Withdrawals From Trust Accounts

Published on 20 January, 2020

Mature woman standing and smiling with her team behind her.

Section 30  of RESA sets out the circumstances under which a brokerage may withdraw funds from the brokerage trust account. If the money is not held by the brokerage as a stakeholder, the money may be withdrawn as follows:

  • money paid into the trust account by mistake;

  • interest paid in accordance with section 29 [interest on trust account];
  • money authorized to be withdrawn under section 31 [payment of licensee remuneration];
  • unclaimed money transferred under section 32 [unclaimed money held in trust];
  • money paid into court under section 33 [payment of trust funds into court];
  • money paid in accordance with a court order; and
  • money paid to or in accordance with the instructions of the principal to whose credit the money is deposited.

If the money is held by the brokerage as a stakeholder, the funds may be withdrawn if any of the above circumstances, except the last bullet, apply or in accordance with a written agreement of the parties to the trade in real estate.

Section 30 of RESA does not apply to funds held under the Real Estate Development Marketing Act  — will open in a new tab (“REDMA”).

Payment Of Licensee Remuneration

Section 31 of RESA requires that before any funds may be paid out as remuneration, the money must have been earned.

Money Must Be Earned

Section 31 of RESA and section 5-15 of the Rules set out when money in a brokerage trust account that is intended as remuneration may be withdrawn from the brokerage trust account.

Section 5-15 of the Rules sets out the circumstances under which funds are considered earned. If the funds are held by the brokerage as a stakeholder, the funds are considered earned and may be paid out as follows:

  • if the money is held in respect of a transaction for the leasing of real estate, 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, other than a transaction for the leasing of real estate, on the date on which the real estate is transferred;
  • in any other case, on the date on which the documents effecting the transfer are submitted to the Land Title Office for registration.

If, however, the service agreement establishes a time for the payment of the remuneration that is later than the time noted above, the remuneration must be paid out in accordance with the service agreement.

Occasionally, situations arise where, prior to the completion date of a contract, the contract has been assigned to a new buyer. In the case of an assignment, which is not a transfer that is registrable in the land title office, section 5-15(2)(b) of the Rules permits the commission to be earned on the date on which the assignment is executed. Therefore, in this situation, a brokerage can withdraw money it holds in trust that is intended as remuneration on the date the assignment is executed by the parties to the assignment. It would not be necessary for the brokerage to wait for the actual completion date of the original contract.

It should be noted that the brokerage can only pay commissions from monies it is holding in trust pursuant to the assignment agreement, and not from the original deposit it may be holding as a stakeholder pursuant to the original Contract of Purchase and Sale unless the seller and assignee otherwise agree in writing pursuant to section 28(2)(a) of the Real Estate Services Act. In that regard, if buyer #1 agrees that the licensee is to be paid his or her commission at the time the assignment to buyer #2 is executed rather than on the completion of the original contract, then the service agreement, whereby the licensee was engaged to assist in marketing the assignment, must reflect this.

Money held by a brokerage other than as a stakeholder may be paid out in accordance with the service agreement or as otherwise agreed to in writing by the client.

Money Paid Out From Brokerage Trust Account

Once funds may be paid out, section 31 of RESA also prescribes the manner in which they must be paid. Money in a brokerage account that is intended as remuneration may be withdrawn from the account when it is earned. Money to be paid to another brokerage must be paid directly out of the brokerage trust account. Remuneration paid to a licensee engaged by the brokerage must be paid either directly to the licensee out of the brokerage trust account or to a commission trust account and from that account to or on behalf of the licensee.

Assignment Of Licensee’s Remuneration

Licensees may assign their remuneration to a third party, in some circumstances. Remuneration can be assigned to creditors, for example. A brokerage, if so directed by a licensee, paying the licensee’s remuneration directly to a third party, would not be in breach of section 6-1 of the Rules. It is recommended that any assignment of remuneration be in writing and a copy be kept on file by the brokerage.

The stipulation in assigning a licensee’s remuneration is that the person to whom the remuneration is assigned must not be paid for providing services for which a licence is required. In other words, the remuneration cannot be assigned as a means of paying an unlicensed individual or a corporation that is not a Personal Real Estate Corporation, but that is in effect operating as a Personal Real Estate Corporation by receiving remuneration for services provided by that licensee. If licensees want their remuneration to be paid to a corporation rather than to them personally, this may be accomplished by incorporating and obtaining a licence to operate as a Personal Real Estate Corporation.

