Solicitor firms and Client Money Protection Schemes

Shropshire solicitors Harfitts recently had a deeply unpleasant surprise.

They operated, in a small way, as property management agents for two landlords, collecting about £1,000 rent monthly from residential tenants. They received a fine of £19,250 (reduced on internal appeal to £8,400) from Shropshire Council for not being a member of a client money protection scheme as required under The Client Money Protection Schemes for Property Agents (Requirement to Belong to a Scheme etc.) Regulations 2019.

On appeal to the First Tier Tribunal, Harfitts argued that it was engaged in letting and/or property management work in its capacity as solicitors, and it was not a property agent for the purposes of the regulations. The Judge was unimpressed and upheld the fine, finding that Harfitts should have known the law – indeed, being a firm of solicitors was an aggravating factor – and that there was no evidence to suggest that the reduced fine was unduly harsh.

What can other law firms learn from this?

Beware! Simply being a firm of solicitors and paying money into the law firm’s client account is not good enough: if you act as a managing agent, for example a deceased’s estate contains tenanted residential property and you collect the rent on behalf of the estate, you must register with an approved scheme.

There are six to choose from: Client Money Protect, Money Shield, Propertymark, RICS, Safeagent, and UKALA Client Money Protection. If you’re in Wales, the law is slightly different – you must join one of the schemes and then register as an agent with Rent Smart Wales.

Readers might consider that the substantial protections around solicitors’ client accounts (including the Compensation Fund) would be adequate. But the Property Agent Regulations do not exclude solicitors acting as agents from their ambit, and impose an additional insurance requirement in respect of client money, which the SRA Accounts Rules do not.