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The ARLA Bonding Scheme for Landlords and Tenants

Why do we need a bonding scheme?

In a perfect world there would be no need for a bonding scheme. Nobody would ever even be tempted to be dishonest or to make the sort of mistakes that could lead to the misappropriation of client funds. However, the world is not perfect and letting agents are responsible for holding large amounts of landlords and tenants funds, often for a long time. Therefore, ARLA has looked to create a bonding scheme that ensures the complete protection from the misappropriation of any money that belongs to landlords and tenants and held by ARLA members. ARLA protection gives rapid restitution of any misappropriated money.

We thought you already had a bonding scheme?

Right. ARLA, the Association of Residential Letting Agents, as the only professional organisation dedicated solely to the Private Rented Sector, first launched a compulsory bonding scheme to cover ARLA members in 1992.

So, What’s New?

Since 1992, the Association has constantly honed and adjusted the bonding scheme in the light of experience. However, as the original scheme stood, it still proved impossible to satisfy the ARLA requirement that the public must have total confidence that cash funds are safe with ARLA letting agents and that their money could not just vanish. In turn ARLA also sees this degree of public confidence in the ARLA Bonding scheme to be a primary weapon in the long, fraught fight against dishonest agents. To make this possible, the ARLA 2000 Bonding Scheme is operated in a significantly different way: The ARLA Bonding Scheme for the Protection of Landlords and Tenants in the Private Rented Sector is now a scheme of First Resort. ARLA Bonding covers the misappropriation of any client funds without the need to prove fraud and/or dishonesty. Now, landlords and tenants using an ARLA agent only need to show that money rightfully belonging to them has been misappropriated. In that event, the first call for restitution is on the ARLA Bonding Scheme, ARLA is your "First Resort". (NB. In most cases money belonging to landlords will be rents due and management floats held on their behalf. Tenants’ money is usually deposits held by the agent against loss and damage.)

How can ARLA be the "First Resort"?

ARLA has changed its rules to provide new powers to allow claims and potential claims to be investigated immediately by ARLA and their insurers and, then, for compensation to be paid to claimants as soon as a loss has been established. This means that for the ARLA Bonding Scheme to pay claims there is no need for a police investigation, criminal investigation or charges proven in a court of law. ARLA is the sole arbiter and the bond is called upon as a "First Resort".

Remind me! What was Last Resort?

Clients, landlords or tenants, could only call on a bonding scheme after they had exhausted every other possible avenue of recovery and there had to be evidence of fraud and/or dishonesty. This is often very difficult to obtain.

What is misappropriation?

Money rightfully belonging to landlords and tenants that has been applied wrongly or dishonestly and is therefore not properly reimbursed to the Landlord and/or the Tenant in question. Now that the requirement for evidence of fraud and/or dishonesty no longer exists under the terms of the ARLA Bond, landlords and tenants will be compensated if cash funds belonging to them have been misappropriated by an ARLA member in contravention of the Association’s rules. (NB The Association’s rules place responsibilities on members for the governance and independent certification of client accounts.)

How will claims be handled?

Whenever ARLA receives a complaint that could involve misappropriation of clients’ funds, the Association will launch an immediate investigation. If the member firm is still trading, it will be given seven days to respond to the complaint. If a satisfactory response is not received, specialist claims investigators will be instructed to verify the client loss and once this report is received compensation will be paid immediately. If the ARLA member letting agent has ceased to trade, specialist claims investigators will be appointed immediately and the priority will be to safeguard the position of all clients. In addition, advertisements will be placed in the local newspapers to notify the public of the closure. Existing clients will be contacted, provided the contact details are available. The priority will always be to verify client losses fast and to pay compensation quickly once it has been established that money has been misappropriated.

How do I know if a letting agent is an ARLA member and covered by the ARLA Bond?

The member agent must display prominently an up-to-date membership certificate. Also the ARLA Hotline on 01494 431123 will advise if a membership is current. An up-to-date list of ARLA member agents is available on the ARLA website: www.arla.co.uk In the event of an agent leaving membership or being expelled from the Association, advertisements announcing the fact are always taken in the local press, regardless of whether or not any misappropriation has occurred.

Does the ARLA Bonding Scheme cover everything that could go wrong?

The Bonding Scheme covers any misappropriation of cash funds belonging to landlords and tenants. In addition, to be a member of ARLA - and therefore a compulsorily fully paid up member of the ARLA Bonding Scheme, - an ARLA Letting Agent is required to hold Professional Indemnity Insurance at levels set by the Association. This ensures all ARLA member agents are covered to meet claims for financial loss as a result of any negligence or human error leading to other forms of loss. This combination of the ARLA Bonding Scheme, Professional Indemnity Insurance and the other requirements and qualifications needed to become and remain a member of ARLA (see below) provide the required cover for landlords and tenants using ARLA member Letting and Residential Management Agents.

Are there any limits to the protection given by the ARLA Bond?

There is no limit on the compensation that can be paid to any individual or in respect of any member firm. There is a total limit of two million pounds to cover all compensation payments in any one year. Best estimates suggest that this covers the worst possible disaster scenario.

How can ARLA provide a Bonding Scheme for Landlords and Tenants that is so far in advance of anything else available or that government regulation could ever achieve?

Since the launch of the Bonding Scheme in 1992, the rules of membership have been under constant review and over the past two years the rules for the operation and reporting for client accounts have been subject to draconian enforcement. These procedural improvements have enabled ARLA to negotiate such significant changes with the Association’s insurer, Royal & Sun Alliance Insurance plc. Put simply, the tight controls on membership of the Association and the extensive compliance requirements make member firms the leading practitioners in the Private Rented sector.

How is it that ARLA - alone among the professional organisations within the property industry - has been able to introduce such an advanced and comprehensive Bonding Scheme?

It is the commitment to quality made by ARLA’s ruling body and members and the tight controls on membership that make the ARLA Bonding Scheme feasible. No firm can be considered for membership until they have complied with all the ARLA byelaws and regulations. Then, after exhaustive interview and following investigation of clients accounts and control procedures, applicant firms are offered membership provided that they are covered by full professional indemnity insurance to levels required by ARLA. Their current Professional Indemnity policy documents must be copied to ARLA and to ensure continuous validity, the fidelity element of the professional indemnity insurance is linked to the ARLA bonding scheme to cover theft, dishonesty and misappropriation of client funds. These funds must be held in specially designated client accounts and the members bankers must be informed of the ownership of these funds. The control systems and the sums held must be verified by chartered accountants and certified directly to ARLA. As ARLA expects its member firms to be recognised as the best lettings agents for their experience, knowledge, skill and probity, it is mandatory for members to employ ARLA qualified staff. Member firms fully appreciate that they can capitalise on the substantial investments in time and money that is needed for their auditing systems, controls and professional training. These investment levels benefit their individual firms and their landlords and tenants. They also gives the Association of Residential Letting Agents, the only professional body to be solely concerned with the self-regulation of the Private Rented Sector, the strength and reputation to fight against bad practices and dishonest agents and to educate the public. All of this helps the Private Rented Sector to expand; and so to offer greater choice in housing.

Association of Residential

Letting Agents