Alternative deposit arrangements not recommended
Fellow practitioners may recall that I wrote an article in September last year (Law News Issue 31, 20 September 2013) concerning the New Zealand Real Estate Trust (NZRET) and an alternative deposit arrangement whereby on the sale of a property the deposit could be placed with the Public Trust. At the time I warned practitioners that there was some complexity with the arrangement and ultimately recommended that parties should use a real estate agent to hold the deposit in their trust account or, if that was not possible, the deposit should be held in the vendor’s trust account as a stakeholder.
Shortly after the article was published, NZRET and its solicitors approached our Property Law Committee and a meeting was held which further canvassed the issues that had been raised. Subsequent to that meeting our Committee was advised by NZRET solicitors that some enhancements of their “deposit” procedures had been made including the provision of an independent audit of the funds held by the Public Trust on their account.
Our Committee has declined the invitation from NZRET solicitors to participate further in the modification or amendment of NZRET’s documentation and procedures given that it does not wish to be seen as endorsing its product. Our Committee does, however, recognise that NZRET, notwithstanding the concerns that we hold, is a genuine entrepreneurial venture by a Christchurch company called SafeKiwi Limited.
I further note that the New Zealand Law Society Property Section has now prepared a Memorandum alerting property lawyers to some of the concerns with the NZRET’s alternative deposit arrangements. The writer acknowledges that New Zealand Law Society’s Memorandum does address most of the concerns I had previously expressed. These concerns include that NZRET’s product can be seen as a conscious attempt to avoid the regulatory requirements of Section 122 “Duty of Agent with Respect to Money Received in Course of Business” of the New Zealand Real Estate Agents Act 2008, which requires funds received by an agent to be deposited to a trust account.
While not wishing to repeat the concerns our Committee has about the alternative deposit arrangement, we were of the view that incorporating the terms and conditions of the escrow arrangement by reference to a website is not satisfactory and that any parties that agree to enter into such an arrangement (which effectively is a parallel contract to the sale and purchase agreement) should be given a physical copy of those terms and conditions.
To reiterate, our Committee does not recommend that practitioners use the alternative NZRET deposit arrangements but continue with the traditional deposit arrangements of the deposit being held in the agent’s trust account or being held by the vendor’s solicitor.