Property Letting Agents (Client Money Segregation) (Hansard, 6 July 1999)

§ Mr. Howard Flight (Arundel and South Downs)

I beg to move, That leave be given to bring in a Bill to require the segregation of client monies collected by letting agents, to be held in designated client money accounts. My Bill is to require the segregation of client money—rent and deposits from tenants—that is collected by letting agents, to be held in separate designated client money accounts. I was amazed to discover from a constituency case that that is not already the law. The position is entirely analogous to that of lawyers, stockbrokers and fund managers handling client money.

The case involved a very decent constituent who was looking after the interests of some elderly neighbours who were visiting family elsewhere. The constituent helped that couple to arrange the letting of their house. She diligently searched out a letting agent who had the Association of Residential Letting Agents cover.. The letting agent went bust in 1995, since when my constituent has been unable to recover the £1,000 owing under the ARLA bonding arrangements. Digging into the case, I discovered that part of the reason for the failure to recover is because there is no simple, clear law requiring the segregation of client money.

The Estate Agents Act 1979 set up a requirement for deposits for buying houses to be segregated when estate agents deal with deposits; the regulations to that were set out in 1981. Letting agents are regulated under the Accommodation Agencies Act 1953. That created three offences, but did not lay down a requirement to hold deposits in segregated client accounts. There was a Government consultation on the Act in 1993. In 1994, there was a parliamentary question. The then Government felt that, in principle at least, the ARLA arrangements should suffice.

The reason why ARLA has not paid out in that constituency case—it can happen quite often—is that the insurance bonding requires clear fraud to have occurred. Police rarely prosecute when letting agents go bust. A letting agent spending a client's money merely on the employment of staff is not sufficient to constitute fraud. Therefore, the ARLA bonding arrangements often do not work.

In 1998, ARLA approached the Minister for Local Government and Housing with proposals for a clear law requiring the segregation of client money into client 836 accounts, but nothing has resulted from that. Again, it is crucial to crystallise the legal situation. The National Association of Estate Agents is particularly keen that the proposal should become law. Similarly, the Southern Private Landlords Association is keen for that to happen. Citizens advice bureaux point out the huge increase in the number of private tenants—it is up 600,000 and still rising—and to problems over recovery of deposits. They claim that there are unreasonable withholdings of some 50 per cent. of deposits. Therefore, all that is wanted is a simple law to benefit both tenants and landlords.

In October 1998, the Minister for Local Government and Housing called on landlords and agents to set up some form of pilot scheme. Candidly, it is a straightforward issue, not a pilot scheme matter. It is not even a complicated regulatory matter. Clear law, as with analogous situations, is what is wanted.

In the past two years, as the market has increased, there has been a massive increase in the number of letting agents. Analogous to that increase was the increase, in the late 1980s, in the number of estate agents. Currently, however, the lettings market is satiated, and it is often quite difficult to let property. In the next two years, it is likely that many letting agencies will fail, just as many estate agencies failed in 1990–92.

I therefore urge Ministers to deal with the matter in a timely fashion, before many innocent people—including some of my constituents—are damaged because current arrangements cannot operate efficiently without clear law on the matter. We need only simple legislation—which should be passed now—requiring segregated accounts, and arrangements analogous to those established by ARLA, stipulating that letting agents may take money from client accounts only in accordance with letting agreements, such as to cover their own bills, as specified.