The UK government recently issued new guidance for letting agents, placing more responsibility on them to report breaches of financial sanctions on designated individuals and organisations – or face legal consequences.
The guidance has been produced by the Office of Financial Sanctions Implementation (OFSI), part of HM Treasury, and it is important that letting agents comply before it takes effect on 14 May.
Rental income threshold removed
When managing a property with monthly rents exceeding €10,000, around £8,300, all letting agents are already required to undertake due diligence on their clients.
This covers both commercial and residential property, with the latter clearly being very high-end. If any suspicious financial activity is suspected, this must be reported to the National Crime Agency.
From 14 May, though, this requirement is being extended to include all rental property with no monthly income threshold. Letting agents will be subject to these stricter reporting requirements as part of the government's effort to tighten compliance and anti-money laundering laws.
It is vital that all letting agents and landlords read the guidance and understand their responsibilities before it comes into effect. Failure to comply could lead to significant penalties – including unlimited fines and imprisonment, depending on circumstances.
Agents must check sanctions list
Financial sanctions are restrictions or bans on designated individuals and entities due to criminal activity, terrorism or other illicit conduct.
Such sanctions can include freezing of financial assets as well as wider restrictions on investment and financial services.
Letting agents will be legally required to check the OFSI list of sanctioned individuals and organisations throughout their work, from being instructed by prospective landlords or tenants to concluding letting agreements. Further details on what constitutes instruction can be found in the guidance.
Under the obligations, letting agents are required to report to OFSI as soon as practicable if they know or have reasonable cause to suspect their client is sanctioned, or has breached financial sanctions regulations.
Advising clients helps ensure compliance
Agents should read both the OFSI financial sanctions guidance for letting agents and its general guidance, as it is vital they understand their responsibilities and enhance due diligence procedures before 14 May to ensure their compliance.
They should also communicate with their landlord and tenant clients about the new checks they will be required to conduct: it is important to make them aware of any additional documentation needed, which could slow the lettings process down.
There is also a risk that property freezing orders prevent any rental income or transactions if breaches are found, and landlords must be made aware of this.
Finally, letting agents should stay up to date and informed of any further changes to UK sanctions laws and guidance to avoid inadvertent breaches in future.
A version of this article was previously published by BRM Law in March. The article reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to any specific matter.
'Letting agents will be legally required to check the OFSI list of sanctioned individuals and organisations throughout their work, from being instructed by prospective landlords or tenants to concluding letting agreements'