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Professional Standards Manual

Trading Services

2. Acting For Sellers

(f) Deposits

Section 27 of RESA requires that all money received by a licensee from, for or on behalf of a principal in relation to real estate services, and all money received on account of remuneration including remuneration received from another brokerage, must be promptly paid or delivered to the brokerage. Similarly, subject to the exceptions detailed in section 27 of RESA requires the brokerage to promptly pay all such funds into a brokerage trust account.

An exception to this requirement is set out in section 27(4) of RESA and is described in greater detail below under the heading ‘‘Deposits Held by Third Parties’’.

Section 28 of RESA provides that, other than in limited cases, such as where the funds are rent or security deposits or the parties agree in writing otherwise, the brokerage holds the funds as a stakeholder and not as an agent for one of the parties.

(i) Need for a Deposit

Contract law does not require that there be a deposit in order to create a binding Contract of Purchase and Sale. The requirement that a contract include some form of consideration is satisfied by the mutual exchange of promises by the seller and the buyer. However, it has long been recognized that including a deposit, often an amount between 5% and 10% of the offered price, represents an expression of the serious intention of the buyer.

The Council is aware that some buyers’ agents are drafting offers that do not provide for any deposit to be paid until after subject removal. One reason stated is a concern that the seller will not authorize the release of the deposit to the buyer if the buyer does not remove the subject clauses.

Some consumers, and perhaps even some licensees, are under the misconception that a Contract of Purchase and Sale is not binding on the parties until all subjects have been removed. The obligations under a contract are created once there has been an offer and acceptance (including counter-offers, if any). Some buyers believe that not including a deposit makes it easier for them to not proceed, if they choose, with their obligations under the agreement.

Buyers’ agents need to be cautious that buyers do not assume that, by not providing an initial deposit, they have somehow diminished their responsibility to make best efforts to satisfy the terms and conditions of the contract and to remove subject clauses.

It is the Council’s view that listing brokerages, in situations where buyers offer no deposit until removal of subject clauses, should advise sellers of the merits of a deposit being received from buyers. Increasing a deposit can be accomplished by way of a counter-offer from the seller.

(ii) Deposits and the ‘Standard Form’ Contract of Purchase and Sale

[06/15/2010 The following information added to Professional Standards Manual]

The ‘standard form’ Contract of Purchase and Sale (the “CPS”)1 available for the use of real estate board members in relation to common residential trades contains pre-printed wording which identifies a wide variety of acceptable forms of deposit. It also allows sellers and buyers to determine by mutual agreement what form a deposit may or must take.

If a brokerage is not prepared to accept deposits in one or more of the forms identified in the CPS, that brokerage and its related licensees should make sure that their clients are, at the commencement of the relationship, aware of and consent to the brokerage’s policy of not accepting those forms of deposit. 

Where a buyer wishes to pay the deposit in a manner other than by the methods described in Section 2 of the CPS (e.g. wishes to pay by wire transfer, credit card2, or money order), the buyer’s representative should insert that method of payment in the “terms” portion of Section 2.

The following table lists the different forms of deposits allowable under the CPS, with a brief description of each.

Form of Deposit Benefits of Form of Deposit Potential Issues With Form of Deposit
Uncertified (personal) cheque Convenient, readily available. Must be cleared by issuer’s financial institution. Potential for issuer to ‘stop payment’ after it has been deposited but prior to being cleared. Uncertainty whether funds are available until cheque has cleared.
Certified cheque Verifies funds are available at time of issue. Creates certainty. Requires attendance at issuing financial institution. No longer available at some institutions.
Bank draft Verifies funds are available at time of issue. Creates certainty. Requires attendance by issuer at issuer’s financial institution.
Cash Certainty. Potential FINTRAC reporting requirements. Greater risk of theft.
Lawyer/notary/brokerage trust cheque Not used for deposits – more for tender on completion.  

Based on the foregoing, it might be considered ‘best practice’ to encourage deposits to be by way of certified cheque or bank draft, as they create the most certainty with little risk of theft. In researching with various financial institutions, the Council was advised that many financial institutions consider certified cheques and bank drafts to be very similar. They are treated as if they are cash in the sense that, when they are issued, the money is taken out of the account. The only way they will not be ‘honoured’ is if they are physically returned to the institution to be redeposited. Once they are handed over (for example, to the brokerage that will be holding it in accordance with the CPS), the institution will not accept a request to stop payment. If they are lost, the financial institution will likely require a statutory declaration, or similar statement, verifying that loss. One financial institution advised the Council that it no longer issues certified cheques.

Licensees should be aware, however, that financial institution policies can and do change over time, and policies may vary between financial institutions. For example, the time required to clear a personal cheque may be different between types of institutions (e.g. credit unions, trust companies, chartered banks) and depending on where the cheque is drawn (e.g. local, regional, national, or international institution). For this reason, brokerages are strongly advised to check with their own financial institution as to their cheque handling and clearing policies, and have their institution confirm its policies in writing.

1 Licensees should be aware that BCREA produces various ‘standard form’ contracts of purchase and sale for use depending on the type of real estate involved; e.g. commercial, business assets, manufactured homes, etc. These versions of the CPS do not all treat deposits in the same manner described in this article, or in the BCREA articles to which this information refers. Standard forms are also created by others to meet their own needs. For example, some developers produce their own contracts for use in the sale of their projects; some commercial brokerages create their own contracts for use in the sale of commercial properties; brokerages that are not members of a board may also create their own contracts of purchase and sale. Licensees using these other forms of contracts of purchase and sale should familiarize themselves with the differences and advise clients to seek independent legal advice wherever there is concern about any aspect of a particular form.

2 The use of credit cards for payment of deposits is rare. Not only must the parties to the trade agree in the contract that the deposit is to be paid by credit card, but the brokerage that is to hold the deposit must be a ‘merchant’ with respect to the use of that credit card. Brokerages considering accepting deposits by credit card must first satisfy themselves as to the terms and conditions of acting as a ‘merchant’ in this way, and must ensure that such deposits, in the full amount required by a contract of purchase and sale, (i.e. without service charges being deducted) are deposited promptly and retained in the brokerage trust account.

(iii) Cash Deposits

Cash deposits, regardless of their size, can pose problems for licensees. Section 27 of RESA requires that all monies received by a licensee in relation to real estate services must be promptly paid or delivered to the licensee’s brokerage and the brokerage must promptly pay the funds into a brokerage trust account.

The Council has seen situations where licensees have deposited cash deposits into their own personal accounts, then transferred these funds into their brokerage’s trust account or had a bank draft payable to the brokerage drawn on these funds. While the intention may have been to reduce the risk of loss or theft, this is not an acceptable practice. The licensee’s account is not a trust account and is therefore not protected from attachment by creditors. In certain cases, this was done to avoid an administration fee charged by the brokerage for dealing with cash.

Cash deposits are not common in sales transactions but they may occur in the form of rent or security deposits in property management. Brokerages should develop a company policy with respect to dealing with cash deposits, including what actions are to be taken if a cash deposit is received after business hours. This policy should include strategies to reduce the risk of loss or theft. Due to this risk, brokerages may wish to encourage non-cash forms of payment such as cheques or bank drafts.

If a buyer insists on providing a cash deposit in conjunction with an offer to purchase and this is taking place after regular office or bank hours, it may be advisable to make the deposit payable within a certain time frame after acceptance, coinciding with when the brokerage’s financial institution is open. This would facilitate the brokerage not receiving the cash until it can immediately be deposited. Alternatively, it could be suggested that the buyer obtain a bank draft, made payable to the brokerage, from his or her own financial institution.

(iv) "Promptly Pay" Means Immediately

Section 27 of RESA provides that a licensee shall, upon receipt, promptly pay or deliver all funds received from a principal or as remuneration to the brokerage and that the brokerage must promptly pay the funds into a brokerage trust account.

Council’s auditors frequently have found that:

1. Cheques have been held and not deposited until either certification or acceptance of the relevant offer. Section 27 of RESA requires that a licensee promptly deliver to the brokerage all money held or received from, for or on behalf of a principal. The brokerage must promptly pay this money into a brokerage trust account. Money that is received should not be held by a licensee or a brokerage pending some future event.

2. Cheques from related companies (e.g., a subsidiary company or a private company owned by the licensee) acknowledged on Contracts of Purchase and Sale were never drawn and accordingly no payment was made into the brokerage’s trust account.

