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So what if tenant deposits are client money?

Tuesday, 04th July 2017

So what if tenant deposits are client money? Image

Did you know that if you hold client money, for example a tenant deposit, you need a Business Licence? Well you do, because if you do not, you are most likely in breach of the Fair Trading Act 2015.

The Fair Trading Act is designed to protect consumers. It is the same piece of legislation that introduced the Gibraltar Estates Agents Code of Conduct, something which Chestertons lobbied for over a period of years. The Estates Agents Code of Conduct is clear on how tenant deposits should be handled by estate agents:

5. Client accounts

a) It is a legal requirement under section 97 of the Fair Trading Act to hold all deposits from clients and client monies in a separate client account

b) Such client account or accounts should be reconciled regularly and at least monthly to your bank statements and clearly identify which client holds which deposit with you. Monies not reconciled must be investigated in a timely manner and efforts made to return money to clients where it is no longer necessary to hold a deposit

c) The monies contained in such client account(s) must be segregated from your office account and held to the order of the particular client

d) The account designated as a client account, should contain the word ‘client’ in the account name with the bank or building society

So what does section 97 of the Fair Trading Act have to say about tenant deposits (client money)?

97.(2) Any category listed in Schedule 3 [eg real estate services and rentals], whose business involves handling client monies or holding financial deposits of any kind for clients shall be required to evidence to the BLA [Gibraltar Business Licence Authority] that such business has a client account and uses the same when handling client monies or holding financial deposits of any kind for clients. 

97.(3) A business of a class which requires a separate client account shall have 3 months from the date of the licence in which to submit proof of the same to the BLA. Failure to do so within 3 months from the date of the licence shall result in a revocation of that licence by the BLA.

The requirement is repeated in section 66:

66.(2) Any person carrying on a business of a kind specified in Schedule 3 which involves the handling of client money or the taking of deposits on behalf of clients shall have a separate client account for such purpose.

This may seem particularly tough on private landlords who do not wish to use a local estate agent which has a client account. But it’s not, because the tenant deposit is tenant money unless proven otherwise and the balance of power is too much in the landlord’s favour when the landlord holds the deposit personally.

In the UK, the requirement for a landlord to place the tenant deposit in a government-backed tenancy deposit scheme (“TDS”) if the property has been rented on an assured shorthold tenancy has existed since April 2007. 

The TDS will make sure that the tenant gets the tenant deposit back provided the tenant:

• meet the terms of the tenancy agreement

• does not damage the property

• has paid the rent and bills

The landlord or letting agent must place the deposit in the scheme within 30 days of receiving it.

At the end of the tenancy the landlord must return the deposit within 10 days of both parties agreeing how much the tenant will get back whilst disputes are handled relatively cost effectively by the TDS thereby avoiding the courts in nearly all cases.

In Gibraltar, there is no such thing as a TDS. The landlord and tenant rely on the professionalism, knowledge and experience of the estate agent. Our previous article, “tenants, landlords, you could be at risk”, explains further the risk to both parties in the current system and why your choice of estate agent is so important.  

Meanwhile, back to the rules that Gibraltar does have, if a private landlord is renting out a property in Gibraltar and holds a tenant deposit not in a client account, that private landlord is most likely in breach of the Fair Trading Act 2015.

At Chestertons, our inventory preparation uses advanced photographic inventory technology meaning that tenant deposit disputes are kept to the minimum.  Our property manager and operations director have certificates in mediation and may assist the dispute resolution process where the landlord and tenant cannot agree.

Should you, as a current or potential landlord or tenant, wish to discuss any of the issues raised above, please do not hesitate to contact us.

FAQs

Are you a tenant concerned that your tenant deposit is not held in a client account?  

In the first instance, ask your landlord to contact us so that we may offer our tenant deposit services in a secure client account compliant with the Fair Trading Act, or, should you not be successful and remain worried, contact the Office of Fair Trading on oft@gibraltar.gov.gi or +350 200 71700.

Are you a landlord privately renting property without a business licence?  

Call us on +350 200 40041 or email us on info@chestertons.gi so we can advise how our property management and tenant deposit services can ensure that you are compliant with the Fair Trading Act. 

Contributed by Mike Nicholls