An assignment of remuneration has no impact on the reporting of taxable income. Following an assignment of remuneration, the brokerage’s records must continue to show the remuneration as being earned by and paid to the licensee.

Payment Of Remuneration After Licensee Has Transferred To Another Brokerage

There are situations in which a licensee has a listing while licensed with Brokerage A and has written a firm and binding Contract of Purchase and Sale while licensed with Brokerage A and then transfers his or her licence to Brokerage B before the completion of the transaction and payment of commission. When Brokerage A receives the commission, the question arises whether Brokerage A may pay the commission owing to the licensee directly to the licensee or does Brokerage A have to pay the new Brokerage, which in turn will then pay the licensee.

If the commission is earned in accordance with the service agreement (section 5-15(3)(a) of the Rules) and the real estate services were provided by Brokerage A when the licensee was either engaged by Brokerage A or had transferred his or her licence to Brokerage B, then Brokerage A may pay the commission to the licensee directly. This would be the same if Brokerage A provided the real estate services and the property was sold after the licensee transferred his or her licence to Brokerage B.

However, if the file is transferred to Brokerage B along with the licensee, and the licensee performs real estate services in relation to the said property while licensed with Brokerage B, then, when the property sells, completion occurs, and the commission is due, Brokerage B must pay commission owing to the licensee.

Third Party Payments From Commission Trust Account

In some cases, brokerages are requested to pay money from the brokerage commission trust account to a third party in situations where the third party is owed money by a licensee engaged by the brokerage. For example, money may be owed to Canada Revenue Agency or be payable pursuant to a court order. Money may be paid from the brokerage commission trust account to a third party as long as the licensee’s consent was first obtained by the brokerage. However, where there is a court order, such as a garnishing order against the commission trust account or where the brokerage and licensee in question were named in a court order, the brokerage would not be required to obtain the consent of the licensee to pay the funds out of the commission trust account to the party identified in the court order.

Brokerages must ensure that any funds paid to a third party on behalf of a licensee are paid from the commission trust account and not from the brokerage trust account.

Further Information About Payment Of Remuneration To Licensees

To assist brokerages in determining how to pay a related licensee, RECBC has published a policy statement entitled “Brokerage Trust Account Policy Statement”.

Pre-closing Commission Advances

For many years it has been a common practice for developers to offer licensees who represent their buyer-clients, in the purchase of pre-sale development units, a portion of the selling commission, within a month or two of the pre-sale contract being entered into, although completion may be years away. Most usually and understandably these advances come with strings attached; if the sale doesn’t complete the advanced portion of the commission is to be repaid to the developer.

Section 5-15(4)(a) of the Rules provides that money held by a brokerage that is not stakeholder money*, may be withdrawn in accordance with a service agreement or other agreement under which the applicable real estate services are provided. When a developer offers to pay a commission advance, the licensee is usually presented with and asked to sign, on behalf of their brokerage, an agreement that sets out the terms under which the commission is being advanced, including the provision that in the event that the deal does not complete, the brokerage will repay that amount. As such, if the brokerage then pays out the advanced commission to the licensee, the brokerage itself has taken on a contingent liability to repay the advance, in the event of a collapsed sale.

Where commissions have been advanced and sales subsequently collapse, if the money is not voluntarily repaid, like any creditor the developer would presumably have to sue the brokerage. The brokerage, in turn, would then have to try to collect from the licensee. It appears that both the developer and the brokerage, when they participate in pre-paying commissions, are taking a calculated risk, as does the licensee who doesn’t maintain a contingency fund against some pre-sale trades collapsing.

These circumstances may become particularly acute if a number of licensees in a particular brokerage have sold multiple units in developments, with a number of sales collapsing, when market conditions take a turn for the worse.

Given the thousands of presales that occur each year in the Province, it is not difficult to imagine the potential impact on the solvency of a brokerage that has paid out many advances, if pre-sale trades collapse and the commission advance liabilities are no longer contingent but rather are current. The implications are of particular concern if the now current liabilities exceed the financial resources of the brokerage and the licensees are unable or unwilling to repay the brokerage.

It is suggested that brokerages seek professional advice with respect to their policies on the pre-payment of commissions and the related accumulation of contingent liabilities. Additionally, all commission advances, that are repayable in the event of a collapsed sale, should be recorded by the brokerage and reported to the brokerage’s external reporting accountant as contingent liabilities.