3. Rental collections were being deposited into the general account when they should have been deposited into a brokerage trust account.

The Council will not accept practices of this nature.

(v) Buyer’s Failure To Pay Deposit

The following wording has been added to the first page of the Contract of Purchase and Sale:

Default on Deposit Clause

If the Buyer fails to pay the deposit money as required by this contract, the Seller may, at the Seller’s option, terminate this contract.

WARNING: If licensees are not using the standard Contract of Purchase and Sale developed by the BCREA, they should check the contract to ensure that this wording is present. Older versions of the standard Contract do not contain this wording and it must be added.

(vi) When To Deposit

The Council has obtained a legal opinion as to whether or not, in all cases, a cheque for a deposit must be deposited into a brokerage’s trust account or whether it was acceptable, if the offer accompanying the deposit cheque was rejected, to give the cheque back to the person who had made the offer. The following is an excerpt from the lawyer’s opinion.

If a cheque is received accompanying an offer made on a Friday evening, it is sometimes impossible to pay it immediately into the bank. It cannot be deposited until Monday morning… If an offer made on a Friday evening is rejected that evening or before the banks open Monday morning, it would seem to defy reason that the cheque could not be returned… to the offeror, and

… that such a return of the cheque would be a proper course and not leave the agent open to criticism or to a charge of breach of the Act. Once the offer is rejected, no one has any rights in the cheque other than the offeror and I do not see how there could be any wrongdoing in returning the cheque to him or her.

If, on the other hand, a cheque is received during banking hours or it is possible to deposit the cheque in the bank before the offer is rejected, then in my view, the cheque should be deposited even though the offer may still be open and in spite of the inconvenience in obtaining certification and so on.

(vii) Deposit Payable on Acceptance or Within a Stated Time Period

Section 27 of RESA requires that when a deposit is given to a licensee, that licensee must promptly deliver it to the licensee’s related brokerage, and, in turn, the brokerage must promptly place it in the brokerage’s trust account. Sometimes, the seller and buyer agree that a deposit will be payable on acceptance or within a stated time period. The following alternative methods of providing for the payment of a deposit are common:

(a) the Contract of Purchase and Sale may provide that the deposit is payable within a specified period of time after the acceptance of an offer. In this case, the following clause should be used in the contract:

Deposit Payable Within a Specified Period Clause

Deposit to be payable within(number of hours) hours of acceptance of this offer.

(b) the Contract of Purchase and Sale may provide for a small initial deposit payable within a specified period of time after the acceptance of an offer, which is to be increased to a specified amount upon removal of conditions precedent. In this case, use the following clause in the contract:

Increase of Deposit Clause

The deposit will be increased to $ (amount) upon removal of all conditions precedent. 

Pursuant to section 28 of RESA, a brokerage which receives a deposit holds that deposit as a stakeholder once there is an agreement between the parties for the acquisition and disposition of the real estate. Once there is this agreement, the brokerage does not hold the funds as an agent for one of the parties to the transaction. Therefore, once this agreement is in place, the brokerage can then only return the deposit to one of the parties to the transaction by express agreement between the parties.

If the buyer advises the brokerage that he or she has stopped payment or intends to stop payment on the deposit cheque before it has been deposited, the brokerage should advise the buyer that it is obligated under RESA to deposit the cheque as soon as possible. In this situation, the brokerage must deposit the cheque and then inform the seller or the seller’s agent of the situation without delay. The brokerage should advise the seller to obtain legal advice as to their position vis-a`-vis the buyer.

(viii) NSF Deposit Cheques

If a buyer’s deposit cheque is returned NSF (not sufficient funds) or is otherwise dishonoured, there are three possible explanations. The first is that there has been an honest mistake by either the buyer or the buyer’s bank. The second possibility is that the buyer has no money or, finally, the buyer is engaged in some improper scheme.

Section 3-2 of the Rules requires an associate broker and a representative to immediately notify the managing broker if an anticipated deposit cheque has not been received or has not been honoured. Section 3-1 of the Rules requires the managing broker to ensure that all parties to the agreement are immediately notified if a deposit cheque is not received or is not honoured. Provided the seller agrees, it is permissible to contact the buyer and to allow the buyer a very short period of time within which to provide a certified cheque, a bank draft or money order. Where the deposit money is not replaced, the seller must be fully advised of the situation and advised to obtain legal advice as to whether or not the contract is still binding and whether or not the seller has a claim against the buyer.

