5th Money Laundering Directive
The regulations to bring this directive into British law have been laid before Parliament with commencement due 10 January 2020.
Estate agency businesses have been a regulated profession for some time and have to register, have money laundering reporting officers and provide money laundering training for all staff, as well as carry out “due diligence” on buyer and vendors. Essentially a key part of the 5th Money Laundering Directive is to bring the same requirements in for some letting agents.
We say some letting agents as there is a threshold of €10,000 payable as rent in a single month before these requirements commence. Many agents deal of letting a property above €10,000 (about £8,300 a month) so it will be very niche.
Searching Rightmove today there are 2,840 properties in “London” advertised as over £8,000 per calendar month! Therefore it will obviously affect some letting agents, though probably very geographically specific. Greater Manchester shows 3, and two are “price on application” so may or may not be over £8,000 and the third is a student let with 3 double bedrooms!!
It would therefore seem likely that the majority of agents will not be affected by this change.
There was concern about previous wording used in consultation, like €10,000 a month “under a single contract”. This led to concern as to if in a portfolio transfer it would apply (either buying another business or a landlord with a number of properties). The new regulations, assuming the draft is passed, say the following:
(6B) For the purposes of sub-paragraph (1)(p) “letting agency work” means work—
(a) consisting of things done in response to instructions received from—
(i) a person (a “prospective landlord”) seeking to find another person to whom to let land, or
(ii) a person (a “prospective tenant”) seeking to find land to rent, and
(b) done in a case where an agreement is concluded for the letting of land—
(i) for a term of a month or more, and
(ii) at a rent which during at least part of the term is, or is equivalent to, a monthly rent of 10,000 euros or more.
(6C) For the purposes of sub-paragraph (1)(p) “letting agency work” does not include the things listed in sub-paragraph (6D) when done by, or by employees of, a firm or sole practitioner if neither the firm or sole practitioner, nor any of their employees, does anything else within sub-paragraph (6B).
(6D) Those things are—
(a) publishing advertisements or disseminating information;
(b) providing a means by which a prospective landlord or a prospective tenant can, in response to an advertisement or dissemination of information, make direct contact with a prospective tenant or a prospective landlord;
(c) providing a means by which a prospective landlord and a prospective tenant can communicate directly with each other;
(d) the provision of legal or notarial services by a barrister, advocate, solicitor or other legal representative communications with whom may be the subject of a claim to professional privilege or, in Scotland, protected from disclosure in legal proceedings on grounds of confidentiality of communication.
(6E) In sub-paragraph (6B) “land” includes part of a building and part of any other structure.”.
This clarifies the transaction being measured is the one for land or buildings and is a victory for our lobbying Treasury during our meetings with them. It also clearly excludes private landlords, because of the “in response to instructions” statement. It also excludes those simply advertising properties and providing similar services. However, as it includes working on behalf of the tenant it will catch the high end of the relocation agency market.