According to Companies House, approximately 118 lettings agencies go bust across the UK every week.
This can have a massive effect on landlords with the average lettings bankruptcy owning, according to KPMG, approximately £4,580 in client fees. The Government will soon begin a consultation with landlords, lettings agents and tenants to understand if the current system and therein the safeguards are enough to protect landlords and tenants from lettings agencies insolvencies.
The first issue is that lettings agencies are not regulated by local authorities or on a national database. Anyone can setup a lettings agency and sign-up to self-regulated codes of conduct. Whilst self-regulation has worked in part, especially in the context of the bigger chains, there have been issues surrounding the smaller independent lettings agencies and their financial safeguarding.
The fundamentals of insolvency affect landlords and tenants alike. If your letting agent goes bust you will lose your money as you become a creditor and it is up to the insolvency practitioner to find the money to repay you from the remaining assets and available capital.
The Residential Landlord Association “is backing an amendment to the Housing and Planning Bill, proposed by ARLA (Association of Residential Letting Agents) to protect money received from clients and held by agents, such as rent due to landlords. The purpose of the amendment is to require letting agents in England to have a protection system in place for monies received by them in the course of their business from tenants, prospective tenants or any other person who is renting accommodation or seeking accommodation to rent. It is estimated that letting agents currently hold approximately £2.7 billion in client funds and yet, if a letting agent is not covered by client money protection, both the landlord and tenant could stand to lose their money. The amendment is designed to protect both parties in the event that an agent goes into administration or misappropriates client funds, as any losses incurred through the actions of the letting agent can be covered” (RLA, 2015).
The consultation is aimed at amending the Housing and Planning Bill 2015. These changes will help landlords and tenants alike as they will provide a basic safeguard. Furthermore, the National Federation of Property Professionals has launched a money protection scheme for lettings agencies that will work to the aforementioned standards as outlined by RLA. These changes are crucial as they will empower lettings agents to undertake good practice and will give peace of mind to tenants and landlords alike.