4. Management of trust accounts
For any amount held in trust, it is essential to know the name of the person paying the amount. Knowing for whom an amount is held in trust will, among other things, help determine in whose name the trust receipt should be issued and to whom the amount should be reimbursed, if applicable.
4.1 Receipt of a cash amount
4.2 Deposit of a trust amount
4.2.1 Deposit of sums following an LIMC’s decision
4.3 Payment refused by the financial institution or amount not received on time
4.4 Withdrawal of a trust account
4.5 Withdrawal of an amount as advance on remuneration or costs
4.6 Withdrawal of an amount as earnest money
4.7 Withdrawal of an amount as a security or guarantee deposit
4.8 Withdrawal of an amount to offset remuneration
4.9 Deposit from a seller who no longer wants to sell or a buyer who no longer wants to buy
4.1 Receipt of a cash amount
When a licensee receives a sum in cash, he must give the depositor a Receipt of a cash amount containing the mandatory information set out in the regulations and keep a copy on record.1
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Attention - The mandatory information that must be entered in the receipt includes the depositor’s name, address, date of birth and occupation. Therefore, in the case of a transaction where the depositor acts through a broker or agency other than the broker or agency trustee, the latter will be required to obtain this mandatory information from the depositor.
For more information on the obligations relating to large cash transaction reports (LCTR), see the Guideline - Preventing money laundering and real estate fraud.
4.2 Deposit of a trust amount
Any deposit received for others must be deposited or transferred directly to the trust account without going through the broker's or agency's transaction account.
As soon as a licence holder has deposited a sum into a general or special trust account, or the sum has been deposited in trust by electronic transfer, the licence holder must give the depositor a receipt with a number, from a series of consecutive numbers, attributed to the receipts the licence holder issues.
The licence holder must keep a duplicate of the receipt in his or her records. The receipt must be signed by the person authorized by the licence holder and include the mandatory information set out in the regulations.2
The receipt serves as confirmation that the deposit has been made and benefits from the protections offered by Real Estate Indemnity Fund (FICI) of up to $100,000 per claim. This deposit is also protected by deposit insurance which insures trust account deposits if they meet the guarantee conditions.
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Attention - The depositor’s name, which must appear on the receipt, is not necessarily that of one of the parties to the transaction. For example, the amount of money could come from the parents of a party to the transaction or from a natural person when the party to the transaction is a legal person.
4.2.1 Deposit of sums following an LIMC’s decision
An agency broker may have conditions and restrictions imposed on his licence, following a decision by the OACIQ Licence Issue and Maintenance Committee (LIMC), pursuant to section 38 (2) of the Real Estate Brokerage Act. Therefore, the agency within which he carries on his activities licensee may hold in trust the GST and QST payable to him, as a real estate broker, until he is required to remit them along with his tax return.
The same obligations of entering into and maintaining a written agreement may also be imposed on the agency so that the latter holds in trust a percentage of broker’s compensation to pay his taxes.
In both cases, the agency will need to ensure that these sums are deposited in the general trust account, that they are managed in compliance with fiduciary obligations and with the conditions and restrictions imposed by the LIMC-lien seciton 3.1.6.
4.3 Payment refused by the financial institution or amount not received on time
When a cheque or another bill of exchange received as a deposit or arrears is refused by the financial institution from which it is drawn, or the sum is not received within the period provided for in the transaction proposal, a licence holder must, without delay, so inform the parties to the transaction in writing and keep proof of this communication on record.3
Attention - When an amount is refused by the financial institution, it is important to inform the parties and get instructions on what needs to be done next. If there is no change to the initial agreement between the parties, a new payment will be required. If the parties agree that the amount should not be remitted, be sure to amend the transaction proposal or the agreement between the parties. Finally, proof of these amendments must be kept on the transaction record.
It will also be necessary to make all the entries in the general trust account transaction register (reversal) and to make the new entries if there is a new deposit.
3 S. 33 of the Regulation respecting records, books and registers, trust accounting and inspection of brokers and agencies.
4.4 Withdrawal of a trust account
The withdrawal of a sum held in a general or special trust account must be made by electronic transfer, a cheque, bill of exchange or a transfer slip bearing the number attributed to the transaction concerned.4 The sum must be remitted directly to the beneficiary without going through the holder's transaction account and should also be easily identifiable.
Cheques, bills of exchange and transfer slips and any document evidencing an electronic transfer that a licence holder draws from a general or special trust account must bear:
- A number from a series of consecutive numbers attributed by the licence holder
- Except for a document evidencing an electronic transfer, the indication “trust account governed by the Real Estate Brokerage Act.”5
For the purposes of inspection by the Organization, the licence holder must keep a copy of documents evidencing electronic transfers, cheques, bills of exchange and transfer slips, and a copy of the cheques and bills of exchange cashed in.6
It is essential to keep all administrative documents on record, including real estate brokerage contract and transaction records.
For more information, visit the Keeping of records and registers section.
Clearing periods
It is important to consider the clearing periods for bank instruments before withdrawing amounts of money from trust accounts. For example, refunding an amount of money quickly after receipt without taking into account clearing periods could result in surprises if the instrument is subsequently returned without funds.
Depending on the form of payment of the amount (wire transfer, electronic transfer, bank draft, certified or regular cheque), the clearing period may differ. Because, unlike funds received by electronic transfer which are usually cleared the same day, wire transfers are subject to banking clearing rules, the period of which varies between one and two working days.
Bank drafts can take 24 to 72 hours to clear and, in some cases, up to 10 business days.
Cheques can take anywhere from 72 hours to 10 business days to clear. Unlike a bank draft or wire transfer, a certified cheque does not fully guarantee the presence of funds. Although a cheque certification allows for a freeze of funds in the cheque writer's account, this freeze is not final. If the signer of the cheque passes away or if his account is subject to a hold following a seizure, bankruptcy, unpaid alimony or simply because the signer places a stop payment on said certified cheque, the cheque will not be cleared and, as a result, a notice will be sent to the beneficiary indicating the reasons why the funds were not released. This is why the cheque takes much longer to clear.
For foreign funds, special procedures apply, and current clearing times are at least 30 days for any international paper instrument.
It is important to validate the different clearing times with financial institutions.
4 S. 34 of the Regulation respecting records, books and registers, trust accounting and inspection of brokers and agencies.
5 S. 36 of the Regulation respecting records, books and registers, trust accounting and inspection of brokers and agencies.
6 S. 34 of the Regulation respecting records, books and registers, trust accounting and inspection of brokers and agencies.
4.5 Withdrawal of an amount as advance on remuneration or costs
A sum corresponding to an advance on remuneration or disbursements that is deposited in the trust account of a licence holder may be withdrawn to be transferred to the general transaction account when the invoicing or the amount of the disbursements stated in writing has been sent to or accepted by the depositor. Proof of transmission to or acceptance by the depositor must be kept on file.7
4.6 Withdrawal of an amount as earnest money
When the buyer or the seller withdraws from the promise to purchase and the promise includes an earnest money clause, the reimbursement of the amount received will be done in accordance with the fiduciary clause.
4.7 Withdrawal of an amount as a security or guarantee deposit
Withdrawal of an amount held as a security or guarantee deposit must be done in accordance with the fiduciary clause. In addition, such withdrawal must only be made with a supporting document authorizing the withdrawal or remittance.
Attention - In the event of a dispute between the parties as to who should receive the amount held as a security or guarantee deposit, the trustee should seek legal advice.
4.8 Withdrawal of an amount to offset remuneration
Insofar as the agreement between the parties specifically allows it, the agency or the broker acting on his own account may offset their remuneration against a sum held in trust.
Such offset shall take place, for a sale, at the publication of the deed of sale or, for a lease, at the signing of the lease or when the lessee takes possession of the premises, whichever occurs first.
For sale files, the notary is entitled to require that the sums held in trust be remitted to him in anticipation of the signing of the deed of sale. Once the deed of sale is published in the Land Register, the broker acting on his own account or the agency may obtain an offset of the remuneration on file, if the notary has not requested it.
For lease files, the broker must have the lessor's authorization before obtaining an offset of his remuneration. Offsetting may be done either because it is authorized in the brokerage contract or by another written agreement. It may also be done because the invoice for remuneration, after deducting the amount held in trust, has been recorded in writing by the lessor, for example, when the lessor acknowledges its receipt.
Attention - In residential matters, it is not possible to collect more than the first month's rent from the tenant.
For the purpose of remuneration or remittance to the notary, seller or lessor, the agency or broker trustee must place in their transaction record written proof that the withdrawal of money from the trust account was done in accordance with the real estate brokerage contract or transaction proposal.
Managing a deposit in the context of a lease requires as much vigilance as for a sale.
4.9 Deposit from a seller who no longer wants to sell or a buyer who no longer wants to buy
When the seller no longer wants to sell or the buyer no longer wants to buy, what happens to the money in trust depends on the circumstances.