* Advance commissions may not be withdrawn from funds being held as a stakeholder; i.e. a buyer’s deposit may not be used to pay advance commissions. Advance commissions must be paid to the brokerage directly by the party who has agreed to pay them – in this case the developer.

Payment Of Referral Fees To Unlicensed Persons

A licensee may wish to pay a referral fee to an unlicensed person. This is permitted as long as the unlicensed person does not solicit, for the purpose of making a referral, the names of persons who may want to buy or sell real estate; the practice of making referrals is not their primary business and the person making the referral does nothing else that requires the individual to be licensed under RESA e.g. the provision of “real estate services” as defined in section 1 of RESA.

The brokerage may pay these fees in the following way:

  • the licensee may pay the referral directly;

  • the licensee may assign a portion of their commission to that individual and the brokerage may pay that individual out of the commission trust account; or
  • if the brokerage is paying the third party for the referral, out of the brokerage general account.

Note that it may be useful to obtain independent accounting advice with respect to any tax implications that may be associated with the payment of referral fees to unlicensed persons.

Payment Of Referral Fees To Other Licensees

Licensees must only receive remuneration related to the provision of real estate services from the brokerage with which they are licensed. Therefore, any form of remuneration, including referral fees, must be paid to the related brokerage for disbursement to the licensee. This payment must be made from the brokerage trust account, in compliance with section 31(2)(a) of RESA.

Payment Of Remuneration, Including Referral Fees, To A Former Licensee

One issue which occasionally arises is the payment of remuneration, including referral fees, to a person who has surrendered their licence. That person may receive remuneration for the services that were provided when they were licensed. For example, if trades complete after the licensee surrenders their licence, that person may still be paid after their licence is surrendered for those services that were provided when still licensed. However, it must be understood that the person cannot continue to provide services that require licensing after they have surrendered their licence. As noted above, this would include soliciting the names of persons for the purposes of making referrals, as this is an activity that requires licensing.

Managing brokers are responsible for ensuring that the business of their related brokerage is carried out in accordance with the requirements of the legislation. Before paying out a referral fee a managing broker should ensure that

  • if the person who is to receive the referral fee is unlicensed, they satisfy the conditions bulleted in The payment of referral fees to an unlicensed person section above,

  • any required disclosure has been made, and if it has been made in writing, a copy of the disclosure has been retained in the deal file, and
  • details of the referral fee paid, and the person to whom it has been paid, are recorded in the trade record sheet.

If the referral fee is paid by a brokerage in relation to trading services and not in connection with a trade in real estate for which a trade record sheet is required, or if a referral fee is paid by a brokerage in relation to strata management or rental property management services, section 8-5.2 of the Rules requires that the following information be retained in a form approved by RECBC:

(a) the amount of the referral fee;

(b) the date on which the brokerage paid the referral fee;

(c) a description sufficient to identify the purpose for which the referral fee was paid;

(d) the name of the licensee on whose behalf the referral fee was paid; and

(e) the name of the person to whom the referral fee was paid.

Receipt Of Referral Fees

In addition to the disclosure of remuneration requirements detailed above, it should be noted that all referral fees received in relation to real estate services, being a form of remuneration, must be received through the brokerage with which the licensee is engaged. They cannot be paid directly to the licensee.

If the referral fee is received in relation to trading services which require the brokerage to prepare a trade record sheet, for example when the brokerage or a related licensee acts for one of the parties in the trade, a record of the receipt of that referral fee must be recorded in the trade record sheet.

Whenever a brokerage receives a referral fee in relation to real estate services, and the only trading service provided by the brokerage is the referral of a person to a licensee or a licensee to a person for the purposes of a licensee providing real estate services, or when a referral fee is received by a brokerage in relation to strata management services or rental property management services, section 8-5.1 of the Rules requires the brokerage to prepare and maintain a record, in a form approved by RECBC, that includes the following information:

(a) the amount of the referral fee;

(b) the date on which the brokerage received the referral fee;

(c) a description sufficient to identify the activity undertaken by the brokerage or related licensee for which the referral fee was received;

(d) the name of the person who paid the referral fee; and

(e) the name of every person to whom any amount of the referral fee is paid and the date of such payment.

More information about the receipt and payment of referral fees may be found in the Professional Standards Manual at this link.