(ix) Deposit To Bear Interest

As licensees are aware, the wording in the Contract of Purchase and Sale states ‘‘Deposits to be held in trust in accordance with the provisions of the Real Estate Services Act’’. As not all consumers may be aware that the intent of this wording means that interest is paid to the Real Estate Foundation, licensees should ensure that they familiarize themselves with their brokerage’s policy with respect to interest on trust deposits. Further, licensees should have a discussion with their clients with respect to this policy and, where a client requests that the deposit is to be placed in an interest bearing trust account, the following clause should be added to the Contract of Purchase and Sale.

Deposit To Bear Interest Clause

This deposit is to be placed in an interest-bearing trust account with interest accruing to the benefit of the (select either Buyer or Seller) .

Licensees should check with their managing broker as to the minimum amount and time frame which their company requires in order to pay interest. Also, the buyer’s Social Insurance Number (SIN) should be obtained for income tax purposes.

(x) Deposits Held by Third Parties

If a deposit is to be held by someone other than a real estate brokerage, a licensee acting for a party to that trade should advise that party to obtain legal advice to ensure there is no concern about either how the deposit is to be held, or the terms upon which it may be released.

If a licensee is to hold or receive the deposit for the purpose of delivering it to a third party, the parties must sign a separate written agreement that disapplies sections 27(1) and (2) of RESA insofar as that licensee is concerned.

If a deposit is related to a trade involving a development unit subject to the requirements of the Real Estate Development Marketing Act, a licensee acting for a party to that trade should determine that the person holding that deposit, whether that be their own related brokerage or someone else, is aware that it is being held under the provisions of the Real Estate Development Marketing Act, not RESA.

Section 27(1) of RESA requires that licensees promptly deliver to their related brokerage any monies they hold or receive from, for or on behalf of a principal in relation to real estate services. Section 27(2) of RESA requires the brokerage to promptly deposit these monies into a brokerage trust account. It is important to understand that section 27 of RESA applies whenever a licensee holds or receives this money. However, there are scenarios where the parties to a trade wish someone other than a brokerage involved in the trade to hold the deposit.

(xi) Deposit To Be Held by Someone Not Regulated under RESA

[updated September 2015]

The parties may agree that one of the parties’ lawyers, a notary public, accountant, or indeed anyone that the parties mutually agree upon, is to receive the deposit. This agreement should be detailed in the Contract of Purchase and Sale. However, if a cash deposit is to be given to a licensee so that that licensee can deliver the cash to the person who is to hold it, another step is necessary.

Section 27(4) describes that additional step. It requires that the seller and buyer enter into a separate written agreement which essentially relieves the licensee and the related brokerage of their obligation to deposit the money into the brokerage’s trust account. Once this separate written agreement has been executed, and the deposit clause in the Contract of Purchase and Sale has been properly amended, the licensee must ensure that the deposit is delivered to the person who is supposed to receive it.

NOTE: Following amendments to RESA in 2015, unless the money received is cash, a separate written agreement is no longer required, so long as the brokerage takes no action in relation to the money other than to deliver it to the person to whom it is payable. If the money is cash, a separate written agreement is still required.

To demonstrate, assume that the seller and buyer have agreed that a deposit of $1,000 is to be held by the seller’s lawyer Joe Smith. Randy Ready of ABC Realty, the buyer’s agent who is drafting the contract on behalf of the buyer, has agreed to deliver the deposit to Joe Smith. Paragraph 2 of the ‘‘standard’’ Contract of Purchase and Sale states, in part, the following:

‘‘2. DEPOSIT: A deposit of $1,000, which will form part of the Purchase Price, will be paid on the following terms:All monies paid pursuant to this section (Deposit) will be delivered in trust to [Name of the Party to Hold the Deposit] and held in trust in accordance with the provisions of the Real Estate Services Act.’’

