Don’t be tempted to touch that trust account
As the COVID-19 pandemic sweeps the globe, there are few sectors of the economy that will emerge unscathed and the Queensland real estate industry is unfortunately no exception.
While real estate professionals may be feeling the brunt of the coronavirus (COVID-19), the Office of Fair Trading (OFT) would like to offer a timely reminder about trust accounts, which exist to protect money being held on behalf of clients. The overwhelming majority of licensees are well aware the money does not belong to them and they are simply protecting it for others. For a small minority, this may not be front of mind.
The OFT advises that at no time should an agent view the trust account as a line of credit/loan facility and use the trust money to either prop up a general business account or for ongoing business expenses. The OFT has previously prosecuted licensees where agents incorrectly thought it wouldn’t hurt anyone to make an early withdrawal of commission to pay staff wages or other expenses before the commission was due to be paid to the agents.
Where things can really go wrong for agencies is when an agent uses trust money with the expectation that they will be able to pay it back before end of the month reporting. When they can’t pay it back because a sale they expected to finalise falls through or an additional unexpected expense occurs, the agent is forced to ‘borrow’ further funds to cover the initial defalcation. From there, the losses can quickly escalate. Even if a licensee doesn’t intend to permanently procure money from a trust account, any non-compliant transaction is a defalcation.
Any licensees who find themselves in financial stress should contact their financial institution to discuss what options are available to them, as well as investigate government assistance packages. The Queensland Government has announced a $4 billion COVID-19 rescue package as well as a new Jobs Support $500 million loan facility, with loans of up to $250,000. Expressions of interest can be registered at www.qrida.qld.gov.au.The Australian Government’s financial stimulus package is also available.
Licensees must maintain their trust account in accordance with the Agents Financial Administration Act 2014 (AFAA) obligations. This includes taking a keen interest in the operation of the agency’s trust account and at the very least reviewing the monthly reconciliations, which will often alert the licensee to any problems. Licensees should be vigilant about making these checks because they are responsible for supervising employees and ensuring that they comply with AFAA obligations.
If the OFT identifies trust money abnormalities it can appoint a receiver over the trust account and take enforcement action against the agent. Penalties of up to $133,450 or five years imprisonment apply. In addition, the cost of the receiver and the quantum of all claims arising from the defalcations is recoverable from the licensee.
The OFT is very conscious about the pressures confronting the real estate industry. Guidance on the Federal Government’s directions to cease all face-to-face auctions and restrictions on open houses can be viewed at the Department of Health website. Licensees are also reminded that trust account audits are a vital component in ensuring the integrity of the industry and agents should continue to lodge audits on time. However, if agents are experiencing difficulties in doing so due to coronavirus (COVID-19) impacts, they should discuss any expected delays with the OFT as soon as possible. We are assessing extension requests on a case-by-case basis.
If you have any questions about trust accounts, contact the OFT by phone on 13 QGOV (13 74 68) or email BrisbaneOFT@justice.qld.gov.au