What You need to know about Client Money Protection

Once upon a time it was risky to give your money to a letting agent. While the vast majority could be trusted not to run off, there was no hard-and-fast legal protection against them doing so. So, in giving a letting agent the large sums needed to rent a property, you always ran the risk of potentially losing that money.

Happily, this is no longer the case. As of this month, measures are in place to ensure what has become known as Client Money Protection (CMP).

What is Client Money Protection?

CMP is a compensation scheme designed to protect the money that landlords, tenants and others give to letting agents. If an agent charged with the money of a homeowner or renter proves untrustworthy - that’s to say if they go missing or show themselves to be unable to manage their own funds - CMP provides for reimbursing the person who has entrusted that agent with money.

CMP was included in an amendment to the Housing and Planning Bill, which became law on 12 May. Speaking to the House of Lords last month, Baroness Diane Hayter said the amendment "would require every letting agent to have the money they hold be protected, so even if the letting agent disappeared or went bankrupt the money would be safe."

The Baroness went on to explain that the situation should be the same as that which exists with solicitors; that is, that the money belongs to the client and should be kept in a separate bank account.

How Does Client Money Protection Help Me?

CMP helps relieve the stress involved in being a tenant or landlord. Both these processes involve entrusting other individuals with large sums of your money. Until recently there was no solid legal protection for doing so, but now you can give your money to letting agents without worrying, since CMP will back you up if the agent turns out to be unworthy of your trust.

Is Client Money Protection mandatory?

As of the passage of the Housing and Planning Bill, letting agents are legally required to make clients aware of their fees, and the redress scheme that they are a part of, as well as their participation in a client money protection scheme. Additionally, many professional organisations and agent associations are now requiring participation in a CMP program for their members. The National Federation of Property Professionals, for example, now requires its members to take part in a scheme.

What Cover do I get with Property Genius?

Different schemes come at different premiums, and provide varying levels of coverage for letting agents and their clients. Payouts vary widely so it’s important to do some research into the best scheme for you. The Property 118 blog provides a pretty good comparison of some CMP schemes complete with per-year and per-claim payout breakdowns.

In our case, as we're members of Association of Residential Letting Agents (ARLA), they will compensate a landlord up to a limit of £25,000. Landlord claims are limited to three months’ rent. The total payable for a member company is £500,000 and in any one year, the scheme has a limit of £3 million.

Whatever the details of the plan you choose, the passage of the 2016 Housing and Planning Bill is great news for tenants and landlords everywhere. It means that you’ll no longer have to worry about your money when it’s in the hands of your letting agent.