Compliance & It’s importance for your Letting Agency
Compliance features heavily on the list of priorities for the letting agent - with health and safety matters at the forefront of the duties letting agents must deal with. However, compliance must also be taken into consideration when dealing with administrative processes, ranging from AML checks to ensuring who ownership of the property is verified.
The reasons behind having strong systems in place to ensure that a letting agent is compliant are multi-layered and can raise concern if there are gaps in the letting agents processes. For example, the introduction of the Deregulation Act 2015 (1st October 2015), changed not only the section 21 notice template in England (the Form 6A was introduced), the additional documents required to ensure validity of the notice, as well as the period during which the notice could NOT be served, caused confusion and placed great emphasis on the importance of compliance and demonstrating to a very strong audit trail.
Over the last 7 years, there has been a significant amount of case law which has come to the fore. Failure to correctly serve the ‘accompanying documents’ has caused significant problems, not only for the letting agent, but for the landlord - the domino effect is extremely difficult to unravel. Failure, for example, to serve the correct version of the How to Rent Guide (December 2020 is the most current version), will impact the validity of the Form 6A. And whilst some may feel that this is not relevant, a judge dealing with an accelerated possession claim will look at the documents that have been submitted to support the claim and will request a hearing expecting an explanation as to why the incorrect version as served before they make a decision about granting possession.
It is not just the Deregulation Act impacted the importance of admin compliance. The introduction of the Tenant Fee Ban in 2019, the introduction to Electrical Safety Regulations and the amendment of the Smoke Detector & Carbon Monoxide Regulations added a further layer of compliance that letting agents needed be to be aware of and ensure was complied with on behalf of their landlords.
And of course, we think carefully about, and are very mindful of the impact of failure to comply on landlords, tenants and also the business. It is the latter that is the focus of Trading Standards who during the pandemic were not focusing heavily on enforcement, however, over the last 12 months there are more cases of agents failing to comply not only on behalf of landlords, but also with compliance related to business practices.
The requirement for letting agents to display their fees (inclusive of VAT), along with their membership to a Redress Scheme and Client Money Protection has been in place for a significant period of time and Trading Standards imposes fines of up to £30,000.00.
There is no need for a Trading Standards officer to visit the agent’s office, a very simple online inspection of the agent’s website, property portals used by the agent, social media platforms and a discussion with the CMP providers and Redress Schemes will suffice.
Anti-Money Laundering Regulations
This area of compliance is very complex, however, HMRC who oversee the enforcement of Money Laundering Regulations are very perceptive when checking an agent’s website. If the agent is involved in an activity that requires them to adhere to AML regulations, and the agent has failed to register with HMRC, this may attract a fine and it is possible the fine will be retrospective from the date that the agent either advertised their regulated activity or set up their business.
The Housing & Planning Act 2016
This piece of legislation heralded the introduction of Mandatory CMP, however, the roll out was peace meal and delayed to allow agents to get their ‘house in order’. Yet, the significance of mandatory CMP was extremely important not only for agents who already had CMP in place, but also for ensuring that the benchmark to protect client monies was taken up a level.
However, according to sources, only 8,000 agents in England are trading with CMP in place.
The premise of this article is not only to illustrate the impotence of compliance in relation to landlrod obligations, but also on a business level. The more compliant the agency, the more valuable the portfolio - there is clearly less risk and that’s very attractive to those wishing to acquire a business. Imagine that the agency has failed to protect deposits on time for every single tenancy. That’s a frightening proposition - not only for the landlord, but also for the letting agent who could face claims for six years from the point of the breach occurring, as well as the possibility that landlords would sue for negligence.