Lisa Simon, Partner and Head of Residential Division, offers a practical view on residential letting issues currently in the news.
The Fifth Money Laundering Directive: new financial compliance
Following a consultation completed in June, the European Union’s Fifth Money Laundering Directive came into effect in the UK on 10 January 2020.
This updates the Fourth Money Laundering Directive in respect of money laundering and terrorist financing. It also strengthens transparency and ensures that European member states adhere to standards set by the international Financial Action Task Force.
It is less extensive than the Fourth Money Laundering Directive, which when passed in the UK (Money Laundering Regulations 2017), necessitated a wholesale change in businesses’ approach to money laundering. The new changes include increased requirements for due diligence, regulation of virtual currencies and pre-paid cards to prevent terrorist financing, improved safeguards for financial transactions to and from high risk countries, and provision that centralised national bank, payment account registers and central data retrieval systems are accessible in all EU member states.
To comply, lettings agents processing payments of €10,000 or more a month must:
- Complete due diligence on all customers, counterparties and beneficiaries before entering into a business relationship or rental transaction (before the first deposit is paid and the rental agreement signed).
- Identify anyone acting on behalf of a customer, and verify that they have authority to act.
- Apply enhanced due diligence in the case of ‘politically exposed persons’ (defined as ‘those entrusted with prominent public functions, their immediate family members or persons known to be their close associates’) and those from high risk countries.
- Maintain copies of customer due diligence and supporting records and keep information up to date.
- Put in place procedures to identify those who cannot produce standard documents, and refuse to deal with persons or entities if due diligence cannot be carried out.
- Refuse payments via anonymous prepaid cards issued outside the EU (unless the jurisdiction is considered to have equivalent money laundering legislation to the EU) and conduct appropriate due diligence in relation to virtual currencies and wallets.
In recognition that electronic verification is becoming increasingly mainstream, the Directive also sets out circumstances under which remote e-verification, biometrics and anti-impersonation software may be used.
Electrical Safety Standards: new inspections and a requirement to act on failings
The Electrical Safety Standards in the Private Rented Sector (England) Regulations 2020 are due to be enforced later this year. This follows the enactment of the Housing and Planning Act 2016 last May, recommendations by a working group that included landlords, electrical experts and tenant bodies, and the introduction of a parliamentary Statutory Instrument on 13 January.
The Electrical Safety Regulations will apply to new tenancies from 1 July 2020 and to existing tenancies from 1 April 2021.
The Regulations apply to residential tenancies that grant one or more persons the right to occupy all or part of a premises as their only or main residence. The regulations do not apply to social or resident landlords, long leases or tenancies granting a right of occupation for a term of seven years or more, student lettings, hostels, refugees, care homes, hospitals or hospices.
Under the new regulations (contained in Sections 122 and 123 of the Act), private landlords must arrange for a qualified person to inspect every fixed electrical installation at least every five years to ensure that Electrical Safety Standards BS7671:2018 are met. The landlord must then:
- Ensure that they receive a written report from the person conducting the inspection. This must include the findings and the required date for the next inspection.
- Supply a copy of the report to each tenant within 28 days of the inspection.
- If requested, supply a copy of the report to the local authority within seven days of the inspection.
- Keep a copy of the report until the next inspection, and give a copy to the person undertaking the next inspection.
For new tenancies, the landlord must also:
- Give a copy of the most recent report to the new tenant prior to occupation.
- If requested, give a copy of the most recent report to any prospective new tenant.
If the electrical safety report identifies a fault or potential fault, the landlord must:
- Investigate further or arrange for a qualified person to repair the fault by within 28 days of the inspection, or within the timeframe set out in the report if this is shorter.
- Receive a written statement that either that the repairs have been carried out, or that further work is required.
- Supply confirmation to each existing tenant within 28 days of the work being undertaken, along with the original report identifying the work is required.
Local authorities will be responsible for enforcing the regulations and may impose fines of up to £30,000.
Approval of the Statutory Instrument from both the House of Commons and the House of Lords likely to be granted within weeks.
Please note this information is for guidance purposes only and should not be regarded as a substitute for taking professional advice.