What an interesting start to this year for 2019 with two agents sentenced with corrections orders for trust account frauds and thefts. In both of these cases, which have only just been heard in the Courts (even though they are offences dating back as far as 2013), the main offence was misusing sales deposits.
As we start the new year, it is a great opportunity for us to remind agents of the processes involved when dealing with sales deposits. Section 88 of the Property, Stock and Business Agents Act is pretty clear about the restriction on an agent using trust monies:
88 Trust money not available to pay licensee’s debts
- Trust money is not available for the payment of the debts of the licensee to any other creditor of the licensee, or liable to be attached or taken in execution under the order or process of any court at the instance of any other creditor of the licensee.
- This section does not take away or affect any just claim or lien that any licensee may have against or upon trust money.
We do understand that an agent may get paid from the trust deposit. However, the agent cannot make that assumption at any time throughout the process, and decide to withdraw their commission prior to proper authorisation.
The deposit is not the money of the agent, the agent is not a stakeholder and as such the agent has no right to withdraw funds or use funds until the authorisation has come through for the agent to withdraw any fees owed to them from that money.
Remember that you as an agent get paid your commission and any other fees owing (such as advertising) by the vendor. The money that you are holding in trust, does not solely become the vendor’s money until settlement. At that point, the vendor (or their legal representative) will give you the authority to pay yourself your commission and any fees.
One of the only times an agent should be involved in an early release of deposit monies is when the vendor requires the deposit to enable them to pay a deposit on a property purchase. In this case, there would be a number of steps required for an agent to follow prior to that release:
- Receive proper authorisation – in writing from the legal representative of both the purchaser and the vendor. This is important because while the money has been paid by the purchaser at the unconditional exchange of contracts, the money is technically due to the vendor at settlement or rescission by the purchaser. Until such settlement or a rescission of contracts occurs, the money is still the funds of the purchaser.
- If the funds required include what should be paid to the agent in commission and fees, a letter from you as the agent advising the vendor’s solicitor or conveyancer that the money is to be released, confirming where it is being paid to and that a tax invoice will be provided for payment of commission prior to settlement.
- Provide the tax invoice to solicitor or conveyancer after confirmation of the date of settlement to ensure you get paid at settlement.
Our final tip in this matter is to those of you who are the Licensee-In-Charge of an agency. Should you find an issue with your trust accounts because of your own actions or the actions of one of the agents that work within your agency, you must advise NSW Fair Trading within 5 days of being aware of an issue. It is better for you to advise them than it is for them to find out should they pop into your office for a random audit.
‘Til next time,
Wishing you every success in your business ventures,
Australian College of Professionals
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