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Brokerage Standards Manual

III. Trust Account Management

Opening Trust Accounts

Section 26(1) of RESA requires that every brokerage must maintain at least one interest bearing trust account and all trust accounts maintained by a brokerage must be held with a savings institution in British Columbia.

The number of trust accounts that are required will depend on the type of real estate services the brokerage provides and the manner in which the brokerage pays commissions and other expenses.

Note: Where accounts exist over which the brokerage does not exercise control of the transfer or withdrawal of funds and none of the signatories to the accounts are engaged by the brokerage, such accounts are not deemed to be trust accounts of the brokerage under RESA.

(a) Types Of Trust Accounts

(i) 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 principals in relation to trading and rental property management services and money received on account of remuneration for real estate services.

Interest on the pooled trust account is required, under section 29 of RESA, to be paid by the savings institution to the Real Estate Foundation of BC. At the time the pooled trust account is opened, the brokerage must immediately advise the Foundation and ensure that the authorization form (Appendix 1) is completed. As an exception, interest earned on security and pet deposits held under the Residential Tenancy Act is not required to be remitted to the Foundation.

To ensure the interest on these security and pet deposits is not remitted to the Foundation, the Foundation strongly advises a brokerage to maintain a separate pooled trust account for security and pet deposits only. If security and pet deposits are deposited into the brokerage general pooled trust account (an account containing any other type of deposit than security and pet deposits), the savings institution responsible for remitting interest on pooled trust accounts to the Foundation may not be able or willing to segregate the interest earned on security and pet deposits from the interest earned on other funds in that pooled account. This would result in the interest earned on the security and pet deposits being remitted to the Foundation when it should not be.

The Foundation maintains current Compensation Agreements with most savings institutions. These agreements specify the rate of interest paid, method of calculating the gross interest and the remittance period and process. These agreements also specify that the Foundation will cover the normal debits and credits of the brokerage trust account. Some fees are not covered, e.g. stop payments, certification of cheques, charges for insufficient funds in the account, bank confirmations, and printing of cheques. Such fees are a cost of doing business to the brokerage.

The Foundation elects to cover these fees; the Act does not require it to do so. If a brokerage remits interest directly to the Foundation rather than have the savings institution do so, the amount remitted must be the gross interest. The Foundation does not have Compensation Agreements with several small savings institutions. Brokerage trust accounts on deposit at those institutions may have to pay gross interest to the Foundation.

Bank, service and credit card charges may not be withdrawn from pooled trust accounts. They must be charged to the brokerage operating account. These charges are allowed in a trust account designated for a single client.

Brokerages with questions regarding the payment of interest on brokerage trust accounts to the Foundation should contact the Foundation at 604-688-6800.

(ii) Pooled Trust Account Used To Flow Through Electronic Deposits And/Or Payments

A pooled trust account may be used by a brokerage for either electronic deposits and/or payments. A different pooled trust account may be opened and used for each of the purposes.

Brokerages should complete the authorization form, found in the Appendix, which directs that any interest that may be paid on the pooled trust account be paid to the Real Estate Foundation of BC.

Although the Rules require that the brokerage maintain separate trust accounts for each strata corporation, pooled trust accounts are permitted for the electronic collection of strata fees and payment of invoices on behalf of strata corporations. These pooled trust accounts are referred to as “flow through” accounts.

(iii) Receiving Electronic Deposits On Behalf Of Strata Corporations

Section 7-9(2.1) of the Rules permits brokerages that provide strata management services to maintain an account which receives electronic deposits on behalf of multiple strata corporations. Brokerages receiving electronic deposits must transfer the funds to the applicable trust account no later than three days after the day on which it was received.

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(b) Paying Expenses Electronically On Behalf Of Strata Corporations

Section 7-9(5) of the Rules permits a brokerage to transfer funds maintained in separate strata corporation trust accounts to a pooled trust account for the purpose of paying expenses on behalf of multiple strata corporations. The authority to do so must be contained in the written service agreement. With this authority, a brokerage is permitted to transfer funds from a number of strata corporations into a trust account in order to pay, for example, the BC Hydro account on behalf of the various strata corporations. It is prudent business practice for a brokerage that intends to pool funds for the payment of expenses to open a separate pooled trust account for this purpose.

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(c) 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 trust account.

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(d) Trading Services Or Rental Property Management Services

Brokerages providing trading services or rental property management services may be asked by a client to deposit the client’s funds into a separate trust account in order to permit the client to retain the interest. Such a separate 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”.

An alternative to a separate account is to deposit funds for a specific individual in an interest-bearing term deposit. The interest can then be paid to that particular individual upon maturity of the deposit without opening a separate trust account. The term deposit must specifically identify for which client the trust funds are held.

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(e) Strata Management Services

Brokerages providing strata management services must maintain at least one separate trust account for each strata corporation. The standard naming convention of the trust accounts held on behalf of a strata corporation by a brokerage is “Brokerage ABC in trust for Strata Corporation 123”.

The Council considers that where a licensee or any other person engaged by the brokerage is a signatory on a third party bank account, the bank account would be deemed to be in the control of the brokerage and, therefore, a trust account. Therefore, if, for example, the brokerage has signing authority on the strata corporation’s account, even though the second signing authority is a strata council member, the account must be designated at the savings institution and in the records of the brokerage as a trust account. The bank account must be in the name of the brokerage held “in trust” for the strata corporation client and maintained in compliance with RESA and Rules.

Section 7-9(2)(b) of the Rules requires that if a brokerage holds either contingency reserve funds or special levy funds on behalf of a strata corporation, the funds must be placed in at least one other trust account that is separate from the trust account used for the strata corporation’s operating funds.

If the funds that are received are a combination of operating funds and either contingency reserve or special levy funds, section 7-9(3) of the Rules requires the brokerage to pay the funds into the operating trust account maintained for the strata corporation. The contingency reserve or special levy funds must then be withdrawn in accordance with section 7-9(4) of the Rules. Within seven days after the end of the month in which the contingency reserve or special levy funds were received, the brokerage must either pay the contingency reserve or special levy funds to the strata corporation or it must transfer the funds to the applicable trust account.

Section 29(3) of RESA provides that where a designated trust account is maintained, the interest on the trust account is payable in accordance with the instructions of the strata corporation on whose behalf the funds are held. Unless there is a specific term in a service agreement to the contrary, the interest on such trust accounts will be payable to the strata corporation.

Special Levy Funds in Separate Trust Account

Section 7-9 of the Real Estate Rules was amended on July 1, 2012 to require a brokerage that holds special levy money on behalf of a strata corporation to hold that money in at least one trust account separate from the operating fund account and the contingency reserve fund (CRF) account.

To further clarify these requirements, a number of common scenarios have been developed to assist licensees.

  1. A special levy is approved in the amount of $35,000. The resolution at the AGM stated that these funds are to be directly deposited into the CRF account. 
    Question: Should the money be deposited straight into the CRF account, as per the resolution, or should it go into a separate special levy account?
    Answer: The brokerage should advise the strata council that the Real Estate Rules require that the funds to first be deposited into the special levy trust account, following which, they will be transferred into the CRF trust account in accordance with the AGM resolution.
  2. A large project was started a few years ago and a special levy was approved to fund this project. The funds were deposited into the CRF bank account (as previously allowable) and the majority of the special levy money has now been spent. 
    Question: Should the left over special levy funds at July 1, 2012 be deposited into a separate special levy bank account?
    Answer: Yes, the requirements of section 7-9 of the Real Estate Rules do not differentiate between special levies received prior to July 1, 2012 and those received after this date.
    Question: Should past interest on these funds, which has been deposited into the CRF account, be calculated and deposited into the special levy account?
    Answer: Interest on the special levy funds should accrue directly to the special levy fund. So any interest earned on special levy funds that has not been used or paid out, should be transferred into the separate special levy bank account with the balance of the special levy funds.
  3. A special levy is approved in the amount of $57,000 because of an operating cash flow deficiency due to a bankrupt developer and the bank not paying the strata fees owed to the strata corporation for the strata lots owned by the developer.
    Question: Should the $57,000 be deposited in a separate special levy bank account and borrowed from as needed, or may it be deposited into the operating fund bank account.
    Answer: The brokerage should deposit the special levy funds into a special levy bank account, and then draw on those funds as needed, at the direction of the strata council.

Licensees are sometimes directed to do something that is contrary to either the Real Estate Services Act (RESA) or the Real Estate Rules, or both. It is important for licensees to note that although the Real Estate Rules require that licensees follow the lawful instruction from their clients; an instruction to contravene either RESA or the Real Estate Rules would not be a lawful instruction. Licensees being given such direction should discuss the matter with their managing broker, advise their clients of the brokerage’s obligations to RESA and the Real Estate Rules and inform them that the brokerage is not able to act upon any instruction that is contrary to RESA or the Real Estate Rules.

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(f) Trust Accounts And The Builders Lien Act

Licensees engaged in providing rental property management and/or strata management services should be aware of requirements of RESA in relation to holdbacks under the Builders Lien Act. The Builders Lien Actprovides that an owner (e.g., a strata corporation, an individual owner or a company) must administer a holdback account together with the respective contractor and that any holdback monies must be held in trust for the contractor from whom the holdback was retained. In addition, the holdback monies can only be paid out of this account with the agreement of all the persons who administer the account, meaning the owner and the contractor. Such holdback accounts under the Builders Lien Actare deemed to be trust accounts under that legislation.

