Brokerages Now Have the Option to Segregate Commissions and Will Pay Commissions to General or Other Accounts Only
| February 08, 2019
Council approved recommended changes to sections 96 and 97 of the Real Estate Act Rules
RECA consulted with stakeholders in the Fall of 2018, and following a review of the feedback, