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Chester case raises questions over regulation, says Martin & Co boss

05 October 2009
Written by rosalind renshaw

Martin & Co could, and should, have acted sooner in the case of the Chester franchise, the National Approved Letting Scheme has suggested. This has been strongly denied by the company which will this week seek a High Court warrant for the arrest of its former franchisee.

Martin & Co chief executive Ian Wilson said that it is a major issue in the lettings industry that agencies use rental money and tenants’ deposits as their own cashflow, and he said there was no effective regulation.

NALS has also said it will reimburse tenants and landlords who lost money through any fraudulent activity that may have taken place at Martin & Co franchisee businesses, including Chester.

But in a hard-hitting statement issued in answer to questions from Estate Agent Today, NALS called on franchisor companies to accept their responsibilities both to consumers and to their franchisees.

The statement strongly implies that Martin & Co could have acted three months earlier in the case of the Chester business, which is now in liquidation with debts of nearly £200,000. The franchisee, Geoff Lavery, ran a second firm which has also ceased trading.

There are known to be five cases – not all NALS members – where Martin & Co franchisees have misused tenants’ deposits and four have been stripped of their franchises.

NALS said: “As in all of the other Martin & Co fraud cases we are dealing with, NALS is reimbursing consumers where claims are made against its client money protection scheme where it has been established fraudulent activity has occurred.

“Martin & Co (Chester) was formerly accredited by NALS until May 7, 2009, when its accreditation was terminated. Up to and including that date consumers were covered under the NALS client money protection scheme and can claim back any rent and deposits misappropriated by Martin & Co (Chester).  

“NALS is already processing around 40 claims received from tenants and landlords relating to this case. NALS is also working with the liquidator (Bridgestones, 125-127 Union Street, Oldham OL1 1TE) who has all the records relating to the firm.

“In the case of Martin & Co (Chester), the firm continued to trade under the Martin & Co brand with a substantial shortfall in their client accounts for almost three months after notification by NALS to the franchisor that Martin & Co (Chester)’s accreditation and cover under the NALS Client Money Protection scheme had ceased.

“It is our understanding that during the intervening period the franchisee diverted tenants’ rent to another company, Three Counties Ltd, over which NALS never had any jurisdiction.

“It is easy for a franchisor to let these failures fall by the wayside and see the NALS client money protection scheme as a ‘Get out of Jail Free card’ but they have to accept their responsibilities to the consumer and indeed all the other completely bona fide, professional franchisees paying a commission to a franchisor to market under their brand.

“It is obviously vitally important for a franchisor to make sure they have the proper training, monitoring of compliance standards and sound selection processes in place before selecting a franchisee.”

Asked for information about the client money protection policy, NALS said: “The NALS client money protection (CMP) scheme does what its name suggests.

“It protects clients’ money and reimburses tenants and landlords in the event of fraudulent activity or misappropriation of clients’ funds by a NALS firm. Where a loss occurs, claim forms are issued to prospective claimants and where these are properly evidenced and verified the CMP scheme pays out. It is as simple as that. The insurer is Royal & Sun Alliance.”

Estate Agent Today also asked how the Chester office of Martin & Co managed to get its books past the NALS audit process.

To this, NALS replies: “In line with our strict criteria, an annual accountant’s report completed by a chartered accountant confirming that the firm’s client account was intact and operating in line with NALS accounting procedures was submitted to NALS.

“NALS and the liquidator are currently pursuing this line of inquiry.”

Asked if NALS will be tightening up any of its criteria as a result of this case, NALS replied: “NALS continually reviews its procedures and processes, as well as the continuing inclusion of firms under its CMP scheme whose policy is renewed annually.”

Martin & Co has already tightened up its own business, with a full-time internal auditor. It was as a result of spot checks that it says it uncovered irregularities at Chester.

The story has attracted enormous interest in the industry, with some praise for the company for deciding to come into the open about the problems.

Yesterday, Martin & Co chief executive Ian Wilson said: “We are very pleased to read that NALS will be fully compensating clients of Geoff Lavery who formerly traded his company Gabah Co (Ltd) under the Martin & Co brand in Chester.

