Client Money Protection – upcoming changes and why they matter

Client Money Protection (CMP) is an insurance policy taken out by letting agents, to protect the monies they handle on behalf of their landlords and tenants. If your agent has CMP, it means that if they go out of business or someone runs off with your rent or the funds held for maintenance, you don’t lose out financially.

Although it’s not yet law, the Government has announced that it intends to make membership of CMP schemes mandatory for all letting and managing agents in England. A consultation was published at the end of last year, inviting views and comments from both the industry and the public on how a new law should be designed, implemented and enforced. The feedback is currently being analysed.

The consultation proposes that letting agents wouldn’t be permitted to operate until they had obtained cover. Those found not to have CMP could face the following penalties:

• • A civil penalty of up to £5,000, in line with the one currently in place for agents that aren’t members of an approved redress scheme
  • A maximum fine of £30,000, if the civil penalty were increased in line with the new fine for housing offences (introduced in April 2017)
  • Repeated financial penalties for persistently non-compliant agents.

If your agent is a member of ARLA Propertymark, UKALA or RICS, they will already have CMP, as these organisations insist on it as a matter of best practice. Every agent should be acting in their clients’ best interests, if your agent doesn’t currently have CMP, you should ask why not – worryingly, it may be that they can’t fulfil the criteria demanded by insurance providers.

The other thing to be aware of is that CMP obviously has a cost implication for agents, which they may try to pass on to you, if they are indeed able to secure the insurance.

In any case, you should consider switching to an agent that is a member of one of the self-regulating bodies above, for two key reasons:

1. They are qualified, trained and operate to the highest industry standards, so will almost certainly be able to provide a better service than the one you’re currently getting
2. In October last year, the Government also announced that it will change the law in the near future, so that all letting agents must be regulated. Again, there is a cost attached to this and if your current agent isn’t already trained and doesn’t meet certain code of conduct requirements, they may well be forced out of business.

In Scotland…

By 30th September 2018, all agents in Scotland must have applied to sign up to the Letting Agent Code of Practice, which requires them to belong to a CMP scheme. In addition, they must prove they are properly qualified and trained and hold Professional Indemnity insurance.

In short, legislation is tightening up for everyone who lets and manages property. So, the advice for you as a landlord, is to work with an agent that already protects your interests as far as possible and isn’t simply doing the bare minimum to stay on the right side of the law.

Insurance review

As a landlord, it’s vital that you have the right insurance that covers you and your property against both the common risks that come with any home, and the risks associated with letting to tenants.

All landlord policies come with a certain level of ‘standard’ cover, then there are additional policies you can take out. Some may already be included, but it’s important to check, to make sure you’re covered properly for your particular type of let.

Of course, you should already have your policy in place, but it’s wise to review it periodically. The insurance market is always innovating, and providers regularly review the types of policy they offer, so if you haven’t made any changes to yours in the last few years, it’s worth taking a bit of time to check what you’re covered for and the price of your premium. With costs for landlords constantly on the increase, you need to make savings where you can.

If you have a managing agent, they may well have their own insurance policies. Landlords are sometimes reluctant to simply take something that their agent has a vested interest in promoting, but they can be good value and it could be beneficial to the speed of processing any claim if everything’s ‘under one roof’. Of course, it’s wise to get a few quotes and it may be that you find something more appropriate elsewhere, although there often isn’t a huge difference in price.

If you have houses in multiple occupancy (HMOs), your choice will be limited, as many mainstream providers don’t offer cover for multi-lets. However, as it’s becoming an increasingly popular type of rental, it’s worth keeping your eye on the market for new products.

What should my policy include?

As ‘standard’, your landlord policy typically includes:

• • Buildings insurance for rebuild purposes – this is required by your mortgage lender
  • Accidental damage cover
  • Public liability insurance in case a tenant, contractor or visitor injures themselves in your property.

Many policies also include some of the following, but do check, because it could be advisable to add on or take out separate cover for:

• • Malicious damage and theft by tenants. Vandalism is the fourth most common claim made by buy-to-let investors, according to a survey by Simple Landlords, with the average cost of repair ranging from around £1,300 (LSLPS) to nearly £2,000 (Simple Landlords). 
  • Alternative accommodation, in case your tenants need to be re-homed while any necessary remedial works are carried out on the property
  • Rent guarantee insurance. Around 10% of all tenancies fell into arrears over the last year, on average. While not all of these will have resulted in eviction becoming necessary, it’s something that you are likely to come across at some point, so it’s well worth considering, when you look at the cost of the additional premium versus the cost of losing a month or more’s rent. Most policies cover you for 100% of the rent for up to 12 months and also include legal cover if you have to evict the tenant.

You can also get cover for:

• • Glass and locks replacement
  • Boiler repair or replacement
  • Equipment breakdown, if you’re letting with white goods included.

And remember, if you have several properties, putting them all on one ‘portfolio’ insurance policy makes administration easier, with just one premium and one renewal date to remember, and it will reduce the average cost per property.