In the case of “off the plan” apartment sales it is usually of benefit to both buyer and seller to direct the stakeholder holding the deposit to invest it so that each party can share the interest earned on settlement.
However, the Agents Act 2003 (ACT) (“the Agents Act”) does not permit agents to take monies out of their trust accounts and invest it in a high interest bearing account.
The ACT Government is currently reviewing this practice. Do you think that the law should be changed?
John Minns, Chief Operations Officer, Independent Property Group says “Over a number of years the sale of apartments “off the plan” has grown rapidly but current legislation has resulted in unintended consequences that can disadvantage consumers while having little positive impact on the Compensation Fund or buyer protection.
“We have been working with Meyer Vandenberg and the ACT Government in relation to these regulatory challenges in an effort to continue to make improvements in the industry,” he said.
Why should a deposit be invested?
In an off the plan sale of a unit, investing the deposit can benefit both the buyer and seller – each making in the order of $500 – $1000 each. For a buyer, the interest earned on the deposit can cover their legal fees. For a developer, on a large residential development, they can make hundreds of thousands of dollars. In recognition of this commercial benefit, our firm regularly acts as a stakeholder when acting for the seller in “off the plan” apartment sales charging a small fee to cover our administrative costs in doing so.
Why can’t agents invest?
When our firm invests deposits we take the deposit out of our “trust account” and put it in high interest bearing account in our name on trust for the buyer and seller. The Legal Profession Act 2006 (ACT) allows us to do this. Unfortunately, the Agents Act does not contain similar requirements.
Section 107(1) of the Agents Act states that “A licensed agent commits an offence if the agent deals with trust money otherwise than as directed by the person for whom the money is held on trust.” Section 107(2) and (3) contains requirements which require agents to keep such money in trust accounts, which effectively prevent them from investing the money. Even if a buyer and seller direct an agent to invest the deposit, section 107(2) and (3) appear to render it unlawful for agents to do so.
In New South Wales and other jurisdictions agents are permitted to invest deposits. So can agents get around the ACT’s Agents Act if they use NSW offices to invest the deposits? We don’t think so. There is case law suggesting that if the deposit relates to an ACT property sale, then the agent would be caught by the ACT’s Agents Act.
How does this affect agents?
If the ACT Government chose to, agents who invest a deposit could be fined in the sum of up to $55,000.
So do you think that the law should be changed? The ACT Government is currently considering this issue. Agents are permitted to invest deposits in other jurisdictions, so why shouldn’t they be permitted to in the ACT? It is unclear whether the ACT’s position is always what the legislature intended or just an oversight. A complicating issue is that interest earned in trust accounts is payable to the Consumer Compensation Fund for real estate agents. If the law is changed would this impact on the quantum of that fund? Maybe not.
For more information contact the Property Commercial and Finance Team: