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BCFSA’s Guidelines provide a practical application of the information and give suggested best practice guidance to assist real estate professionals. These guidelines provide BCFSA’s interpretation of RESA and all other applicable legislation.
In addition, BCFSA’s Guidelines may be a useful information source for the general public looking for information about standards of conduct for real estate professionals.
These guidelines will help you understand how to deal with trust funds. This includes paying funds to conveyancers, and limits placed on the protection of brokerage trust funds.
- Paying trust monies to conveyancer.
- Limits on level of trust fund protection.
RESA permits funds to be withdrawn from a trust account in accordance with written agreement of the parties to the trade in real estate. The standard form contract addresses deposits received by brokerages and grants permission for funds to be paid from trust to a conveyancer.
The effect of this wording is to allow your brokerage, which holds a deposit in trust as a stakeholder, to forward these funds to the conveyancer without having to obtain a separate written agreement from both the seller and the buyer. There are two important issues to note:
- The authorization contemplated in the standard form contract only applies to a release of funds to a lawyer or notary. It does not apply to the release of funds from trust for any other reason, or to any other party; and
- The clause in the standard form contract does not bind the conveyancer to hold the funds in trust as a stakeholder pursuant to the provisions of RESA because the conveyancer is not a party to the contract of purchase and sale. A brokerage that releases funds to a lawyer or notary under this authority must still clarify the stakeholder role directly with the conveyancer.
If an increase in the deposit is to be paid into a conveyancer’s trust account, you should ensure that a stakeholder undertaking is first obtained.
When the deposit held by the brokerage exceeds the amount of the commission, the brokerage must obtain written direction from both parties or their respective conveyancers, to release such excess before closing.
A special compensation fund exists under RESA to protect the public against the loss of trust money; however, the Real Estate Services Regulation limits the maximum amount that may be paid to a single claimant to $100,000, and the maximum total amount that may be paid in respect of claims against a single brokerage to $500,000.
In terms of a potential claim against your brokerage with respect to trust funds held related to strata management services, a strata corporation would be considered a single claimant. Therefore, regardless of the amount of money that a brokerage may hold in trust on behalf of a strata corporation, the maximum amount that could be recovered from the special compensation fund, should there be a significant misappropriation, would be $100,000.
You and your related brokerage must not indicate to your strata corporation clients, or potential clients, that there is more protection available unless the brokerage itself has secured additional protection independent of RESA. In the event a brokerage has secured additional protection, your brokerage must be able to provide BCFSA with proof of such coverage if requested to do so. A copy of the coverage should be retained in the brokerage’s head .
For more information on deposits into trust accounts, please click here.
The licensee was the managing broker in charge of strata management matters at his brokerage. In three separate instances involving different clients, the brokerage withdrew strata management fees from trust accounts without a valid services agreement or other written permission from strata corporation clients. In particular, the brokerage,
- Withdrew management fees from a trust account without having a written strata management service agreement executed by the strata corporation; the licensee providing the strata management services had attempted to obtain a signed version of the service agreement from the client but was unsuccessful, and instead relied on verbal authorizations;
- Withdrew increased management fees from a trust account over several years, in accordance with the amounts approved by the strata council, but without having the proper authorisation and/or instructions from the strata corporation to do so; the strata management service agreement was not amended to reflect the fee increases; and
- Transferred amounts between trust accounts without any authority under a written service agreement to do so.
The managing broker was found to have permitted the brokerage to conduct the above-noted activities.
Contraventions by brokerage: Sections 30(1) [Withdrawals from trust account] of RESA and sections 30(c) [Duty to act only within the scope of authority given by the client], 43(7) [Changes to agreement], and 43(6)(b) [Strata management agreements] of the Real Estate Services Rules (“Rules”), among others.