Payment Of Trust Monies To Conveyancer

Section 30(2)(b) of RESA permits funds to be withdrawn from a trust account in accordance with a written agreement of the parties to the trade in real estate.

Member boards/associations of the British Columbia Real Estate Association have adopted a “standard” Contract of Purchase and Sale. Clause 2 of that contract 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 RESA 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 forward these funds to the conveyancer without having to obtain a separate written release from both the Seller and the Buyer. Similar wording is available in the Professional Standards Manual for use in contracts that are not drafted on the “standard” form. 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; and

  • 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. A brokerage that 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 as follows:

“Enclosed is $(amount) being the deposit money in the above noted trade in real estate. 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 trade in real estate;

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 funds to us in trust as stakeholder; and

3. If you are not able to comply with these trust conditions, you will return the said money to our office.”

When paying funds to the conveyancer, the funds must be paid directly from the brokerage trust account.

If an increase in the deposit is to be paid into a conveyancer’s trust account, care should be taken that a “stakeholder” undertaking is first obtained. See section on “Stakeholder Provisions” for further information.

Failure to follow the foregoing procedure may result in the conveyancer refunding the money to the buyer without looking after the interest of the seller.

When the deposit held by the brokerage exceeds the amount of the commission, the brokerage must still obtain written direction from both parties, or their respective conveyancers, to release such excess.

When a brokerage holds a deposit and receives written direction by the parties to the trade in real estate to pay the deposit to another party, such as a lawyer or notary public, the brokerage should carefully consider its position in terms of protecting its right to receive a commission upon completion of the trade in real estate. The brokerage may send the funds to the lawyer or notary on an undertaking that the commission will paid in full to the brokerage upon completion of the trade in real estate, and in the event that the trade in real estate did not complete, the whole of the deposit would be repaid to the brokerage, who would then continue to hold the deposit in trust pending an agreement of the parties or a court order.

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.

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.

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.

RECBC 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. RECBC 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 RECBC’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))

 

Discharge Of Stakeholder Obligation In A Conflict

[updated September 2010]

Where there are disputes over the release of money which a brokerage is holding as stakeholder, if the person demanding the money does not apply to the court, the brokerage may make application to the Supreme Court to have the money paid into court. Once the money is paid into court, the brokerage is discharged from any further liability in connection with those funds.

Under the Supreme Court Rules, that came into effect July 1, 2010, a brokerage can pay the disputed money it is holding into court pursuant to Rule 8-4(1) of the Supreme Court Rules [Applications of Which Notice is Not Required]. The Court will charge a fee to file the application. It is strongly recommended that the brokerage consult a lawyer because of the variations that can occur in individual instances. The procedure to pay the deposit into court under section 33 of RESA includes the following steps:

  • The brokerage should send a letter to all parties involved in the trade in real estate by ordinary mail to advise them that because there are adverse claims on the money held in trust, the brokerage has no alternative but to apply for an Order that the money be paid into court, and that the brokerage will be in touch with the parties again once the necessary Order has been obtained.

  • When a brokerage applies for an Order under section 33 of RESA, the brokerage must file an affidavit pursuant to section 33(2) of RESA setting out the following:
    • 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; and
    • particulars of any claim for remuneration by the brokerage or a related licensee of that brokerage, arising out of the real estate services. This claim, as part of the application for the Order, may include filing fees and other costs associated with the brokerage obtaining the Order.
  • Here are samples of the Form 31 [Requisition for Consent Order or for Order Without Notice]   — will open in a new taband Form 35 [Order Made After Application]  — will open in a new tab used for filing Court Orders.
  • The Requisition should be prepared to the Court Registry stating that the brokerage is proceeding under Rule 8-4(1) of the Supreme Court Rules for an Order under section 33 of RESA.
  • The Order should be prepared which is sent into court with the brokerage’s Requisition and is approved by the Court Registry staff and returned to the brokerage.
  • A copy of the brokerage’s Order should be sent to all parties to the trade in real estate and receipt of the Order should be acknowledged by them.
  • The money in the form of a cheque made payable to the Minister of Finance should be sent to the court with a Requisition and a copy of the Order. The brokerage will receive a receipt that should be placed in the brokerage’s file.

At this point, the process should be complete and the brokerage should now be discharged.

