Two firms stole over £1m worth of client money between them, says ARLA

Two letting agent firms, both members of ARLA, each misappropriated more than £500,000 worth of client money.

The cases are both historic – ie, over three years old – and there are no further details.

However, the revelation is made in the ARLA response to the official consultation – which closes at the end of today – on whether Client Money Protection Insurance should be made mandatory for agents in England.

Although both these cases exceeded the cap where the ARLA scheme guarantees full repayment, nevertheless claimants received most of their money back. In the worst case, landlords and tenants got three-quarters of their money back, and in the other, the total claims went only just over £500,000 and claimants got 97p in the £ back.

In the last big case involving an ARLA agent, in 2013, Janine Pickett took £375,000 in rents and deposits. She was given 32 months in jail.

In another case, David Whitefield took £123,000 over a four-year period, putting rents and deposits into the company’s own working capital account.

Both of these named cases are cited in the ARLA response, which says that the average total claim per company is just over £50,000, and that letting agents hold around £2.7bn in client money.

The ARLA response draws attention to the fact that travel operators are legally required to hold CMP, and says that “it beggars belief” that the law protects a tenant’s holiday but not their home.

ARLA, which requires CMP of its own licensed agent members, has revealed in its own response that its membership consists of almost 8,600 individuals working across nearly 8,200 offices.

The ARLA submission also states how many claims have been made on its own CMP scheme – an average of four or five a year.

“Provided claims meet the scheme rules, in all bar two occasions, all monies claimed have been repaid.

“The two exceptions were where the total claims exceeded the £500,000 per company rule, but in both cases claimants received more than three-quarters of their money back.”

The ARLA submission says that the only reason for an application for reimbursement under a CMP scheme is misappropriation of client funds by an agent.

This, says ARLA, falls into two distinct categories: deliberate theft, or using client funds to keep the business going.

ARLA urges for mandatory CMP, describing it as “an entirely sensible measure that protects both the landlord and tenant in the unlikely event that an agent goes into administration or misappropriates client funds”.

The submission also points out that there are four CMP schemes – NFoPP (encompassing ARLA), RICS and NALS, plus a commercial offering provided by Hamilton Fraser Insurance known as CM Protect.

ARLA makes the point that protection of client money gives landlords and tenants confidence that their money is safe: “CMP schemes reduce risk by ensuring that the money will be handled honestly and appropriately.”

It also stresses that letting agents “hold a significant amount of money in the form of deposits, rent and repair funds”.

ARLA also makes the interesting point that CMP prevents evictions: “Should an agent misappropriate rent monies paid by tenants, landlords can evict the tenant for rent arrears despite the fact that the tenant has paid the rent – because the agent has misappropriated the rent monies before they reached the landlord, the tenant is technically in rent arrears and must either pay again or be at risk of eviction under the rent arrears grounds of Section 8 of the Housing Act 1988 (and potentially receive a County Court Judgment in addition for the outstanding rent monies).

“Where CMP is in place, the landlord can claim on the CMP scheme so they get their rent money and have no reason to evict the tenant.”

Today is the final day when agents can submit views as to whether the Government should make Client Money Protection insurance mandatory for letting agents.

We do urge our readers to make your views known if you have not already done so.

Either complete the survey, or send your written views by email by close of play today.

https://www.surveymonkey.co.uk/r/clientmoneyprotection

cmp@communities.gsi.gov.uk

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5 Comments

  1. Robert May

    Can someone please explain to me how the ARLA audits failed to spot the losses?

    Bear in mind this is my specialist subject, I kept  the lion’s share  of the whole industry’s client cash accounts  in good fettle for over 14 years with only 1 loss of any client’s money through misappropriation.

    RICS, ARLA NAEA and Law society codes of conduct do not  allow money to be nicked, borrowed or used for anything other than the individual  client’s  purposes. Failure to audit rigorous month end routines and bank reconciliation for 48 months means the auditors  and ARLA have to shoulder  some responsibility for the losses.

    I have seen cases  that mirror these, without exception the regulators have been more interested in  getting the member through a difficult time than applying the letter of their own law.

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    1. Robert May

      N.B. In the 1 case the agent had come off ADB  to use one that was less compliant and made it less obvious he was abusing his position of trust as an agent.

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    2. jeremy1960

      The issue is surely that ARLA and NALS rely on the agent’s accountant “signing off” the audit; a crooked agent with a crooked accountant would pass every time!

      To me it would be far more sensible for ARLA to publish a list of accountants who would be willing to audit at a set fee – the difficulty is of course different property management systems, manual systems and bent agents who would be able to cover up most issues.

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      1. Robert May

        It is perfectly possible to be reconciling bank accounts on a monthly basis with failure to balance reports alerting the redress schemes, who will undoubtedly  pick up the fallout from agents not balancing  the clients’ cash account, automatically.

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  2. Oliver Wharmby

    “PI + CMP” is another scheme available to TPOS members.  It was omitted from the article.

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