A new rental protection scheme designed to ensure that landlords receive the rent due to them, and that is due to come into force in April 2019, will not offer the full level of protection that landlords need, says the Residential Landlords Association (RLA).
It warns that landlords, particularly those with larger property portfolios, could find themselves out of pocket, should their letting agent cease trading.
What Is The Rental Protection Scheme?
The new rental protection scheme will require all UK letting agents who collect money on behalf of landlords to be registered with a government-approved Client Money Protection scheme, known as a CMP for short. It is designed to ensure that landlords will still receive monies due to them that had been paid by tenants should a letting agent go out of business.
Richard Truman, Head of Operations at Simple Landlords Insurance, explained the CMP: ‘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.”
However, the scheme has come under criticism for its likelihood of failing to protect landlords.
The Drawbacks To The Scheme
The RLA has warned that, despite the best intentions of the scheme, landlords who own multiple properties are unlikely to be fully protected. This is due to a number of factors.
The first is that the level of insurance that the CMP scheme offers may not cover the full value of any monies held by the letting agents.
The second is that there are circumstances in which the CMP’s insurance will not pay out in full, or even pay out at all. And finally, the CMP schemes will be able to limit their liability and cap the amount they pay out, in the same way that the Financial Services Compensation Scheme works.
However, for landlords with smaller property portfolios, this scheme should provide some peace of mind should the worst happen.
The Expert Advice
In order to mitigate their risk, the RLA is recommending that landlords with multiple properties use a number of different agencies for their rental properties.
Just as with the Financial Services Compensation Scheme, the amount insured will apply to each agent individually, rather than be treated as a total across multiple agencies.
Splitting their portfolio across multiple agents will help landlords to prevent the rental income exceeding the amount insured by the CMP.
David Smith, Policy Director for the RLA, said: “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.
“Otherwise, we will encourage landlords to ensure that they do not put all their eggs in one basket and spread the risk.”