Two regimes, and you need to know which one you are in
This is the question everything else depends on, and it is answered by what work you do rather than by the size of your agency or how much money passes through the account.
Estate agency work — selling. Section 13 of the Estate Agents Act 1979 puts clients' money on a statutory trust: it is held on trust for the person entitled to call for it, or, where you hold as stakeholder, on trust for whoever becomes entitled on the event against which it is held. Section 14 requires it in a client account without delay. The Estate Agents (Accounts) Regulations 1981 prescribe the records and require an annual audit.
Letting agency work. The Client Money Protection Schemes for Property Agents (Requirement to Belong to a Scheme etc.) Regulations 2019 require a property agent who holds client money to belong to an approved scheme. There are six: Client Money Protect, Money Shield, Propertymark, RICS, Safeagent and UKALA. The scheme's own approval conditions then impose the client account, the written procedures and the professional indemnity cover.
MHCLG's statutory guidance draws the boundary between them at the length of the interest: client money protection applies to tenancies and grants of licence of less than 21 years, and activities associated with lettings of 21 years or over fall outside its scope.
Why the distinction is worth your time
Because the two regimes disagree about almost everything that matters operationally. One has a statutory trust and an annual audit by a registered auditor; the other has a scheme, a certificate you must display, and a fourteen-day notification duty. One is enforced by criminal offence under s.14(8); the other by civil penalty to £30,000. One reaches England, Wales and Northern Ireland; the other is England only.
An agency that assumes it is in the regime it has heard most about tends to end up compliant with the wrong one. The commonest version is a sales-and-lettings business that joined a CMP scheme, publishes the certificate properly, has excellent client money procedures — and has never had the Estate Agents Act audit that its sales side has needed all along.
What we do
Client account bookkeeping to the standard regulation 6(3) actually requires, with the tracking by property interest that most agency software does badly. A three-way reconciliation every month between the bank, the client ledger and the control account, so that a shortfall is found by us in a month rather than by an auditor in a year. Preparation of everything the auditor needs, and management of the report itself with the registered audit firm.
And, at the start, a straight answer about which regime you are in — which is a short conversation with a large consequence.
Common questions
What counts as client money in lettings?
More than rent, and the gaps are where agencies get caught. Regulation 2 of SI 2019/386 defines it as money received in the course of English letting agency work or English property management work and held on behalf of another person, excluding money held in an authorised tenancy deposit scheme. MHCLG's enforcement guidance then lists seven categories it treats as client money: rent held after your fees are deducted; utilities, council tax or communication services held in advance; one-off repair payments; maintenance floats; miscellaneous advance payments for professional work; security deposits in the window before they are protected; and holding deposits. Maintenance floats and unprotected deposits are the two that surprise people — a float sitting in your account is somebody else's money whether or not you think of it that way.
Can we avoid the whole regime by not holding client money?
Yes, genuinely, and MHCLG's guidance says what evidence it will accept. If the tenant pays rent direct to the landlord, deposits are paid direct to the landlord, and maintenance invoices are issued direct to the client, then no client money is held and no scheme is required. Plenty of agencies run this way deliberately. What does not work is holding money and describing it as something else — the definition looks at whose money it is, not at what the account is called or what your terms of business say about it.
Where does the separate client account rule come from?
Two different places, depending on the regime, and this catches out advisers as well as agents. For estate agency work it is statutory: EAA 1979 s.14(1) requires clients' money to be paid into a client account “without delay”, and s.14(2) requires the account title to contain the word “client”. For lettings it is not in the 2019 Regulations at all — it is a condition of scheme approval at SI 2018/751 reg 5(2)(f), requiring members to hold client money in a client money account with an FCA-authorised bank or building society. Same practical outcome, entirely different legal route, and only one of them carries a criminal offence.
What must the records actually contain?
Regulation 6(3) of the Accounts Regulations 1981 prescribes it in detail, and it is more than a bank reconciliation. The amount; the payer's name and address; the type of deposit; the interest in land the money relates to; the capacity in which it is held — agent or stakeholder; the identity of the person it is held for; separate tracking by property interest; payment details; receipt counterfoils; and transfer documentation. Regulation 6(1) frames the duty as keeping records “sufficient to show” compliance. The separate-tracking-by-property-interest requirement is the one most software handles badly, and it is the one an auditor will test first.
Do we have to pay clients interest?
Only above two thresholds, and both must be met. Regulation 7(2) creates the duty where the sum held exceeds £500 and the interest earned, or which could have been earned, is at least £10. Below either figure, s.15(3) says you are not liable to account for interest on a general client account. Section 15(4) allows a written agreement to vary the position. Failure to account for interest is not a criminal matter under s.15(5), but it can found a civil claim and the lead enforcement authority may take it into account when considering whether you are a fit person under s.3(1)(c) — which is a far more serious consequence than the interest.
What happens if we hold client money without a scheme?
A penalty of up to £30,000 under regulations 5 to 8 of SI 2019/386, imposed by the local weights and measures authority, proved to the criminal standard of beyond reasonable doubt. There is a right of appeal to the First-tier Tribunal within 28 days, and the appeal suspends the final notice. There is also a continuing-breach mechanism: a further penalty if the breach persists more than 28 days after the final notice, or 28 days after an appeal is determined or withdrawn. Proceeds are ring-fenced by the authority for private-rented-sector enforcement, which is part of why enforcement activity has not gone away.