R8. Trust Money and Interest

9. Trust money and interest

An estate agent –

Code:

9.1       shall not solicit or influence any person entitled to trust funds in the agent’s possession or under his control to makeover or pay to the estate agent directly or indirectly any interest on money deposited or invested in terms of section 32(1) or 32(2)(a) of the Act;

9.2       shall, before he receives any money in trust in respect of a contract of sale or lease, disclose to the parties concerned that unless they agree in writing to whom interest earned on such money must be paid, the interest shall, in terms of section 32(2)(c) of the Act, accrue to the Estate Agents Fidelity Fund;

9.3       shall if any money is invested by him pursuant to section 32(2)(a) of the Act or pursuant to an instruction by the party entitled to the interest on money held in trust by the estate agent –

9.3.1    invest such money at the best interest rate available in the circumstances at the bank or building society where he normally keeps his trust account or accounts, and

9.3.2    pay the full amount of the interest which accrued on the investment to the party entitled to such interest, or the board, as the case may be, subject to any written agreement in this regard between him and such party;

Discussion:

9.1 – 9.3

These clauses deal with interest earned on money held by an estate agent in trust. The Estate Agents Act provides that all interest earned on monies held by an estate agent in a trust are to be paid to the Estate Agents Board for the benefit of the Estate Agents Fidelity Fund unless the parties to an agreement of sale or lease have agreed otherwise in writing. The Code requires that an estate agent must disclose the position to the parties concerned before he receives money in trust.

The standard agreement of sale or lease documents used by some estate agents specifically provides for payment of the interest to one of the parties to the agreement. This constitutes sufficient compliance with the provisions of clause 9.2 of the Code. An estate agent using standard documentation which is silent on this point must specifically explain to the parties the position concerning interest earned on trust money (on the assumption that the money will be entrusted to the estate agent pursuant to the agreement in question)

In terms of clause 9.3.2, an estate agent must pay all the interest earned on trust money invested by him, to the party entitled to such interest in terms of the sale or lease agreement. In the absence of a provision in such sale or lease agreement regulating the payment of such interest, the full amount of interest earned must be paid to the Estate Agents Board of the benefit of the Fidelity Fund. The following application of this clause can be illustrated by the following example:

A lease agreement negotiated by an estate agent provides that the lessee is to pay a “key breakages” deposit to the estate agent to be held in trust, interest thereon to accrue to the lessee. The lessee and the estate agent have agreed in writing that the estate agent will charge a holding fee in respect of the deposit and that this fee may be deducted from the interest to be paid to him by the estate agent.

In the above example, the estate agent would not contravene the Code by deducting his holding fee from the interest earned on the deposit, as he is acting in terms of a prior written agreement.

What is the position where the rate of interest or basis of the investment is spelt out in the agreement of sale or lease, but where the estate agent, through an investment of bulk funds held in the trust account, is able to secure better rates? Can the estate agent in such an event deduct or charge a fee for administering the bulk fund? In terms of clause 9.3.2 of the code, an estate agent must pay the full amount of the interest which was earned on the investment to the party entitled to the interest, or the Estate Agents Board for the benefit of the Fidelity Fund, as the case may be, in the absence of a contrary written agreement in this regard between them.

Such party would be entitled in such case to the full interest earned on his pro-rata share of the bulk investment. The estate agent may charge a fee for administering the trust account, provided this is done in terms of a written agreement concluded between him and the party entitled to the interest.

Code:

9.4       shall not include, or cause to be included or accept the benefit of, any clause in a contract of sale of immovable property negotiated by him, providing for payment to the seller, prior to registration of transfer of the property in the purchaser’s name, of any portion of the purchase price entrusted to the estate agent by the purchaser: provided that the foregoing shall not apply if

(aa)      good cause exists; and

(bb)     the purchaser has prior to his signature of the contract in question, consented in writing in a document executed independently of the said contract, to such payment; and

(cc)      such document contains an explanation of the implications and financial risks of such payment for the purchaser; and

(dd)     such document is signed by both the seller and the purchaser and the estate agent in question.

Discussion:

The application of this clause has been explained above: see the discussion on clause 8.5

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