The seller’s lawyer is not licensed under RESA and takes his instructions from the seller. He is not obliged to hold the deposit "in trust in accordance with the provisions of the Real Estate Services Act." Therefore, the deposit clause should be amended as follows:

‘‘2. DEPOSIT: A deposit of $1,000 which will form part of the Purchase Price, will be paid on the following terms: within 24 hours of acceptance of this offer.

All monies paid pursuant to this section (Deposit) will be delivered in trust to the Seller’s lawyer, Joe Smith. The Seller will provide irrevocable instructions to Mr. Smith to hold the Deposit in trust in accordance with the provisions of the Real Estate Services Act.’’

In this scenario, the deposit cheque should be made payable to ‘‘Joe Smith, In Trust.’’ No separate written agreement is necessary if the licensee is only to deliver the deposit cheque to the lawyer. If  the deposit in this scenario is in the form of cash, a separate written agreement under section 27(4) of RESA is still required, and that separate written agreement should contain the following components:

Agreement Under Section 27(4) of the Real Estate Services Act (where money is to be held by someone who is not a licensee)

Dated:

Re:(‘‘Property’’)

Between:(‘‘Seller’’)

and:(‘‘Buyer’’)

and:(‘‘Brokerage’’)

With respect to the Contract of Purchase and Sale dated(Contract) in respect of the Property, the Seller and Buyer agree that(Licensee), is not required to deliver monies received from the Buyer or Seller pursuant to the Contract to the Brokerage pursuant to section 27(1) of the Real Estate Services Act nor is the Brokerage required to deposit those monies in its brokerage trust account pursuant to section 27(2) of the Real Estate Services Act.

Signed:

Seller

Buyer

Licensee on behalf of the Brokerage

Deposit To Be Held by Another Licensed Brokerage Not Otherwise Involved in the Trade

Some brokerages have entered into service agreements with another brokerage whereby the second brokerage (the ‘‘Holding Brokerage’’) agrees to hold deposits in relation to trades involving the first brokerage — the ‘‘Service Brokerage’’. In these circumstances, section 7-1.1 of the Rules requires that there be a separate written agreement under section 27(4) of RESA wherein the parties agree that the deposit will be paid to the ‘‘Holding Brokerage’’. Section 7-1.1 of the Rules also requires that the ‘‘Holding Brokerage’’ deposits the money into a separate brokerage trust account maintained in the name of the ‘‘Service Brokerage’’.

To demonstrate, Randy Ready is licensed with ABC Randy Realty, which has entered into an agreement with ABC Big Realty to provide trust accounting services for ABC Randy Realty. When Randy writes offers, the deposit clause reflects this, but Randy typically agrees to deliver the deposit cheque when received.

In this scenario, because the deposit is to be held by another brokerage, that brokerage is governed by RESA. If other deposit details are the same as in the first scenario, the Deposit clause should read as follows:

‘‘2. DEPOSIT: A deposit of $1,000 which will form part of the Purchase Price, will be paid on the following terms: within 24 hours of acceptance of this offer.’’

‘‘All monies paid pursuant to this section (Deposit) will be delivered in trust to ABC Big Realty and held in trust in accordance with the provisions of the Real Estate Services Act.’’

In this scenario, the deposit cheque should be made payable to ‘‘ABC Big Realty, In Trust’’. The separate written agreement required by section 27(4) of RESA should contain the following components:

Agreement Under Section 27(4) of the Real Estate Services Act (where money is to be held by a holding brokerage)

Dated:

Re:(‘‘Property’’)

Between(“Seller”)

and:(‘‘Buyer’’)

and:(‘‘Brokerage’’)

With respect to the Contract of Purchase and Sale dated(‘‘Contract’’) in respect of the Property, the Seller and Buyer agree that(‘‘Licensee’’), is not required to deliver monies received from the Buyer or Seller pursuant to the Contract to the Brokerage pursuant to section 27(1) of the Real Estate Services Act nor is the Brokerage required to deposit those monies in its brokerage trust account pursuant to section 27(2) of the Real Estate Services Act but that the monies will be delivered to(‘‘Holding Brokerage’’) for deposit in a trust account established by the Holding Brokerage.