Contraventions by managing broker: Section 6(2) [Managing broker responsibilities] of RESA and sections 28 [Managing broker responsibilities] and 43(4) [Specific content requirements of written service agreements] of the Real Estate Services Rules, among others.Read the full case
Case #2: Interest on Pooled Rental Trust Account Not Paid in Accordance with Residential Tenancy Act
The managing broker permitted the brokerage to cause a financial institution to pay interest on the pooled rental trust account to the Real Estate Foundation, when the interest on the funds should have accrued in the manner set out in the Residential Tenancy Act (made payable to the tenants).
Contraventions: Section 29 [Interest on trust account] of RESA, among others.Read the full case
(a) Pooled Trust Account
A pooled trust account is a trust account which holds funds on behalf of more than one client and/or trade in real estate. A pooled trust account may be used to deposit money received from or on behalf of various clients in relation to trading and rental property management services and money received on account of remuneration for real estate services.
(b) Designated Trust Account
A designated trust account is an account established for an individual client. Only the funds of, or for, that specific client are deposited into the account. The account must specifically identify the client on whose behalf the funds are held. For example, the interest-bearing account John Doe Realty opens for client James Black would be designated as ‘John Doe Realty in trust for James Black’.
(c) Pooled Trust Account Used to Flow Through Electronic Deposits and/or Payments
A pooled trust account may be used by a brokerage to flow through either electronic deposits and/or payments. This type of account is referred to as a ‘flow through’ trust account.
Although the Real Estate Services Rules require brokerages to maintain designated trust accounts for each strata corporation, brokerages are permitted to use flow through trust accounts for electronic collection of strata fees and payment of invoices on behalf of strata corporations. The Real Estate Services Rules require that electronic deposits must be transferred to the applicable trust accounts no later than three days after the day on which they were received.
All brokerages must maintain one or more interest-bearing trust accounts in B.C. The accounts must not only be designated as trust accounts with the savings institution, but also in all brokerage records. This obligation includes noting that the accounts are trust accounts on deposits slips, cheques, and bank statements.
It is important to note that no funds other than trust funds, such as a client’s float, can ever be deposited into the brokerage trust account. This applies to all trust accounts held by the brokerage.
A bank account is deemed to be in control of a brokerage when any person engaged by the brokerage is a signatory on a third-party bank account. For example, if the brokerage has signing authority on a strata corporation’s account, the account must be in the name of the brokerage held ’’in trust’ for the strata corporation client. It must be in the records of the brokerage as a trust account and maintained in compliance with RESA and the Real Estate Services Rules. This is true even if the second signing authority is a strata council member.
(a) Obligation to Pay Interest to the Real Estate Foundation
All brokerages who hold trust accounts at savings institutions where interest accrues on the balance of a pooled trust account must hold that interest for the Real Estate Foundation and must ensure the savings institution pays the interest to the Foundation. Use the authorization form established by the Foundation, send a completed copy of the form to the Foundation, and retain a copy of that record at the brokerage.
Interest earned on commission trust accounts is not payable to the Foundation.
(b) Exception to Payment of Interest to the Real Estate Foundation
The obligation to hold interest accrued on a trust account for the Foundation does not exist when the account is held under the RTA where the interest is to be paid to a tenant. The Foundation strongly recommends that your brokerage maintain a separate pooled trust account for security and pet deposits only to ensure that any interest that accrues is not paid to the Foundation.
For a trade in real estate, if deposit funds are held by your brokerage as stakeholder, any interest that accrues must be paid to the Foundation unless the parties have agreed that the interest will be paid to one or all of them. This is permitted only when the funds are held in a designated trust accounts per RESA.
Likewise, monies held in a designated trust account or term deposit on behalf of a client where interest accrues must be paid in accordance with the instructions of your brokerage client.