While the brokerage is performing a useful service if it can facilitate a resolution between the seller and buyer, it should be recognized that this often becomes extremely time-consuming and in some circumstances, including dual agency, practically impossible. Usually, after reasonable attempts have been made to resolve the matter, the preferred approach for a brokerage seeking to be discharged from its stakeholder obligations is to pay the deposit into the court.

Where a disputed deposit is being paid into court in order to discharge the brokerage’s obligations, the brokerage should not withhold its commission as the matter of entitlement to the deposit money has not been settled and the brokerage’s only claim, normally, is against the seller. The brokerage may apply for a court order that the brokerage was entitled to withhold an amount as commission.

When the whereabouts of a person entitled to the deposit is unknown, or when there is no person capable of giving a valid release, or when attachment procedures have been taken in respect of the deposit money, the brokerage may be able to transfer the trust monies to the BC Unclaimed Property Society pursuant to the Unclaimed Property Act  — will open in a new tab. See section on “Unclaimed Money” for further information.

Funds Held Under The Real Estate Development Marketing Act

Deposits that are received by a brokerage under the Real Estate Development Marketing Act   — will open in a new tab(“REDMA”) may only be dealt with in accordance with that Act.

Section 18(1)  — will open in a new tab of REDMA requires a developer who receives a deposit from a buyer to place the deposit with a brokerage, lawyer or notary public. In every case, the person receiving the deposit must hold the deposit as the trustee in a trust account in a savings institution in British Columbia. Section 18  — will open in a new tab of REDMA also provides that the trustee holds the deposit for the developer and the buyer and not as an agent for either of them.

Under section 18(3)  — will open in a new tab of REDMA the trustee must release the deposit to the developer if the developer certifies in writing that:

(a) the purchaser who paid the deposit has no right to rescission,

(b) if required, the subdivision plan, strata plan or other plan has been deposited in the appropriate land title office,

(c) the approvals required for the lawful occupation of the development unit have been obtained, and

(d) as applicable,

(i) if all or part of the purchaser’s interest in the development unit is registrable in a land title office, the interest has been registered in the appropriate land title office and an instrument evidencing the registration has been delivered to the purchaser, or

(ii) if all or part of the purchaser’s interest in the development unit is not registrable in a land title office, an instrument evidencing the interest of the purchaser has been delivered to the purchaser.

Pursuant to section 18(4)  — will open in a new tab of REDMA, a trustee must release the deposit to the developer if the developer certifies in writing that:

(a) the purchaser who paid the deposit has no right of rescission,

(b) the purchaser has failed to pay a subsequent deposit when required by the purchase agreement under which the deposit held by the trustee was paid,

(c) under the terms of the purchase agreement, if the purchaser fails to pay a subsequent deposit when required, the developer may elect to cancel the purchase agreement and, if the developer elects to cancel the purchase agreement, the amount of the deposit is forfeited to the developer, and

(d) the developer has elected to cancel the purchase agreement.

In all other cases, unless the money was paid into the trust account in error or the developer is permitted to use the deposit, as discussed below, the funds may not be paid to the developer.

A developer is permitted to use the deposit pursuant to section 19  — will open in a new tab of REDMA if the developer has entered into a deposit protection contract in relation to the deposit. A trustee may release the deposit to the developer upon receiving from the insurer the original or a true copy of the deposit protection contract in relation to the deposit that the trustee holds.

The trustee is permitted to release the funds to the buyer in accordance with the rescission rights created under REDMA.

Acceptable Method Of Withdrawal

Brokerages must ensure that an appropriate audit trail is maintained for trust account disbursements. The use of cheques to withdraw funds from the trust account and to transfer funds between clients’ subsidiary trust ledger sheets creates an acceptable audit trail. Additionally, electronic transfers are permitted as long as the appropriate internal controls are in place to ensure compliance with the trust account bank mandate. In other words, before transferring trust funds electronically, the brokerage must ensure that it is authorized in writing to transfer the funds and if more than one signature is required to transfer the funds, those signatories must sign the document authorizing the transfer of funds.

ALERT!

Brokerages should be aware that the following practices are serious contraventions of RESA and the Rules:

  • commissions being withdrawn from the trust account prior to the registration of the relevant documents;

  • round sum transfers of commissions made from the trust account without reference to the commissions earned on specific trades in real estate;
  • not keeping adequate books up-to-date;
  • cheques being written in excess of funds deposited to a client’s credit;
  • disbursements of funds from the general account that should have been disbursed from the trust account(s).