed information. Failure to do either of these can trigger the penalty.
Another problem is if the agent becomes insolvent and the deposit is not held in a trust/client account. The tenant will be protected, as the tenancy deposit scheme will pay the deposit to them. However the scheme will then look to the landlord (ie you!) to refund them. Under the law of agency you are liable for the acts (or omissions) of your agent. This sort of situation is most likley to occur now with My Deposits, as the Tenancy Deposit Scheme run by the Dispute Service now only accepts agents who are members of recognised professional bodies, and these all require client money protection.
The safest scheme, so far as the landlord is concerned therefore, for the agent to use, is the Deposit Protection Service. Here the money is actually paid over to the scheme administrators, so there can be no question of the agent running off with it.
3. Keep copies of all paperwork
My final point is regarding the paperwork. If your agent goes under, you will need either to take over the management of your properties yourself, or arrange for another agent to take over. This will be much easier if you have copies of all the relevant documents. This should include, particular:
- The tenancy agreement. This is essential. Make sure that you have an up to date copy of the signed agreement for all your tenants
- Notices served. For example the tenancy deposit notice, and any possession and other notices served, ideally with details of how and when they were served and by whom
It would also be useful to have:
- Any referencing documentation. You should be provided with copies of this when the tenant is chosen, so you can satisfy yourself that the tenant found is suitable. This information may also be helpful at a later stage if the tenant defaults on his rent payments.
- Other documents regarding the management of the property, such as gas certificates, letters of authority regarding housing benefit, records of servicing or maintenance work done at the property, and the like. Agents are unlikely to provide copies of these unless you ask for them. However if you do ask, they are supposed to provide you with what ever documentation you want (if is your property after all and they are your agents).
If your agent proves evasive about passing over copies of documents requested, a visit to his office might help, particularly if you indicate that you will not be leaving until you have them. Strictly speaking the paperwork is yours and you are entitled to it.
Hopefully your agent is financially sound, of impeccable integrity, and your properties are safe in his hands. However there is no harm in taking a few precautionary measures.
Related posts:
Not just a rumour Tessa.
Two letting agents have gone under in the Wolverhampton area in as many weeks.
In one case tenant deposits appear to have gone unprotected.
You make a very good point that Landlords need to ensure that they only work with a reputable agent.
My Firm – Rees Page – are both solicitors and letting agents and there are now a good many solicitors firms offering a full letting service which comes with the comfort of regulation by the Solicitors Regulation Authority and the cast iron protection of a solicitors indemnity policy.
Can landlords do anything if an agent disappears?
My agent closed down 2 1/2 years ago with no explanation and taking with them my tenants' deposit – and presumably a lot of other people's deposits & rental income (fortunately for me they had been so bad at passing on the rent that I'd switched to having the tenants pay me directly).
Police & trading standards weren't interested & CAB said there was nothing I could do. They didn't seem to be on some register of bankruptcies which I checked online and contacted by phone (can't remember the details now) so I couldn't register myself as a creditor.
So the owner of the agency gets to keep their clients' money and, presumably, open a new agency to start all over again…
That is, I agree, really unfair. I may do a post on this topic (i.e. what can you do if an agent runs off with your cash), so keep watching the blog.
Part of our business planning was the what ifs, namely we take deposits and then go bust, the best practice for us was to join the DPS as the money was not held by us.
We could regsister the deposit on behalf of the landlord & tenant in all cases and then get the landlord to regsiter a DPS account and then transfer to them.
This ensures if the worst happened our clients money would not be affected, we also have Client Money protection policies.
It is fundamental a landlord checks that a lettings agent have these types of working practises as it shows consideration for them as a potential client.
I completey agree with with Jim Murphy landlords need to use reputable firms that are at least members of NALS as they enforce client money protection policies as part of the accreditation process.
Jupiter trading as GDH Property Management Services in Stafford went under last week. I found out by accident. They have 4 of my tenants deposits. They registered latest deposit in March with DPS but didn’t actually pass money onto them. As a Landlord I’m now at the beginning of trying to sort this mess out for my tenants. Astonishingly, Mr McCarthy, onwer of the old GDH Stafford is now part of Turners (the new trading name in the same GDH premises) and is allowed to continue to trade having kept/spent thousands of pounds of other peoples money. SO CROSS. You should be so ashamed Mr McCarthy.