Trust Funds and Brokerage Fees

by James Porter, RECA Investigations Manager

It’s a broker’s responsibility to serve as the trustee for money held in trust for residential
property management or condominium management services. This is a serious
responsibility and demonstrates the trust the public can place in licensees. The money
held in trust is your client’s money, after all.

The Real Estate Act required brokers to abide by the trust agreements governing the use
of trust money, and all parties concerned must agree to the terms of trust in writing.

Brokerages cannot utilize trust funds to offset fees owed to them, unless doing so is
expressly permitted by the terms of the trust, such as in the management agreement, or
the client has given specific permission in writing.

If your brokerage finds itself in a position where a client owes the brokerage money
following the cessation of services, you must carefully consider what kinds of deductions
the terms of trust regulating the trust funds permit. Send your client an invoice for the
fees owed if you want to collect fees that aren’t explicitly permitted to be subtracted from
money held in trust.

Examples of Trust Funds used Inappropriately

A condominium corporation and a condominium management brokerage terminated
their management agreement. Afterwards, the brokerage claimed the condominium
corporation owed six months’ worth of management costs. The condominium
corporation disputed what fees were owed. The brokerage deducted these management
fees from the funds held in trust for the condominium corporation. This is inappropriate,
as the condominium corporation did not expressly approve this use of trust funds, and
the management agreement did not permit it. Brokerages cannot use funds held in trust
to pay any fees owed unless they have specific permission to do so.

A client owed money to a residential property management brokerage for work
done on their property. The brokerage held security deposits in trust. The brokerage
withheld from the security deposits the maintenance costs payable by the property
owner. The Residential Tenancies Act, the management agreement, and the lease
with the tenant all contain the terms of trust that apply to security deposits. The
security deposit deductions allowed under that Residential Tenancies Act are limited,
and the brokerage was not permitted to deduct the owner’s maintenance costs.

For more information on brokerage obligations regarding funds held in trust, please
see section 25 of the Real Estate Act or contact one of RECA’s Regulator Compliance
Advisors.

If you face a dispute when holding trust funds, refer to your service agreement,
contact your broker, and refer to the Trust Money Disputes and
Disbursements information bulletin .