Signed:

Seller

Buyer

_ Licensee on behalf of the Brokerage

Deposit To Be Held Pursuant to the Real Estate Development Marketing Act

When the trade involves a development unit, as defined under the Real Estate Development Marketing Actsection 18 of that legislation applies. Section 18(1) of the Real Estate Development Marketing Act states that: ‘‘A developer who receives a deposit from a purchaser in relation to a development unit must promptly place the deposit with a brokerage, lawyer, notary public or prescribed person who must hold the deposit as a trustee in a trust account in a savings institution in British Columbia.’’

Deposits are held as a trustee under the Real Estate Development Marketing Act, which is different from how they are held as a stakeholder under RESA. One of the significant differences is that there are certain triggering events which, when they occur, oblige the trustee to release the deposit to the developer. This release takes place without the type of signed agreement of the parties required under RESA.

There is a link in the wording between RESA and the Real Estate Development Marketing Act with respect to the treatment of deposits. RESA requires that deposits received by a brokerage under section 18 of the Real Estate Development Marketing Act be dealt with in accordance with the Real Estate Development Marketing Act.

If the ‘‘standard form’’ Contract of Purchase and Sale is used for a trade related to a development unit that is subject to the provisions of the Real Estate Development Marketing Act, the phrase in the deposit clause shown in scenarios 1 and 2 above that states the deposit will be ‘‘… held in trust in accordance with the provisions of the Real Estate Services Act’’ essentially means the deposit must be held in accordance with the Real Estate Development Marketing Act.

Therefore, brokerages which hold deposits related to trades that are subject to the Real Estate Development Marketing Act should familiarize themselves with the requirements of that legislation. Further information is also available on the Financial Institutions Commission website www.fic.gov.bc.ca by following the links ‘‘Real Estate > Frequently Asked Questions’’.

It is also important to recognize that scenarios 1 and 2 above also apply to trades that are subject to the Real Estate Development Marketing Act. If a licensee is going to hold or receive a deposit which the parties have agreed will be delivered to and held by someone other than that licensee’s related brokerage, a separate written agreement must be obtained.

Other Requirements Where the Deposit Will be Held by Someone Other Than a Licensed Brokerage

One other issue was that licensees had not advised their clients to seek legal advice where the deposit was not to be held by a brokerage under RESA. The Council recommends that licensees advise clients to obtain such advice in any circumstance where a deposit is going to be held by a third party other than a real estate brokerage, including by one of the parties to the transaction.

Licensees should confirm such a recommendation to the seller or buyer by inserting one of the following clauses into the Contract of Purchase and Sale:

Legal Advice re: Deposit Clause

(name of Seller or Buyer) hereby acknowledges that (name of licensee) has advised them to obtain independent legal advice before signing or accepting this contract with respect to the arrangements for holding the deposit money in this transaction.

OR

Lawyer Approval of Deposit Arrangement Clause

Subject to the (select either Seller’s or Buyer’s) lawyer approving on or before (date) the arrangements for holding the deposit money in this transaction.

This condition is for the sole benefit of the (select either Seller or Buyer) .

Ω If not using the standard form Contract of Purchase and Sale, refer to ‘‘Contracts under Seal’’.

If the deposit is not in the trust account of a brokerage but rather in the account of a lawyer/notary, then the licensee must confirm in writing, with the signatures of all parties to the contract, that the deposit is being held by the lawyer/notary as a ‘‘stakeholder’’ and not in trust for one of the parties to the transaction.

Licensees should be aware that some developers have created their own form of Contract of Purchase and Sale for specific projects. Some of these contracts contain specific clauses directing that a buyer’s deposit is payable directly to the developer or their legal representative and not to the brokerage’s trust account.

If the developer is to hold the deposit, licensees should advise buyers that a developer governed by the Real Estate Development Marketing Act is not permitted to hold a deposit and the clause should be amended accordingly.

Refer to the sections entitled ‘‘Real Estate Development Marketing Act and New Construction’’ for further information.

Authorization To Pay Trust Money to Conveyancing Lawyer or Notary

The ‘‘standard’’ Contract of Purchase and Sale addresses deposits and states, in part:

The party who receives the Deposit is authorized to pay all or any portion of the Deposit to the Buyer’s or Seller’s conveyancer (the ‘‘conveyancer’’) without further written direction of the Buyer or Seller, provided that: (a) the conveyancer is a Lawyer or Notary; (b) such money is to be held in trust by the conveyancer as stakeholder pursuant to the provisions of the Real Estate Services Act pending the completion of the transaction and not on behalf of any of the principals to the transaction; and (c) if the sale does not complete the money should be returned to such party as stakeholder or paid into court.