If a brokerage is holding money on behalf of an owner in relation to real estate services, section 27 of RESA requires that the funds be held in a brokerage trust account. Thus, if an owner (e.g., a strata corporation) is holding funds pursuant to the holdback provisions of the Builders Lien Act, and those funds are held on behalf of the owner by a brokerage, section 27 requires that the funds be held in trust by the brokerage. As well, the Rules require that a managing broker must be a signatory to this account. Finally, it is important to note that a brokerage can only withdraw holdback funds in accordance with section 30 of RESA. In that regard, the owner could not instruct a brokerage to release holdback funds unless the contractor also agreed to the release.

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(g) Holding Brokerage

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”. Section 7-1.1 of the Rules refers 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.

Section 7-1.1 of the Rules requires that a brokerage that “holds” funds on behalf of a service brokerage must maintain a separate trust account for such funds. Thus, if a brokerage intends to hold trust funds on behalf of another brokerage, in addition to the brokerage trust account(s) that the brokerage maintains, the brokerage must also open and maintain a separate trust account in the name of the service brokerage. The standard naming convention of the trust account in the case of a holding and service brokerage would be “Holding Brokerage ABC in trust for Service Brokerage ABC-John Doe.”

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(h) Commission Trust Account

Section 7-2 of the Rules permits brokerages to maintain a trust account designated as a commission trust account. The commission trust account is to be used only to hold funds that are intended as remuneration for the brokerage or for a licensee engaged by the brokerage.

Section 5-15 of the Rules establishes when funds that have been earned may be paid out of the brokerage trust account. In some cases, brokerages may agree to make remittances on behalf of licensees, e.g. GST or income tax remittances. In such cases, the brokerage must pay the funds into a commission trust account to pay the remittances on behalf of licensees.

There is no restriction or limitation on the length of time that funds may remain in a commission trust account. Interest on a commission trust account is not payable to the Real Estate Foundation of BC.

Please be aware that if a brokerage does not hold public trust funds and utilizes the brokerage trust account as a commission trust account, the brokerage trust account is not exempt from the annual trust audit that is required as part of the Accountant’s Report filing.

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(i) Signatories

Section 7-4 of the Rules requires that at least one managing broker licensed in relation to a brokerage must be a signing authority on each of that brokerage’s trust accounts. The managing broker is not required to sign all the disbursements, but must be one of the signatories on each trust account.

However, if the trust account is a strata corporation trust account for the purpose of holding contingency reserve or special levy funds, section 7-9(6) of the Rules provides that the brokerage must arrange for the trust account to be set up so that the signatures of at least two of the following are required in order for funds to be withdrawn from the account:

A brokerage that intends to transfer funds electronically must authorize in writing the transfer of the funds before the electronic transfer occurs. Where two signatories are required to transfer funds from the contingency reserve trust account or special levy trust account, two signatories must sign the document authorizing the transfer of funds. For example, if the managing broker and a strata council member are required to sign cheques to withdraw funds from the contingency reserve fund or a special levy trust account, those signatures must also appear on an authority to transfer before any funds are transferred electronically from either account.

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(j) Designated In The Books

RESA requires all trust accounts to be designated as a trust account in the books of the brokerage and in the books of the financial institution. The Council’s auditors have discovered instances where financial institutions have neglected to carry out the instructions of the brokerage in respect to designating an account as a trust account. It is, however, the responsibility of the brokerage to ensure that this is done. All bank statements, cheques and deposit slips must state “trust account.”

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(k) Rental Security Deposits

If a brokerage holds security and/or other deposits, such as pet deposits under a duty under the Residential Tenancy Act to pay the interest to a tenant, section 29(2) of RESA provides that the interest earned is not payable to the Real Estate Foundation of BC. For further information, see “Pooled Trust Account” above.

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(l) Interest On Brokerage Pooled Trust Accounts

The Council has received queries from brokerages as to what to do with the interest earned in a brokerage pooled trust account that holds only security deposits and/or pet damage deposits on behalf of landlords.

Under the Real Estate Services Act, section 29(2) exempts interest earned on money held by the brokerage under a duty under the Residential Tenancy Act from being required to be forwarded to the Real Estate Foundation.

The Residential Tenancy Branch sets the rate of interest which must be paid to tenants upon return of their deposit(s); the exemption under section 29(2) allows interest earned on this account to offset the interest owed to the tenant. Interest in excess of the amount required to be paid to tenants under a duty under the Residential Tenancy Act is the property of the individual landlords on whose behalf money is held in the pooled trust account.

If it is the intention of the landlords and the brokerage that this excess interest is to be retained by the brokerage and not paid to the landlords, an agreement to this effect must be made with the landlords and contained in the written service agreements with the landlords in accordance with sections 5-1(4)(e) and (f) and section 5-1(5)(d) of the Rules.

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