Contact Us Licensee Login

Brokerage Standards Manual

Trust Account Management

5. Withdrawals From Trust Accounts

(c) Return Of Deposits

A brokerage should be aware that both “contract law” and the “stakeholder” provisions under RESA govern when a trust deposit may be returned to the buyer.

(i) Contract Law

Under contract law, if the offer or counter-offer is not accepted and, as a result, there is no contract or “meeting of the minds”, then the deposit may be returned to the buyer without the consent of the seller.

If, however, the offer or counter-offer is accepted and the subject clause(s) is not removed, then contract law asks the question “What did the parties to the contract intend would happen in the event that the subject clause is not removed?

It might be assumed that the parties understood that the deposit would be returned to the buyer if the subject clause was not removed. However, the standard Contract of Purchase and Sale deals with this situation as follows:

“Each condition, if so indicated, is for the sole benefit of the party indicated. Unless each condition is waived or declared fulfilled by written notice given by the benefiting party to the other party on or before the date specified for each condition, this contract will thereupon be terminated and the deposit returnable in accordance with the Real Estate Services Act.”

Thus, although the assumption may be that the deposit would be returned to the buyer if the subject clause was not removed, the contract specifically provides that the deposit will only be returned in accordance with RESA. It is necessary to consider the provisions of RESA relating to the holding of and return of deposits, i.e.: in accordance with a written agreement of the parties to the trade in real estate.

(ii) Stakeholder Provisions

[updated November 2015]

When an offer to purchase property has been accepted by the seller, the brokerage holds the money as a “stakeholder” and, in that one capacity, the brokerage is not the agent of either the buyer or the seller.

If the trade in real estate collapses for whatever reason, the brokerage must recognize that either the seller or the buyer, or both, may lay claim to the deposit money depending on the circumstances surrounding the collapse of the trade in real estate.

For example, it is the obligation of the party benefiting from a subject clause to use his or her best effort to remove the subject clause. If he or she does not do so, the other party may have a legal argument that the benefiting party did not use their best efforts. The determination of this issue can affect who will be entitled to the deposit.

Because the person entitled to the deposit is not clear, together with the fact that the brokerage’s role is that of “stakeholder“, the brokerage must take care not to judge whether the deposit belongs rightfully to the seller or the buyer. The only decision the brokerage should make is whether or not there is a claim against the deposit money for commission or other remuneration arising out of the trade in real estate.

Therefore, when a deposit is to be released for any purpose other than the completion of the trade in real estate, the brokerage must obtain a separate written release from both the buyer and seller with respect to the disbursement of the deposit money.

If there is a dispute regarding the payment of the deposit and a release cannot be obtained, either the brokerage or one of the parties may apply to the court to have the funds paid into court.

Signed Written Release Required to Release Money Being Held as a Stakeholder

If a trade in real estate will not be proceeding for whatever reason, the brokerage should prepare a release for execution by all parties to the agreement. This serves both to make it clear that all parties have agreed that the contract has come to an end and to identify the party to whom the deposit is payable. The release is necessary to permit the withdrawal of funds from a trust account in accordance with section 30 of RESA, which provides that a written agreement of the parties to the trade in real estate is one of the ways in which trust funds may be withdrawn. It is important that the deposit not be released until all parties to the trade in real estate have signed the release.

The Council is often asked whether the parties can create the written agreement concerning the release of the deposit within the Contract of Purchase and Sale itself. The Council cautions licensees against trying to draft such a clause, and against interpreting that a clause included in a contract apparently for this purpose may authorize a brokerage to release a deposit without a separate written agreement.

It is the Council’s view that the intent of the written release required by section 30 (2) (b) is to ensure that the parties have agreed about the disbursement at the time the deposit is to be released. Much can change between when two parties enter into a contract of purchase and sale and when the contract collapses. From the brokerage’s perspective, if one of the parties will not sign the release, that should serve as a red flag that there may be a difference of opinion as to who is entitled to the deposit. Even if the terms of the contract seem clear there may be adverse claims that require legal interpretation.

The brokerage holds the money as a stakeholder and not as an agent for one of the parties to the trade in real estate. This requires the brokerage

  • to be impartial,
  • to allow the parties sufficient time to come to an agreement as to the disbursement of the deposit, and
  • not to be pressured by either party to release the deposit before there is a signed agreement in place.

If the parties are not prepared to come to that agreement, section 33 of RESA allows the brokerage to make application to the Supreme Court for an order for payment of the money into court. Section 30 (2) (a) allows a brokerage to pay money into court under section 33. Sometimes advising the parties this is the only option available to the brokerage if the parties are not able to come to an agreement is just the sort of encouragement the parties need to break their stalemate.

Licensees, particularly brokerages, should not be interpreting who may be entitled to a particular deposit. For certainty, the authority to release a deposit from a brokerage trust account should be established by a separate written agreement signed by both parties.

In instances where there is no deposit and subject clauses are not being removed, it is still a wise practice to have the parties acknowledge that the contract has ended. While it may be difficult to get signed acknowledgements from both parties in every instance, it is a worthwhile practice that may avoid future problems.

A general release, which may require amendment to meet the requirements of the particular trade in real estate, would include the information in the following sample form:

RELEASE

WHEREAS by an Agreement in writing made the ____day of_____ , 20___, _(name)_ (therein described as the “Buyer”) agreed to purchase from, _(name) (therein described as “Seller”) and the Seller agreed to sell to the Buyer the lands and premises described as:

AND WHEREAS the parties hereto are desirous of terminating the Agreement and have respectively agreed to fully release and discharge each other;

WITNESSETH that for valuable consideration (the receipt whereof is hereby acknowledged) the parties hereto do respectively for themselves and their heirs, executors, administrators and assigns, remise, release and forever discharge the other party hereto and their respective heirs, executors, administrators and assigns, of and from all claims, causes of action, suit and demands whatsoever, which against each of the parties hereto ever had, now has or may have, or by reason of or arising out of the Agreement in writing dated the _____ day of_____ , 20__, herein before referred to.

The deposit in the amount of $ ____________ is to be released to: ________________________________________

IN WITNESS WHEREOF the parties hereto have hereunto set their hands and seals the ______day of _____, 20__.

SIGNED AND SEALED by
the Seller(s) in the
presence of:

Witness

(Seller(s) Name(s))

SIGNED AND SEALED by
the Buyer(s) in the
presence of:

Witness

(Buyer(s) Name(s))