Recent action by Office of Fair Trading investigators, particularly on the Sunshine Coast, has caught a number of managers by surprise.
The managers were astounded to learn that the way in which they receipt into and distribute funds from their trust account, following the same procedures as almost all of their fellow managers, is unlawful.
The first of the alleged offences relates to the depositing to a manager’s trust account of funds that are not true trust funds. Under PAMDA (sections 378 to 381) a licensee must deposit to the licensee’s trust account any amount received by the licensee for a transaction. Curiously there is no definition in PAMDA of transaction but it is clear from the act that the letting (or sale) of a property is a transaction.
Further, PAMDA provides that a licensee must not pay to the trust account any other amount received by the licensee. So, for example, if a guest purchases a tour from the manager the amount paid for that must not be paid into the trust account.
The offence alleged by the OFT is that managers have been receipting payments for items like tours or other services provided by management to guests into the trust account when it is not trust money as it is not for a transaction, rather it is an amount payable to the manager for providing an item or a service. The OFT takes the view that whatever arrangement there is in place about the provision of and payment for such items and services, these are not transactions for the purposes of PAMDA.
OFT therefore expects that where a manager receives an amount for anything other than rent or tariffs for an owner, it must not be paid to the trust account but must be paid to the manager’s general account. Apart from the practical problems that raises in the sense of having to have 2 EFTPos machines linked to different bank accounts, it also gives rise to confusion.
What happens where a guest asks for a mid-stay clean or a change of linen? If the cost is added to the tariff and the manager takes from the tariff the amount authorised by the PAMDA form 20a, the payment by the guest should rightfully go to the trust account. If on the other hand the manager simply charges the guest direct for the extra clean or linen, then the payment should not go into the trust account.
Another example is where a manager has a leaseback – renting a unit from an owner and subletting to guests. OFT, with some justification, takes the view that the rent from the subtenant must not be paid to the trust account but to the manager’s general account.
There will be many such blurred and confusing examples where it will be unclear into which account the payment should be deposited. Whilst you might think that in those circumstances the safest route would be to pay any doubtful amount to trust, doing so may well be an offence.
The second potential offence concerns section 381 that deals with the receipt of an amount consisting of trust money and other money that cannot be divided. In such cases the licensee must pay the total amount to the licensee’s trust account. So this section actually allows for non-trust money to be paid into the trust account, which makes one wonder why it is such a problem for other amounts a manger might receive to be paid to the trust account!
The offence of which OFT complains is the breach of the requirement in that section to draw the non-trust money from the trust account within 14 days after the money becomes available for drawing. So if a guest makes a single payment of rent and a tour that is deposited into the trust account (as permitted by this section), the manager must withdraw the non-trust money, the tour payment, from the trust account within 14 days of the money becoming available for withdrawing.
You might wonder just what those words “becoming available for withdrawing” mean. If the expression relates to all of the money deposited, it could mean 14 days after the tenancy or guest stay ends. If it relates to just the non-trust money, it probably means, as OFT suggest, 14 days from receipt. OFT investigators have been issuing non-compliance notices to managers for failing to take such not-trust money from their trust accounts within 14 days of receipt. That action, particularly given that the managers have never had the matter raised by their trust account auditors, has surprised and angered the managers who have been investigated.
Importantly these provisions have been incorporated into the new Property Occupiers Act so nothing will change when that act commences later in the year.
While ARAMA has taken the matter up with OFT, it is highly unlikely that there will be any changes to the legislation for some time, if at all. The policy is to keep non-trust funds out of the trust account and for any that do lawfully find their way in to be removed as quickly as possible. I expect ARAMA to keep pushing for a sensible solution that would see a manager able to deposit to the trust account any funds received from a tenant or guest and to remove within 14 days of month’s end any non-trust funds.