Forced to change factor?

What happens when a factoring business shuts down and owners are transferred to another firm?

Are your funds protected if the factor goes out of business?

We've never known a factor to go bankrupt but there is protection for owners.

The factor is required to keep any advance payments from you in a separate client account. This clearly identifies that the money does not belong to the factor and should provide you with protection. This is what the Code of Conduct says:

  • 3.2: Unless the title deeds specify otherwise, you must return any funds due to homeowners (less any outstanding debts) automatically at the point of settlement of final bill following change of ownership or property factor.
  • 3.5a: Homeowners' floating funds must be held in a separate account from your own funds. This can either be one account for all your homeowner clients or separate accounts for each homeowner or group of homeowners.

What's involved in the transfer process?

Firstly, if there is a procedure set out in your title deeds then the factor must abide by these. You should also check if there is anything covering such situations in the Written Statement of Services or any other documentation you may have from your factor.

The current Code of Conduct for Factors only covers the situation where owners decide to change factor (paragraphs 3.1 and 3.2). The Scottish Government is consulting over proposals to add clauses to the Code to cover the situation where the factor initiates the transfer.

What are the proposed changes to the Code?

The Scottish Government is reviewing what it says about this issue of transferring factor in the Property Factors Code of Conduct. The proposals include: 

  • providing information on the Written Statement of Services, confirming the property factor's policy on how it will co-operate with another property factor to assist the transition process in circumstances where another property factor is due to or has taken over the management of property and land owned by homeowners
  • requiring outgoing and incoming property factors to share information (within the limits of their authority to act for owners)
  • requirements to provide homeowners with financial information (that relates to their account) in situations where a property factor has decided to terminate its arrangement with homeowners

If you would like to comment on these proposals, please contact