There's a new rule coming into effect that will strengthen how business dealings work in the lettings market. If you've chosen a well-prepared agency like Foxtons, these changes will actually give you greater peace of mind about the tenancies in your rental properties. Foxtons Director of Legal & Compliance, Manjit Kataora, explains the key points you should understand.
Key takeaways:
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1. New rules are coming May 2025. Letting agents must report suspected sanctioned individuals.
2. Agents will screen for "bad actors." Agents will check suspected landlords and tenants against government lists at key transaction points, keeping your property dealings in good standing.
3. Choose a well-prepared agency. Working with agents who have proper screening systems in place ensures you won't inadvertently do business with sanctioned individuals.
The sanctions regime came into sharper focus following Russia’s invasion of Ukraine in 2022 but in fact had been around and had applied to estate agents for quite a long time before then.
Part of the UK’s contribution to international efforts to tackle money laundering and international crime, sanctions are measures intended to freeze the assets of individuals, companies and other organisations (‘designated persons’) and restrict their access to investments and financial services. Designated persons are listed on a government list (called a consolidated list), which is overseen by a division of the Treasury called the Office of International Sanctions (‘OFSI’).
From 14 May 2025, letting agents will for the first time become subject to sanctions reporting obligations. These reporting obligations have applied to estate agents and other ‘relevant firms’ for some time and are triggered where the (estate) agent reasonably suspects that someone they are acting for in terms of either a sale or purchase is a match with someone (or an organisation) listed on the consolidated list.
The changes in May align letting agents to estate agents. The obligation to file reports will apply where the letting agent ‘reasonably suspects’ either a landlord or tenancy applicant of being a ‘designated person’.
As to the timing of the reporting obligation, this is triggered only when either the landlord or tenancy applicant has entered into what is (in anti-money laundering guidance terms) known as a ‘business relationship’ with the agent. That is, for landlords, from the point the landlord ‘instructs’ the letting agent and the letting agent does work in response to those instructions. Here, the term instructions means formal instructions, and letting agency work means things done in response to those instructions but does not include publishing advertisements, providing a means by which prospective landlords and tenants can make direct contact or communicate with each other. (Thus excludes the newsagent whose shop window might carry adverts for rooms to let, etc.).
For tenancy applicants, the reporting obligation applies from the point a prospective tenant’s offer is accepted by the landlord.
What this means is that letting agents could have designated persons on their database for quite some time before a reporting obligation is triggered. This makes sense because the number of individuals who actually transact is (particularly for large agents) far less than the number of contacts on an agent’s database, and so the thresholds prevent the system from being clogged up by what would otherwise be reports where there is no firm economic activity to speak of. Since the whole purpose of the sanctions is to prevent sanctioned persons or entities from engaging (and profiting from) economic activity, these thresholds make sense.
Large agents have resources to scan their databases and ensure they meet these requirements. This means that landlords can be assured that they will not unwittingly assist undesirable persons or entities from carrying out business activity in breach of sanctions legislation and quite possibly also anti-money laundering legislation as well.
The sanctions regime applies alongside existing anti-money laundering legislation, which continues to remain unaffected by the changes in May. Whereas anti-money laundering legislation applies to lettings transactions over the €10,000 (sterling equivalent) monthly rent threshold, sanctions obligations carry no minimum threshold. All letting agents, therefore, will need to screen all their landlords and applicants in order to comply with the new rules, and serious penalties lie in wait for those who fail to comply.
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Source: This piece was authored by Foxtons Director – Legal & Compliance, Manjit Kataora, who has been working with Foxtons on the intricacies of legislation affecting London landlords for more than 16 years. If you have a question on letting your property in London, ask a Foxtons expert.
