Starting 14 May 2025, landlords and tenants in Scotland will be subject to new financial sanctions regulations aimed at preventing individuals or entities under UK sanctions from participating in the rental market.

What Are Financial Sanctions?
Financial sanctions are measures imposed by the UK government to restrict dealings with designated individuals or organisations involved in activities such as terrorism or corruption. These sanctions can include asset freezes and prohibitions on financial transactions. The Office of Financial Sanctions Implementation (OFSI), part of HM Treasury, maintains a consolidated list of sanctioned entities.

Key Changes for Letting Agents
From 14 May 2025, letting agents in the UK will be classified as “relevant firms” under financial sanctions regulations. This designation mandates that letting agents:

• Conduct checks on all prospective landlords and tenants against the OFSI’s consolidated list before entering into tenancy agreements.
• Report to OFSI any knowledge or reasonable suspicion that a client is a designated person or has breached financial sanctions regulations.
• Maintain records of these checks and any related communications for at least five years.

These requirements apply to all tenancy agreements of one month or longer, regardless of the rental amount.

Implications for Landlords
Landlords should be aware that letting agents will now be legally obligated to verify their status against the sanctions list. This process may involve providing identification and other relevant documentation.

While this may introduce additional steps in the letting process, it serves to protect landlords from inadvertently engaging with sanctioned individuals, which could result in severe legal consequences.

Implications for Tenants
Prospective tenants will also undergo screening against the sanctions list. This measure ensures that individuals under financial sanctions are not able to secure rental accommodations, thereby upholding the integrity of the rental market.

Compliance and Penalties
Failure to comply with these new regulations can result in significant penalties, including fines and potential imprisonment. Letting agents and landlords must ensure they are fully compliant to avoid such consequences.

Recommended Actions

• Letting Agents: Review and update your client onboarding processes to include sanctions checks. Ensure all staff are trained on the new requirements and understand the importance of compliance.
• Landlords: Cooperate with your letting agents by providing necessary documentation promptly. Consider conducting your own checks if self-managing properties.
• Tenants: Be prepared to provide identification and other necessary information during the application process. Understand that these checks are standard procedure under the new regulations.

For more detailed guidance, refer to the OFSI’s financial sanctions guidance for letting agents.

Staying informed and compliant with these new regulations is crucial for all parties involved in the Scottish rental market.