As more people realise how stable an asset property can be, there’s been an increase in the number of people looking into property sourcing as a starting point. As part of becoming a professional and compliant property sourcing professional, you need to register with a government-approved property redress scheme. I have come across many posts on Social Media asking which of the two popular schemes is better. In response to that question, I took the decision to dig into the two schemes a little and come up with this article to help you make a decision.
What makes me qualified to write an article on property redress schemes?
Just like you and many others, I have made the decision to venture into the property industry. My current financial circumstances do not yet allow me to purchase property and so I thought deal packaging would be a good entry point for me.
I am currently undergoing my compliance registrations at the time of writing so this is a question I have also asked myself. I am yet to register with either of the two schemes so researching this article will most likely inform my final decision.
What is the Property Ombudsman Scheme (TPOS)
TPOS is a member of the Ombudsman Associated and is a government-approved redress scheme. Its purpose is to provide agents and consumers with an alternative dispute resolution service. Although not a regulator, the Property Ombudsman Service aims to provide a full and final settlement of disputes and their ruling is binding.
Types of Membership
I will limit discussions in this article to membership options applicable to property sourcing professionals. These are as follows:
- Full Membership – this level of membership encompasses all the different services a Property Agent provides including signing up to the Codes of Conduct for each service.
- Registration Membership – allows you to meet the minimum legal requirements. Your obligations as a member are to Industry Standard Practice and you do not sign up to any Codes of Conduct.
The cost of Full Membership is £225 + VAT, per annum, per office plus an application fee of £60 + VAT
Benefits of full membership
- The application process is straightforward and you can make an application online or via post.
- Covers nearly all services you may offer as a Property Agent so if your business evolves beyond property sourcing, you’re covered.
- You agree to adhere to Codes of Conduct which are a touch above Industry Good Practice. This may set you above the competition when it comes to looking after the needs of your clients.
- You can use the TPOS logo on your website and other marketing materials.
- Up to 3 cases per year for free then £350 (ex VAT) / £420 (inc VAT) thereafter
Registration Only Membership
The cost of Registration Only Membership is £225 + VAT, per annum, per office plus an application fee of £60 + VAT
Benefits of registration only membership
- Compliance with legal requirements for Property Agents
- Not encumbered by additional requirements of Codes of Conduct
- Ideal for small new business/individual looking to get started with property sourcing or other creative property strategies
- Offers barebones start to the industry while meeting legal obligations
The biggest downside to the registration membership model is that case fees apply from the start and you don’t have the free case support available to you.
You can get a fee breakdown here for the different membership models including the case fees for each.
Membership Application Requirements
You will need to meet the following requirements for a successful application to join TPOS:
- Professional Indemnity (PI) Insurance – with a minimum limit of indemnity of £100,000 and an excess of not more than £1000. You must provide a Schedule of Insurance as proof of insurance.
- Client Account – not required for property sourcing or deal packaging (for the purposes of member registration) although it’s an essential aspect of running your property sourcing business e.g. taking deposits from investors to secure deals etc.
- Identification – if registering as a sole trader and unable to give a company registration number, you must provide proof of address for the company in the form of a bill or invoice addressed to the company and a copy of your photographic ID (driving licence or passport)
- Client Money Protection Schemes – not necessary for deal sourcing but if your business evolves into lettings then you’ll need to register with an approved Client Money Protection Scheme.
What is the Property Redress Scheme?
The Property Redress Scheme (PRS) is a government-approved consumer redress scheme for Property Agents and Professionals. It is a legal requirement for Property Agents to be part of a consumer redress scheme and the PRS allows Agents to comply. The scheme also supports members in resolving complaints made by clients and consumers.
The PRS Membership Models
The PRS offers 3 membership models, two of which apply to deal packaging or property sourcing type businesses. Personally, I like how streamlined and simple they have made their membership options. I will go into the details of each membership type below.
The Enhanced Model
For an annual membership fee per application (this could be a head office or an individual), you will meet your legal obligations as a Property Agent. The current fee (May 2020) is £199 + VAT per office or individual so if you have a different office you have to make separate applications or indicate as such when applying.
Advantages of this membership type:
- Allows you to meet all legal and compliance obligations as a deal packager
- Provides access to a 24/7 legal helpline
- No case fees to pay based on a fair usage policy ( Sales and lettings). A fee of £200 + VAT per case for property management complaints
- Simple and straightforward application form and process
- No additional Codes of Conduct to adhere to
The Entry Model
This is a no-frills package which allows you to fulfil your compliance requirements at a lower annual cost than the Enhanced Model. The current fee (May 2020) is £110 + VAT per office or individual so if you have a different office you have to make separate applications or indicate as such when applying.
The main difference other than the lower membership fee is that you do not have a quota of free cases. A case fee of £100 +VAT is applicable for Sales and lettings complaints and £200 + VAT for property management complaints.
Benefits of the entry model:
- Cheaper annual subscription
- The simple and straightforward application process
- Quick no-frills compliance
- No additional Codes of Conduct to adhere to
Although there are no additional Codes of Conduct to adhere to, whichever membership model you choose, you are still expected to live up to the Terms of Reference and Member Obligations.
What are the Entry Requirements for Joining the PRS?
The application process for PRS Membership is simpler in comparison to TPOS. Although you confirm that you hold professional indemnity insurance during the application, there is no requirement to provide proof of insurance.
So, could you technically get registered without insurance cover? Technically yes, but why would you take a dishonest approach to your business?
Conclusion TPOS versus the PRS
Disclaimer: I have written this article based on my personal understanding. I am still new to this industry and this article is not meant to provide any endorsement for either of the two schemes. The conclusions are my personal opinion.
I believe the Property Redress Scheme offers the best value to a new entrant to the business. If you’re new to deal packaging and working on a budget, then there’s a big difference between £132 (PRS) and £330 (membership fee plus one-off joining fee).
Ease of Entry
The barriers to legal compliance are lower. If your goal is to achieve minimum compliance to get your business going then this is the option to take. I don’t think this necessarily means you are held to lower expectations if you choose to join the PRS over TPOS because you have to adhere to industry good practice.
The complexity of Adherence to Obligations
If you’re starting out as a sole operator than you want as little as possible to distract you. There is a steep learning curve to this business. In addition to learning the technical aspects of becoming a deal packager, there is also a lot of other learnings to take on board including:
- Company director responsibilities
- Data controller responsibilities under Data Protection
- Getting to grips with anti-money laundering (AML) legislation and your responsibilities
- Understanding the law in general when it comes to operating as a Property Agent.
Why do I mention all this? Well, focusing on Industry Good Practice without the additional Codes of Conduct makes it easier to stay on track. Until such a point when you have a team supporting you, I think the PRS offers a less complex route to meeting your legal obligations.
I will be the first to admit there may be some inaccuracies in my understanding of how these schemes work.
I will also be the first to say that although it may appear that this article leans towards the PRS, I feel that most people new to this business are doing so on a budget. The PRS offers a cost-effective option for compliance.
I am open to contribution from those who are members of TPOS and indeed PRS so that you can share your experiences.
Thank you for reading this article and I hope it has been helpful. I’d love to keep in touch with you on your journey to full compliance and share experiences. You can connect with me on Facebook or just send me a message via the contact form.