“You could get the mistaken impression from the NALS statement that they detected this fraud.

“In fact it was auditors working for Martin & Co (UK) Ltd who discovered an estimated £75,000 hole in the client account, and when we notified NALS, they immediately withdrew insurance cover. We think it would be reasonable in future for NALS to place public notices in the local press whenever they withdraw CMP cover, otherwise the public is not put on warning that the agent is no longer insured.

“Could head office at Martin & Co (UK) Ltd have done more to limit the damage? In truth, I think we were out-manoeuvred by a desperate man, who provided reassurances that he was taking steps to remedy the problem, and would put the business on the market as a ‘resale’ so that we could install a new franchisee, whilst providing continuity of service.

“In the event, Geoff Lavery lost everything. We now have a High Court injunction against him and we will be returning to the Court later this week to seek a warrant for his arrest, as he has still not disclosed to us all of his former businesses records. Both his companies are in liquidation and his personal assets are held as security against the business loan he took out when he started the franchise.

“The wider issue we think is the future shape of regulation for our industry. We have learnt a hard lesson that we cannot ‘outsource’ brand protection to NALS, and that we have no choice but to do it for ourselves.

“We are in the process of selecting a Brand Standards Director to our executive and next year we will budget for a training academy of four staff, and a compliance department of three staff. Group fee revenue will be around £30m in 2010 so we can afford to make this investment, for a group of 180-plus offices.

“Where are the organisations of the scale necessary to apply and control standards across 15,000 UK letting agents?

“If there is no ‘hands on’ regulation of agents then the ‘traditional’ agency practice of delaying the payment of rents to ease cashflow, and using deposits to fund business expenses, will continue. If these are eventually flushed out, then all agents can expect to pay dramatically higher CMP premiums in the future.

“The vast majority of Martin & Co agents are honest and trustworthy and the public can deal with them in confidence, and benefit from the responsiveness of local owner management, rather than endure ‘call centre culture’.

“As a result of our aggressive action against the few rogues, we are confident that we will be able to put in place for 2010 our own CMP scheme. But who is capable of regulating the rest of the industry?”

Comments

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    Hmmmm wondered what had happened, Will have an effect on the whole company name it seems.

    So is Mertin and Co not recomended to use then?

    • 30 October 2009 23:18 PM
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    When the liquidation meeting was held to wind up Gabah and Co, the former franchisee admitted in the meeting that not a single penny of rent or deposit funds had been paid into the "protected Account" in the 3 years it was running. None of this was picked up by either NALS or Martin and Co (Bournemouth) until May of this year. NALs withdrew coverage in early May and told the Franchisee and the Franchisor it was doing so but none of the 3 took any actions to inform the tenants and landlords and indeed the Franchisee was still asuring all that cash was safe and pointing to his NALS certificate displayed on the office wall!

    To cap it all, we now have a pending theat of legal action from Martin and Co (bournemouth) to the liquidator to return property keys and all property details and contacts as we presume that Martin and Co want to drop in a new franchisee.

    • 19 October 2009 21:01 PM
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    No-one has yet advised how the landlords and tenants, whose money was transferred to 3 Counties Ltd by Geoff Lavery before misappropriating it, are to be recompensed. The money wasn't under the jurisdiction of NALS so no claim can be made there, but Lavery WAS continuing to work under the Martin & Co brand and from the same premises as before. Only he and Martin & Co head office new the truth about what was going on. Shouldn't Martin & Co accept total responsibility for their franchisee and reimburse Lavery's clients not insured by NALS? A decent franchisor wouldn't leave unsuspecting clients high and dry as Martin & Co have done. It's not too late to rectify matters, Mr Wilson!

    • 08 October 2009 23:44 PM
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    If you are regulated by the RICS the use of tenants monies to help cashflow is not permited.

    • 07 October 2009 11:38 AM
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    N.Marshall - yes we ARE all appalled at the statement by Ian Wilson. It says more about him and his values than the rest of us and if I was a Martin & Co franchisee I would be even angrier by such a thoughtless statement.

