Dealing with Client Money & Deposits

Estate and letting agents must be very careful handling client money. It is important to remember that the funds are the property of the client and to make sure that you join a Client Money Protection scheme.

Pre-Contract Deposit

A pre-contract deposit is sometimes paid once an agreement on price has been reached. It will almost always be returned to the buyer if the sale does not proceed. These are rarely taken by estate agents these days.

Contract Deposit

This is paid at exchange of contracts once the seller and buyer are legally committed to the sale and held by the seller’s legal representative in a designated client account at an authorised institution (e.g. a high street bank). The designated client account holds only deposits in connection with a sale and purchase of land or property. The account should be in the name of the estate agency with the words ‘client’ or ‘client account’ in the title. It must be audited within six months of the end of the accounting year and a report produced which must be kept for a minimum of six years from the end of the accounting year.

The current rules regarding interest on clients’ money state that it only has to be paid if the deposit exceeds £500 and the amount of interest is at least £10.

A receipt for a deposit should be issued stating the date, amount of deposit, name and address of person paying it, address and interest of the land or property to which is relates and whether it is a contract or pre-contract deposit.

Paying Money Out

When money is paid out of a client’s account a record of the transaction needs to be made to show the amount paid, date of payment, the person being paid, details of the property to which it relates, the corresponding payment into the account and the reason for the payment e.g. exchange of contracts or completion of sale.

Warning & Prohibition Orders

Anyone can set up as an estate agent without requiring any expertise or knowledge, However, if that person breaks the provisions of the Estate Agent Act 1979, disciplinary powers may be used if they are thought to be unfit to continue to practise. The powers under the Act, exercised by Powys County Council, are:

  • Warning orders
  • Prohibition (banning) orders

Break the rules and a warning order may be issued. Do the same thing again, or breach the Act in any other way, and there will be a prohibition order. However, if the offence is bad enough in the first place, a prohibition order can be given without a warning order first.

Trigger offences, those that will lead to a warning or prohibition order include, for example, fraud or violence, discrimination and not complying with clients’ accounts regulations.

Employers are vicariously liable for the acts of their employees, so may also face the same orders as those individuals who break the rules. Any order made is contained in a public register. Powys County Council must give an estate agency notice that an order is to be made and the reasons why. The estate agent has 21 days to make a written representation or ask for an oral hearing. Then 21 days’ notice of an oral hearing must be given. If, after this process, the County Council decides to make an order, the estate agent has 28 days in which to appeal to the Secretary of State.

Client Money Protection Scheme

You must join a Client Money Protection scheme if you’re a letting or property management agent in the private rented sector in England and you hold clients’ money.

These schemes make sure landlords and tenants are compensated if you cannot repay their money, for example if you go into administration. This is different to tenancy deposit protection.

You may be fined up to £30,000 if you do not join a client money protection scheme.

The rules are different in:

  • Scotland
  • Wales - you need to join a money protection scheme before you apply for an agent licence through Rent Smart Wales
  • Northern Ireland - you do not have to join a client money protection scheme

About Domus Software

This article is published by Domus Estate and Letting Agency Software.

Domus is an easy to use cloud based estate and letting agent software for estate agents to manage sales, lettings, accounting and a client portal.

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