Avoiding Payment Disputes: The Role of Terms of Trust in Outlining Payment Arrangements

by Kyle Schaub, RECA Practice Review Manager

As a property or condominium manager, one of the most frustrating aspects of the job can be dealing with payment disputes. Whether it’s a tenant who refuses to pay rent, a missing e-transfer or a condominium owner who is late on their monthly condominium fees, payment disputes can be time-consuming and stressful.

To reduce the chance of a payment dispute, set up clear payment arrangements based on the terms of trust.

What are Terms of Trust?

Essentially, terms of trust are agreed-upon terms and conditions that govern payment arrangements between two parties. A broker’s role in handling trust funds is that of a trustee, and you must only keep and disburse trust funds according to the terms of trust. If your brokerage uses alternative payment arrangements, outside of the standard terms of trust, document these arrangements in the terms of trust.

Terms of Trust Conditions

Terms of trust should be drafted with clear and explicit conditions; the more exact the condition, the less difficult it is to mis-interpret the instructions. For example, if trust money is being collected or disbursed through a third-party, document it and name the specific payment method. It is the broker’s job to ensure all parties understand the terms of trust, and if these terms change, all parties must grant their written consent. If a dispute about trust money were to arise, the most recent terms of trust apply.

Other items to document:

• any administration charges
• if you pay expenses on behalf of owners, including any limitations on permitted expenses and amounts
• if you will use a pooled trust account
• how you will handle any additional interest earned on security deposits
• if you will keep a reserve (for property management)
• if the terms permit use of alternative payment methods (third-parties, e-transfers, apps etc.) to collect or disburse trust funds

Alternative Payment Methods

Payment arrangements such as e-transfers or the use of mobile applications to collect/disburse payments are quite common in today’s world. As a trustee, it is important to understand that if you are using a third-party to handle trust money, there are risks involved as you are transferring the money to an intermediary. This type of payment arrangement would fall outside of a standard trust agreement. To protect both yourself and your clients, discuss the risks and benefits of using such a service. If all parties agree to the alternative payment arrangements, outline them in the terms of trust.

Review the Terms of Trust Regularly

Remember, any activity outside the terms of trust is prohibited. The terms of trust must be in writing and all parties must agree to those terms. If the original terms change, redraft the terms of trust and have all parties agree to them in writing.

Acting as a trustee is an important role. Any terms of trust must not circumvent the Real Estate Act or its Rules.  Clear terms of trust should help avoid or resolve payment disputes. Protect your business by ensuring the trust accounts you handle have clear and concise terms that you review regularly.

If you have any questions about handling trust funds or terms of trust, please email audit@reca.ca.