(a) Non-stakeholder Money
Money held in your brokerage trust account that is not held under the stakeholder provision may be withdrawn from the trust account only if:
- Money is paid into the trust account by mistake;
- Interest is paid in accordance with RESA;
- Money is authorized to be withdrawn under the RESA provisions for the payment of remuneration;
- Unclaimed money is transferred under RESA [unclaimed money held in trust];
- Money is paid into court per RESA;
- Money is paid in accordance with a court order; and/or
- Money is paid to or in accordance with the instructions of the principal to whose credit the money was deposited.
(b) Stakeholder Money
Money held in your brokerage trust account that is held under the stakeholder provision may be withdrawn from the trust account only:
- As provided, if the money falls within the first six categories listed in the section above for non-stakeholder money;
- In accordance with a written agreement of the parties to the trade in real estate; or
- In accordance with the Real Estate Services Regulation (“Regulation”).
In respect of a transaction for the leasing of real estate, the funds may be withdrawn on the earlier of:
- The date the lease or assignment of lease is submitted to the land title office for registration;
- The date the tenant has the right to take possession of the real estate; and
- The date the tenant lawfully occupies the real estate.
In the case of a transfer that is not registrable in the land title office, funds may be withdrawn on the date on which the real estate is transferred. In any other case, funds may be withdrawn on the date on which the documents effecting the transfer are submitted to the land title office for registration.
Bank service fees and credit card charges must not come out of a pooled trust account but may be charged to a brokerage operating account. Bank service fees can be charged against a designated trust account if instructed by the client on whose behalf the funds are held.
Should your brokerage have funds held in a trust account that have not been claimed, your brokerage may transfer those funds to an administrator appointed under the Unclaimed Property Act if you have made reasonable efforts to discover the identity or location of the person who the money is owed to, and, despite your best efforts, the funds have not been claimed for more than one year.
The Real Estate Services Regulation further expands on the one-year timeline provided for in RESA by outlining that the brokerage can begin the one-year countdown from the time:
- A communication or cheque sent to the person entitled to claim the money is returned undelivered to the brokerage, the date on which the returned communication or cheque is received by the brokerage;
- An action required to be taken by the person entitled to claim the money by a specified date, as indicated in a communication by the brokerage to the person, is not taken by that date, the specified date indicated in the communication; or
- A cheque has been sent by the brokerage to the person entitled to claim the money, and a period of three years has passed since the date the cheque was sent and the cheque has not been cashed, the date of the day after the end of the three-year period.
For more information on deposits, please click here.
If funds held in your brokerage trust account are the subject of adverse claims to the money, or the identity of one or more of the people entitled the funds are unknown, or there is not person capable of giving consent to discharge the funds, your brokerage may apply to the Supreme Court of British Columbia for an order to pay the money into court.
The application to the Supreme Court must include an affidavit setting out the following information:
- The nature of the real estate services in respect of which the money was held or received;
- The names and addresses of the principals in relation to those real estate services;
- The date and terms on which the brokerage received the money;
- The names and addresses of all claimants to the money of whose claims the brokerage is aware;
- Particulars of any claim for remuneration by the brokerage, or a related real estate professional of that brokerage, arising out of the real estate services.
This application can be made without the requirement to notify any third parties unless ordered by the court.
Money paid into court can only paid out by order of the court which may do one or more of the following:
- Order payment of all or part of the money to the person or persons entitled to it on terms the court considers appropriate;
- Direct the trial of an issue;
- Make any other order that the court considers appropriate, including an order for the payment of costs to the brokerage that made the application.
In some cases, brokerages are licensed with the intention of operating from the premises of a larger brokerage. The smaller brokerage is often referred to as a ’mini-franchise’. The Real Estate Services Rules refer to them as the service brokerage and the larger brokerage is referred to as the holding brokerage. The service brokerage will generally enter into an agreement with the holding brokerage for the provision of various support services. In some cases, the agreements provide that the holding brokerage will hold the trust funds on behalf of the service brokerage.
