Warning for landlords on new rent safeguard scheme
Landlords should use more than one letting agent to mitigate risk because new rules intended to safeguard rent paid by tenants fail to provide adequate protection.
The Residential Landlords Association issued the advice after receiving details of the new policy which will see all letting agents in England registered as members of a government-approved Client Money Protection (CMP) scheme from April next year.
These scheme aims to protect the rental money that a tenant pays to a letting agent to pass onto their landlord in situations such as the agent ceasing trading.
But the RLA found that the level of insurance held by CMP schemes will not cover the full value of the rental money held by the letting agent.
It also found that the CMP schemes will not pay out in certain circumstances and CMP schemes will be able to cap the amount they pay out, in the same way as the Financial Services Compensation scheme.
The RLA is warning that there will be a considerable risk to landlords, particularly those with large portfolios, of not receiving all the money which they are owed.
It is advising that to help reduce the risk, landlords should spread their properties across a number of agents so that they reduce the need to go over whatever limit will be guaranteed with each one.
David Smith, RLA policy director, says: “It is right that money provided to agents by tenants for landlords should be protected.
“It is disappointing that the government’s plans will not offer full protection and we urge Ministers to think again or they will undermine confidence in the scheme.
Richard Truman, Head of Operations at Simple Landlords Insurance, said: “CMP will protect you as a landlord and your tenant if for any reason the letting agent closes down.
“Without this in place you will be liable for any loss incurred, including your tenant’s deposit if the agent hasn’t sent the tenants money to the deposit scheme in time.”