The effect of this wording is to allow the brokerage that holds a deposit in trust as a stakeholder to for ward these funds to the conveyancer, without having to obtain a separate written release from both the seller and the buyer. The following sample clause is intended for use in contracts that are not drafted on the ‘‘standard’’ form.

Conveyancer as Stakeholder Clause

The brokerage that receives money in connection with this transaction is authorized to pay such money to the Buyer’s conveyancer, provided that such money is to be held in trust by the conveyancer as stakeholder pursuant to the provisions of the Real Estate Services Act, pending the completion of the transaction and not on behalf of any of the principals to the transaction, and should the sale not complete, the money should be returned to the brokerage as stakeholder.

Agreed to by Seller:

and Buyer:

There are two important issues to note:

  • This pre-authorization 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.
  • This clause 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. An agent who releases funds to a lawyer or notary under this authority must still clarify the stakeholder role directly with the conveyancer. This can be accomplished by using the following sample wording in a covering letter to the conveyancer:

Authorization To Pay Trust Money to Lawyer or Notary Clause

Enclosed is $ (amount) being the deposit money in the above-noted transaction. This money is to be held by you until completion on the following trust conditions:

1. you will hold this money as a stakeholder pursuant to the provisions of the Real Estate Services Act and not on behalf of any of the principals to the transaction;

2. upon completion you will disburse the money as provided in the Contract of Purchase and Sale and, should the sale not complete, you will, upon request, repay the money to us in trust as stakeholder; and

3. if you are unable to comply with these trust conditions, you will return the said money to our office.

Regardless of who is acting as the stakeholder, the following clause should be used to clarify the obligations of that stakeholder:

Third Party Holding Deposit Clause

The deposit will be held in trust by (name of third party, e.g., conveyancer/notary/builder) as a stakeholder pursuant to the provisions of the Real Estate Services Act pending the completion of the transaction.

(xii) Receipt of Deposits by Developers under the Real Estate Development Marketing Act

The Real Estate Development Marketing Act provides that when a licensee is selling new strata lots, new cooperative units, new time shares or new shared interests in land, the licensee must ensure that the buyer’s deposit is handled according to the Real Estate Development Marketing Act. A developer who receives a deposit from a purchaser must promptly place the deposit with a brokerage, lawyer, notary public or prescribed person.

Section 18 of the Real Estate Development Marketing Act provides that the deposit is held for the developer and the purchaser and not as an agent for either of them.

The Real Estate Development Marketing Act also provides when the trustee, who is holding the funds, may release them. See the section on Deposits in ‘‘New Construction’’ for more information on the release of deposits.

If the developer is not prepared to have the deposit held in trust in accordance with the Real Estate Development Marketing Act, the buyer should be advised to seek legal advice.

(xiii) Return of Deposits after Acceptance

Both contract law and RESA govern the return of a deposit where an offer or counter-offer has been accepted and the subject clauses are subsequently not removed.

Contract Law: If the offer or counter-offer is not accepted and there is no contract, 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 (are) not removed, then contract law asks the question, ‘‘What did the parties to the contract intend would happen if the subject clause(s) is (are) not removed?’’

Real Estate Services Act: Section 28 of RESA provides that unless other wise expressly agreed to in writing, a brokerage that receives money in respect of a trade in real estate holds the money as a stakeholder and not as an agent for the buyer or seller. Therefore, when a subject clause is not removed, the brokerage must obtain a separate written release containing the consent of the buyer and the seller to release the deposit.

It is the obligation of the benefiting party to use his or her best efforts 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 his or her best efforts.

If the parties to the contract do not both consent in writing to release the deposit, then the brokerage cannot release the deposit to anyone and it may remain stuck unless there is an adverse claim by the seller, in which case the deposit may be paid into court pursuant to section 33 of RESA.

(xiv) Obtaining Release Where There Is No Deposit

In instances where there is no deposit and subject clauses are not being removed, it is a wise practice to have the parties acknowledge that the contract has ended and the parties have been released of any further liabilities under the contract. 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.