The Public Trust wants your deposit
||Section 122 of the Real Estate Agents Act 2008 obliges an agent to retain monies received in their capacity as an agent in a general or trust account (s122(3)).
- By Bryce Town, convenor of ADLS’s Property Law Committee
These accounts then become subject to audit (s125). To avoid both the process and cost of managing a trust account and auditing it, a system has recently been established using the vehicle of the New Zealand Real Estate Trust and involving the Public Trust to assist contributing agents in avoiding this statutory responsibility.
The Public Trust is promoting this “deposit holding” service for real estate agents who wish to avoid having a trust account. Practitioners will usually only become aware that the deposit is not held by the real estate agent when the signed Sale and Purchase Agreement arrives and a special condition has been included by the agent to the effect:
And, where the Agreement may be unconditional:
(b) “As this Agreement is unconditional on signing, New Zealand Real Estate Trust is irrevocably authorised to effect immediate release of the cleared deposit monies held for this Agreement.”
These clauses appear to be standard clauses inserted in the relevant Sale and Purchase Agreement where the NZ Real Estate Trust/Public Trust is to hold the deposit.
ADLS’s Property Law Committee has a number of concerns about the use of the Public Trust as a third party holding the deposit. Included amongst those concerns are:
1. These new “Public Trust Deposit” clause(s) require clause 2.1 (and in the case of an auction clause 4) of the ADLS Sale and Purchase Agreement General Terms of Sale to be modified, i.e. the person who holds the deposit shall hold it as a stakeholder.
2. Privity of contract issues arise between the Vendor and Purchaser and the third party, NZ Real Estate Trust (who holds the deposit).
3. The clause authorising a release of the deposit, where the Agreement is unconditional, without providing for the Purchaser’s solicitor’s input, may well compromise the requisitions provisions of the Agreement and endanger the prospects of recovery of the deposit if the Agreement does not proceed.
(a) That the clients agree that they use the NZ Real Estate Trust services at their sole risk.
(b) The NZ Real Estate Trust makes no warranties about payments or transactions.
(c) NZ Real Estate Trust disclaims all express and implied warranties and is not liable for any undertakings or promises offered by or any other obligations of any client.
(d) NZ Real Estate Trust will not be liable for any damages relating to the use of the Services by any person.
(e) NZ Real Estate Trust may suspend or terminate the use of service by any person at any time without notice for any reason.
(f) Each Purchaser authorises NZ Real Estate Trust to act as its agent in communicating with any relevant party in respect of a Transaction or Payment.
(g) NZ Real Estate Trust requires that clients pay all costs and expenses, including legal costs, that NZ Real Estate Trust may incur.
(h) Non transferability of service – the client may not assign their rights under these terms to any other person or entity without the prior written consent of NZ Real Estate Trust.
(i) NZ Real Estate Trust may rely on any instruction which purports to be transmitted or signed by or on behalf of any real estate agent or any user (for example, by the user’s solicitor) and shall have no duty to make any enquiry or investigation.
The Property Law Committee considers that the use of a third party deposit arrangement that includes such terms and conditions, which may or may not be explained to either the Vendor or Purchaser without the benefit of legal advice, represents a risk to the long established practice of real estate agents or the Vendor’s lawyer holding the deposit in their trust account.
This new Public Trust deposit arrangement should make practitioners look very carefully, when they have the opportunity, as to whether they should intercede where a real estate agent is involved and is attempting to persuade a client that the deposit should be held by the Real Estate Trust.
If the real estate agent does not have a trust account then the recommended alternative is that the Vendor’s solicitor holds the deposit as a stakeholder.
The Committee would like to hear from any practitioners who have had experiences with the NZ Real Estate Trust/Public Trust in relation to the holding of deposits.
Feedback is welcomed – please contact the Committee secretary firstname.lastname@example.org.