There are changes on the way for the CMP (Client Money Protection) scheme.
These will be beneficial to the industry at large and it’s important that landlords and letting agents understand them.
Prior to 2007, disputes could arise when tenants were unable to obtain refunds of sums they’d paid to letting agents as a deposit. Unauthorised deductions for non-specific reasons were also a cause for complaint.
Some landlords also report similar troubles at the other end of the chain when, for example, letting agents ceased business whilst holding sometimes significant amounts of the landlord’s money.
After 2007 it became, subject to the date and type of tenancy agreement, a requirement for landlords and letting agents to place all tenant deposits into a government-backed scheme. In theory this should have resolved the problems but it wasn’t totally successful due to a number of loopholes.
The basic problem with the old scheme was that it wasn’t mandatory for the sums concerned to be separately ring-fenced and governed by an official third party.
So, letting agents could still effectively retain the monies in their own account under an insured funds option but then fail to continue paying the cover fees to one of the government-approved third party schemes. There was also no automatic notification system in place for the landlord or tenant to tell them that their funds were no longer insured.
In some cases, the first a landlord or tenant would know of a problem was when they applied to the letting agents for the return of monies.
This situation has resulted in losses for landlords and tenants, negative publicity for the industry in the media and numbers of legal actions. Many landlords have been calling for urgent change.
The new scheme
The good news is that this is changing and that’s something that will be welcomed by tenants and landlords alike.
At the end of March, the government announced that it will be made compulsory for all tenant’s and landlord’s deposit funds to be held in a CMP account. So, even if a letting agent’s business fails, the tenant’s and landlord’s deposit funds will be protected and held safely.
To add teeth to the measures, letting agents found to be using clients’ funds without using CMP services will be liable to a fine of up to £5,000 and potentially face the closure of their business.
A welcome step
All responsible landlords will recognise the benefits of this approach and the greater financial security it provides them with. Similar advantages for tenants will also be appreciated.
For landlords, an added benefit here will be the increased professional reputation of our industry.