(a) Funds to Be Deposited into Trust Account
If a holding brokerage has a separate written agreement with the parties to a trade, then the holding brokerage must deposit the funds into a separate brokerage trust account maintained in the name of the service brokerage. This agreement would indicate that the funds may be paid to and held in a holding brokerage if received from or on behalf a principal in relation to real estate, or money received on account of remuneration. The standard naming convention of the trust account in this case would be ‘Holding Brokerage ABC in trust for Service Brokerage ABC-John Doe.’
(b) Funds to Be Withdrawn from Trust Account
Money withdrawn from a brokerage trust account must be paid in accordance with the instructions of the service brokerage if there are no related real estate professionals other than a managing broker. The money should be paid into a brokerage trust account maintained by the service brokerage or into a commission trust account maintained by the service brokerage.
If your brokerage has a pooled trust account, you must provide written notice to the financial institution within 30 days that the account contains pooled funds and must identify each party whose money is being held in that account and the amount attributed to each party as of April 30 of each year.
In addition to the records required under the Real Estate Services Rules, you are required to retain the following documents with respect to each pooled trust account:
- Separate trust ledgers as follows:
- In respect of money held or received on account of trades in real estate – a separate trust ledger for each trade in real estate showing all amounts received and disbursed in relation to the trade and any unexpended balance in relation to the trade;
- In respect of money held or received on account of rental or strata property management services – a separate trust ledger for each principal showing all amounts received and disbursed in relation to the principal and any unexpended balance in relation to that principal;
- In respect of money held or received on account of remuneration for real estate services – a separate trust ledger for each real estate professional or other intended recipient showing all amounts received and disbursed in relation to the recipient and any unexpended balance in relation to the recipient;
- A monthly trust liability and asset reconciliation:
- For money held by the brokerage as a stakeholder under RESA, listing each trade in real estate in relation to which the brokerage holds the trust money, and the amount being held in relation to each trade;
- For money that is not held by the brokerage as a stakeholder, listing every party for which the brokerage holds trust money, and the amount being held for each person;
- Reconciling the money held in the trust account to the unexpended balances in the trust ledgers for the account; and
- Prepared in a timely fashion and, in any case, no later than five weeks after the end of the month being reconciled.
Please read the information on Document Retention for more.
Provided below is a list of your obligations when it comes to reconciling your trust accounts:
- A monthly bank reconciliation is required for all bank accounts maintained by the brokerage, even if there are no bank transactions during the month. The bank reconciliations should include the date and description of each outstanding cheque and deposit, if any;
- A monthly trust asset and liability reconciliation, also referred to as a trust liability listing, is required for each pooled trust account;
- All reconciliations noted above must be completed within five weeks of each month-end and should include a date of preparation; and
- All reconciliations noted above must be reviewed, dated, and initialled by the managing broker or by a person designated by the managing broker.
For all trust accounts, at least one managing broker must be designated as a signing authority. The managing broker does not need to sign all the disbursements.
You must ensure that all banking documents including cheques, statements and deposits slips relating to the trust accounts include an indication that they are related to a trust account. Bank, service, and credit card charges may not come out of pooled trust account but must come from other brokerage operating account (charges may come out of individual trust accounts)
The Real Estate Services Rules require that a monthly bank reconciliation is prepared for all brokerage general accounts. The reconciliations must be completed within five weeks of each month-end and should include a date of preparation.
Brokerages must not withdraw funds from a trust account if the withdrawal creates a negative balance in the trust account record or trust ledger/sub-ledger. Funds must also not be withdrawn if the trust account record or trust ledger/sub-ledger to which the payment relates is already at a negative balance. For example, Brokerage ABC provides rental property management services and holds trust funds for their clients in a pooled trust account maintained by the brokerage. The brokerage must ensure that not only the pooled trust account does not have a negative bank and ledger balance at any time, but also the individual ledgers maintained for each client must not go into a negative position.