    • 06 October 2009 13:02 PM
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    As with most of the comments regarding use of client funds. Please do not Tar everyone with the same brush, we at LD Property Management make sure out Client accounts are kept seperate and they are never used to pay Agency expenses, this is also audited by our accountants as this is good business practice

    • 05 October 2009 16:35 PM
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    while it's easy to be critical of their alleged lack of systems, it was to their credit the franchisor that exposed the fraud in the first place. So there was a system in place. Fraudsters come from all walks of life and are in the main extremely convincing, particularly when their back is to the wall. 5 offenders from 180 offices make less than 2.5% of the entire network. What would the percentage of offenders be of the 15,000 lettings agents that have NOT been audited, greater or less?? In these straightened times I would suspect that the Martin & Co group would be at least no worse than average. Individually the franchisees know they are answerable to a central body which of course the vast majority of agents are not.

    • 05 October 2009 13:11 PM
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    It seems to me that Ian Wilson will say almost anything, including that many Letting Agencies dip into their tenants deposits as a way of excusing the fact that the Martin & Co franchise has without doubt picked, trained and charged a few loosers to join them. It would be great for him to actually say this rather than just keep on say it is an industry wide problem amongst agents. Ian Wilson, stand up and tell all that wish to listen that the five bad apples that joined your group after paying you lots of money are on reflection a poor choice, this means that at least you are willing to take some blame as well as all the money.

    • 05 October 2009 12:46 PM
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    Martin & Co obviously have no systems and procedures in place for their franchisees which is astonishing. Judging by Mr Wilsons own admissions and comments, it does make you question his whole business practice. The industry needs one professional governing body to clamp down on rogue practices.

    • 05 October 2009 12:34 PM
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    "The ‘traditional’ agency practice of delaying the payment of rents to ease cash flow, and using deposits to fund business expenses, will continue." This comment has angered me greatly as it tantamount to an industry admission to disgraceful practices and the ongoing battle ‘Responsible & Compliant’ agents have against the less scrupulous!
    My partners and I spend huge amounts of time and money remaining compliant and as such our business, WSB, can be certain that if every landlord & tenant walked through our door they could be paid in full; client accounts should be ‘ring fenced’, do they not undertake periodic Client Account Reconciliations?
    To any Letting Agent owner reading these comments please be compliant; our reputations and future credibility to new landlords & tenants depends upon this, especially in light of this adverse press – we are not all crooks.

    • 05 October 2009 11:54 AM
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    I agree with Ray - If Martin & Co. think this way, it is no wonder they have fraudsters as franchises! I, along with the vast majority of lettings agents I should think, I apauled at the thought of using clients money to 'ease cashflow'!

    • 05 October 2009 11:30 AM
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    Wilsons statement is appaling - How dare he cast us with the same brush - I agree with comments, withdraw your statement or your business will suffer more and more as time goes by - just through 'karma' alone!!!

    • 05 October 2009 11:23 AM
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    Just what proof has this Mr Wilson in making the disgraceful statement 'traditional' gency practise........'?
    He should issue a withdrawal immediately!

    • 05 October 2009 10:53 AM
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    Fraud is an unfortunate element to society, it just grates more when it's happening in your own industry and affects the public view of our line of business.
    Mr Wilson is right to question the lack of regulation, but the rest of us are right to question his due diligence and indeed his own in-house regulation. It is all very well to speak loudly and proudly that Martin & Co uncovered the problem, but clearly, the horse has already bolted! There are some agents who will place a tenant focusing purely on the fee rather than quality of tenant, and has Mr Wilson's approach to franchising followed the same path?
    I'm sure Mr Wilson is having to answer to the other 175 franchises, as well as the disgruntled clients of the other 5.

    • 05 October 2009 10:17 AM
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    Ian Wilsons states that "its a major issue in the lettings industry that agencies use rental money and tenants deposits as their own cashflow". This is absolutely not the case for my lettings business and we would not entertain that thought. I wonder if other agents are as offended as I am about this comment?

    • 05 October 2009 10:15 AM
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    "The vast majority of Martin & Co agents are honest"- what about the rest then!? Your systems should be there to stop the others, you now admit are not.

    • 05 October 2009 09:45 AM
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