There has been a string of convictions against real estate agents in Western Australia, Victoria and New South Wales over the last 12 months, with many of those convictions resulting from the misuse of trust money. Given the trust and faith placed in a real estate agent to hold monies on behalf of another party, it is no surprise that the use of trust monies continues to be heavily regulated.
The Agents Act 2003 (ACT) defines ‘trust money’ as money that is received by a licensed agent (in the course of conducting business) on behalf of someone else and on the basis that the money is to be paid to the other person or as the other person directs. The definition is broad and will include the deposit paid in relation to the sale of a property, rental bonds and monies withheld from the sale of a property (for instance, where the parties have agreed for some obligation to be satisfied after settlement and the monies are held as security for performance of that obligation).
Part 7 of the Agents Act 2003 (ACT) sets out the regulatory framework surrounding trust accounting and requires that a licensed agent:
- upon receiving trust money, ensures that the money is paid it into the agents trust account (which must be an account of an Authorised Deposit Taking Institution) by the next business day;
- only deals with trust money as directed by the person for whom the money is held on trust;
- (though it may seem obvious) does not use trust money to pay any debts or other expenses of the agent’s business; and
- upon becoming aware that the trust account has become overdrawn, notifies the Commissioner (within 5 business days) and provides the Commissioner with details of the account, the amount by which the account was overdrawn and the reason for the account being overdrawn.
There are various other requirements under Part 7 regulating the use of trust money, the opening and closing of the trust account and the auditing of trust accounts. A failure to comply with these requirements can lead an agent liable for penalties, loss or suspension of license and even jail time. For a license holder, these liabilities may even arise for failing to properly supervise the proper accounting procedures of the business.
Due to the requirement for a licensed agent to record the material details of every transaction and to keep those records for 5 years, agents should be particularly mindful that any audit of the agent’s records by the Commissioner will likely identify any discrepancy or misuse of trust monies, including a failure to keep proper records.