Managers will be aware of the increase in use of cloud based rent payment as an alternative to the use of traditional trust accounts. We are aware of managers now using at least one platform to collect rental payments from tenants and using the platform to distribute payments to themselves and owners.
The platform, which involves the use of an app, avoids the need for managers to receipt and hold trust money on behalf of owners. The rationale is that the account is not recognised as a “trust account” and managers do not have to comply with the rigorous legislative obligations, in particular for receipting, transferring and auditing purposes. But is the use of such platform compliant with Queensland legislation?
The Agents Financial Administration Act 2014 (Qld) (Act) regulates the use of trust accounts and handling trust money. In very simply terms, the Act defines a “trust account” as an account kept under the Act. These accounts must be held by a licensed real estate agent or letting agent with an approved financial institution within Queensland.
“Trust money” is defined to include an amount that was, or ought, under the Act, to have been deposited in a trust account by an agent. The Act provides that if an amount is received by an agent for a transaction (such as rent under a tenancy agreement), it must be paid to the agent’s trust account.
In practical terms, if an agent receives a rental payment into their trust account, it is “trust money” and is held on trust for the owner. A portion of that amount is later disbursed to the agent in payment of their commission and other fees and charges under the appointment. The remainder of the payment is paid to the owner.
These new platforms use a “wallet”, set up by the tenant, into which rental payments are made and the agent and owner decide upon and direct how the funds are to be disbursed from the wallet. Our initial concern was that this practice might be purporting to delegate the responsibility for an agent to collect for landlords payments made by a tenant such that the platform was receiving the rent on behalf of the agent. It seems though that as the tenant pays the rent to the tenant’s “wallet” then it is not received by the agent or by anyone on the agent’s behalf. It would therefore not be trust money.
When an agent receives such “trust money” there are certain obligations under the Act in respect of receipting and transferring such money. Mangers who are using the platform appear not to be receiving or transferring money. The record of payments which are made and subsequently disbursed from the wallet are kept on the platform itself.
Auditing is an important part of an agent’s responsibility to properly deal with trust money. It ensures that monies have been properly receipted and transferred and that there is no money which has been withheld or incorrectly paid. The “wallet” used by these platforms would not be caught by these auditing requirements. Without regular auditing, it is up to the agent and owner to ensure that payments have been properly dealt with and any irregularities will not be reportable to the OFT. This raises the question of whether an agent is liable for any incorrect payments if they have failed to ensure that payments are properly disbursed via the platform.
These issues are only some that we have identified. The platforms also present a range of other non-procedural issues which need to be considered. For example, what obligations are owed by the service provider of the platform to the owner? What if money paid into the wallet goes missing – could the agent be held liable to the owner in those circumstances? Will owners be content to see an agent charging 6% or more for rent collection when the app is doing that, not the agent?
Whilst cloud based rent payment offers real benefits to agents and owners by streamlining the process of when payments can be distributed and overcomes the onerous administration involved with a traditional trust account, the lawfulness of using these platforms is uncertain and there are definitely risks involved.
Apart from the question of strict compliance with the Act, the platforms seemingly achieve the object of the Act which is to protect consumers from financial loss in dealing with agents by minimising the misappropriation of funds paid by the tenant.
At the time of this article, the OFT has not prohibited the use of these cloud based platforms. We are aware that the OFT has concerns about them but is yet to arrive at and publish any clear position about them. It is possible that there will be legislative reform to address the OFT’s concerns. Whilst that is unlikely to occur for some time (if at all), we would not be surprised if the OFT publishes guidelines about the use of the platforms in the near future.
Written
Back to articles