Protect your money: why landlords could lose £1,000s if they use a bad letting agent

The accidental landlord is able to reassure a panicking tenant but has words of warning for fellow landlords over rogue letting agents doing a runner with renters’ cash.
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Fiona McNulty22 June 2018

My cousin is distraught after finding out that the letting agent she paid a £1,500 deposit to six months ago for her rental flat has gone bust.

She fears she has lost her money — but it’s her landlord I feel sorry for.

As I explained to my cousin, once she’d stopped hyperventilating, she should be able to get her deposit back when her tenancy ends because legally it’s the landlord, not the letting agent, who is responsible for making sure it’s refunded.

There’s a chance the agent complied with the law and protected her money with a government-approved deposit protection scheme, in which case her landlord should be able to help her get it back.

However, my cousin doesn’t remember being given any paperwork regarding her deposit so it seems likely the agent just slipped it into his back pocket and now it has disappeared, along with him. If this is the case, her landlord will have to stump up the cash.

This is why it is vital that landlords use a reputable letting agent who has voluntarily signed up to a client money protection scheme.

Those who don’t risk losing hundreds or even thousands of pounds if their agents go bust while holding on to tenants’ deposits.

Landlords who allow an agent without client money protection to collect their rents are taking an even bigger risk.

I am told there has been a rise in the number of agents going into liquidation then immediately setting up new businesses under different names to avoid having to refund landlords.

Good luck getting your money back from these rogues — the legal fees will probably cost you more than you’ll gain.

Fortunately, the Government is planning to make it illegal for letting agents to operate without client money protection in the future, but until it does, how do landlords protect themselves?

Well, you don’t have to let the agent handle the deposit.

I no longer use agents to find me tenants but when I did, I always got the tenant to pay the deposit directly to me and I protected it myself.

One agent told me this wasn’t allowed, which is nonsense. As long as you are registered with one of the government-approved deposit protection schemes, there is nothing to stop you taking deposits from tenants and either transferring them to one of the custodial schemes or hanging on to the cash and protecting it with one of the insurance-based schemes.

That said, there’s quite a bit of form-filling involved and you need to send your tenant some Prescribed Information and if you make a mistake or forget to do this, you might have to pay them compensation.

A good agent will be experienced at this so if you’d rather they did it for you, be sure to use one who offers client money protection. If you find one that doesn’t, give them a wide berth.

Also, I wouldn’t allow a letting agent to collect any rent apart from the first month, which they usually take as payment for their services.

Aside from the risk of them doing a runner with the money, I don’t think there is any advantage to using agents as rent collectors as they usually hang on to the money for a while, which means there is a delay in getting paid.

Finally, don’t be tempted to use an agent whose only selling point is price. Choose one with a good reputation and you should be fine — otherwise, don’t say you weren’t warned.

Victoria Whitlock lets four properties in south London. To contact Victoria with your ideas and views, tweet @vicwhitlock

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