July 7th - 2006

Brokers need to disclose trust account interest terms

The Real Estate and Business Brokers Act, 2002(REBBA 2002) contains new provisions regarding any interest generated on money held in trust by a brokerage.

The Real Estate and Business Brokers Act, 2002(REBBA 2002) contains new provisions regarding any interest generated on money held in trust by a brokerage. Under Subsection 27 (1) of the Act, brokerages are required to deposit "all money that comes into the brokerage’s hands in trust for other persons in connection with the brokerage’s business" into a designated trust account.

Since the implementation of REBBA 2002, the Registrar's Office has received a number of inquiries regarding these trust deposits and the payment of interest. A recent posting of "Registrar’s Guidelines" on the RECO web site offers some clarification. The Registrar also provides specific examples and sample contract wording for different scenarios.

While REBBA 2002 does not require brokerages to have an interest bearing trust account, in order to comply with the brokerage’s obligations, contractual terms need to provide clear disclosure about the account's interest terms and be clear about how the interest associated with deposits will be disbursed. Contractual terms should be contained in the Agreement of Purchase and Sale or a schedule to the Agreement. Regardless of where they appear, each of the parties must sign the document and each must receive an executed copy.

Under section 27 of REBBA 2002 the following two subsections are relevant to the questions the Registrar has been receiving:

27 (2) Brokerages shall fully and clearly disclose in writing to a person depositing trust money the terms on which the brokerage deposits the money, including whether the money is deposited in an interest bearing account and the interest rate that the brokerage receives on the money.

27 (3) Unless otherwise provided by contract, all interest on the trust money referred to in subsection (1) shall be paid to the beneficial owner of the trust money.

Subsection (2) makes it clear that brokerages must fully disclose to anyone depositing money the interest terms that apply to the brokerage's account. Subsection (3) indicates that in the absence of a contractual agreement, all of the interest shall be paid to the beneficial owner of the trust money. This subsection means that unless a client or customer has agreed through contract to other arrangements, the interest received on the money shall be paid to the beneficial owner of the trust money. To avoid any confusion, the Agreement of Purchase and Sale should clearly stipulate who will be the recipient of the interest.

The clearer contracts are about what happens to trust account interest, the less likely there are to be disputes between the brokerage and clients and customers about what happens to interest associated with trust deposits. For more information visit http://www.reco.on.ca/ and click on Registrar’s Guidelines.

The OREA Standard Forms Committee is reviewing this issue and will be including clauses in the standard forms to deal with it.

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For more information contact

Ontario Real Estate Association

Jean-Adrien Delicano

Manager, Media Relations

JeanAdrienD@orea.com

416-445-9910 ext. 246

Ontario Real Estate Association
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