If a negative balance is identified, it must be resolved immediately. Your brokerage must notify BCFSA immediately if a related managing broker considers that the negative balance may result in a person having a claim for compensable loss in relation to the brokerage or if a negative balance could not be eliminated within ten days after which the negative balance arose or if you believe that the negative balance may result in a consumer having a claim for compensable loss.
- Request a reason as to why the negative balance exists;
- Require your brokerage to cover the overage;
- Require your brokerage to return to state of solvency; and/or
- Require your brokerage provide a bond or other form of security.
Provided below is a list of acceptable form of trust deposits and disbursements:
|Uncertified cheque||Clears by the issuer’s financial institution after a few business days.||After the cheque has cleared, the brokerage should make disbursements out of the trust account (i.e. excess funds relating to a trade or owner draws relating to a rental property). The brokerage should include sufficient references on all cheques or cheque stubs (i.e. trade number) to facilitate an appropriate audit trail.|
|Certified cheque||Provides assurance that funds are available at the time of issuance. However, it requires someone going to the issuing financial institution. Service may not be available at all financial institutions.||The brokerage may incur additional bank charges.|
|Bank draft||Provides assurance that funds are available at the time of issuance.||The brokerage may incur additional bank charges. You may not be able to replace a bank draft if it was lost or stolen.|
|Cash||Potential FINTRAC reporting requirements and greater risk of theft. You should implement control procedures to ensure that cash deposits are safeguarded, for instance, issuing a receipt for each cash payment and obtaining a secured safe for the office.||The brokerage should not make disbursements out of the trust account in cash.|
|E-transfer||Deposits can be difficult to reconcile if sender does not provide sufficient information.||The brokerage should implement control procedures to ensure that all e-transfers are released or approved by someone with signing authority.|
|Wire transfer||Source of funds may not be identified.||The brokerage may incur additional bank charges.It may require attendance at the issuing financial institution. It may take a few business days for the financial institution to process.|
|Debit/credit card||The credit or debit card machine must be linked to a trust account so that funds collected are deposited into the trust account directly.||Any secondary benefits derived by a real estate professional or an associate of a real estate professional from expenditures made on behalf of a rental property management client such as credit card rewards are disclosed in writing to the client and the brokerage.|
- Part 3, Act, Trust accounts and other financial matters
- Section 43, Real Estate Services Rules, Written service agreements required in some cases
- Section 61, Real Estate Services Rules, When licensee remuneration can be paid out of trust account
- Section 62, Real Estate Services Rules, Some remuneration not required to be paid into brokerage trust account
- Part 7, Real Estate Services Rules, Brokerage accounts and financial requirements
- Part 8, Real Estate Services Rules, Brokerage records
- Part 3, Regulation, Trust accounts and other financial matters
Blended payment: means money subject to section 7-9 (2), that is received by the brokerage by means of a single instrument or direct electronic deposit, a portion of which is received on behalf of a strata corporation that is a client of the brokerage and a portion of which is received on behalf of one or more sections of that strata corporation that are clients of the brokerage
Holding brokerage: means a brokerage that, on behalf of another brokerage, receives or holds money relating to real estate services provided by the other brokerage
Pooled trust account: means a trust account in which money is held on behalf of more than one person
Public trust money: means all money held or received by a brokerage and to which section 27 (1), (2) or (3) [payment into trust account] of the Act applies, except remuneration that has already been earned, as determined in accordance with these rules, by the brokerage at the time it is held or received by the brokerage
Service brokerage: means a brokerage that, in relation to real estate services provided by the brokerage, arranges with another brokerage for the other brokerage to act as a holding brokerage in relation to those services
Trust account: means, in relation to a brokerage,
- a brokerage trust account maintained under section 26 [obligation to maintain trust account] of the Act, or
- a commission trust account maintained under section 31 [payment of licensee remuneration] of the Act;
Trust account record: means the record referred to in section 8-2 (a) [trust account and general account records] of these rules as it applies to a trust account;
Trust ledger: means a trust ledger required under section 8-3 (a) [pooled trust account records] of these rules.