The contract, most often a promise to purchase, constitutes the law of the parties. According to the clause, the agency or broker trustee may dispose of the amount of money only in accordance with the provisions of the clause. The deposit is usually received under clause 4.3 of the promise to purchase form and it can be applied to the sale price to be paid only if a transfer of ownership title takes place. Therefore, the deposit held by the agency or broker trustee belongs to the buyer until a deed of sale is signed or a title transfer judgment is made. Apart from these situations, the seller is not entitled to receive the amount of the deposit that was held in trust.
In the event that the parties, by mutual agreement, terminate the promise to purchase, the buyer has the right to have his deposit refunded by the agency or broker trustee upon presentation of a document evidencing this agreement and a written request for refund. The agreement must obviously be signed by the parties and need not specifically state what happens to the deposit. However, in cases where this agreement specifies that the deposit is to be fully remitted to the selling owner, the agency or broker to whom the deposit has been entrusted must obviously comply with these instructions.
Note that in all cases, to protect oneself against potential lawsuits from the parties to a transaction, the written agreement remains the best protection for the broker or agency trustee. Furthermore, as such a document is not always available, it might be useful to apply these few recommendations:
- In the event that a court orders the cancellation or termination of the promise to purchase, the buyer has the right to have his deposit refunded by the agency or broker trustee upon presentation of the judgment and a written request for refund. It is not necessary for the judgment to be specific about the remittance of the deposit.
- Should the period for signing the deed of sale expire and it seems that the deed will never be signed, the agency or broker trustee should, upon the buyer's written request, refund the buyer's deposit, unless the seller has served on the said buyer a remedy for title transfer. To protect themselves, the agency or broker trustee who is not aware of the status of proceedings between the seller and the buyer should, upon receiving a written request from the buyer to refund him the deposit, send a letter to the seller asking him to take a title transfer action within a specified time period (for example 10 days), failing which the seller will remit the deposit to the buyer without further notice or delay.
- The title transfer action is the only proceeding that can allow the broker or agency trustee to keep a deposit given by a buyer since a title transfer is always possible and, in this case, the sum held in trust must be remitted as a deposit on the sale price only.
- A broker or agency trustee should remit the deposit to the buyer in the event that a remedy for damages is brought by the seller, since in this case the seller has waived the right to claim title transfer and, consequently, the possibility of transferring ownership title. However, the remedy for damages does not prevent the seller's lawyers from making a seizure by garnishment before judgment that could be served on the agency or broker trustee. The agency or broker trustee would then have no choice but to obey the court's orders.
- If the period for signing the deed of sale has not expired, the agency or broker trustee should wait for this period to occur and then comply with the requirements of item 2.
- The agency or broker trustee must remit the deposit to the buyer when the seller sells his property to a third party, thus making it impossible to sign a deed of sale.
Examples of replies to a request for refund of a deposit held in trust:
Notice of a request by a depositor for refund of sums held in trust
(Date of notice)
(Name and address of person or company to whom the notice is addressed)
Subject: Request for refund of sums held in trust concerning (nature of transaction and address of building or company concerned)
We have received on (date of receipt of request) a written request for a refund of the sums deposited in our trust account regarding the above-mentioned transaction. This request was made by the depositor (name of depositor). If you fail to send us within ten (10) days of receipt of this notice any legal proceedings requiring forced performance of the transaction or ordering us not to remit such sums, we will have to remit such sums to the depositor. A copy of this notice is also sent to the depositor. (Name and address of the real estate broker)
_______________________________ (Signature of an authorized signatory of the real estate agency or broker acting on his own account)
Notice of a request, by a person or company other than the depositor, for the refund of sums held in trust
(Date of notice)
(Name and address of person or company to whom the notice is addressed)
Subject: Request for payment of sums held in trust concerning (nature of transaction and address of building or company concerned)
We have received on (date of receipt of request) a written request for payment of sums deposited in our trust account on behalf of the depositor (name of depositor) regarding the above-mentioned transaction. This request was made by (name of applicant). In the absence of a document signed by the depositor and the other parties to the transaction authorizing us to make such a remittance, we are obliged to keep such sums in our trust account. Therefore, we cannot process this payment request at this time. If the person making the payment request is not a party to the transaction, a copy of this notice shall also be sent to him.
Name and address of the real estate agency or broker acting on his own account)
_______________________________ (Signature of an authorized signatory of the real estate agency, or signature of the real estate broker acting on his own account)
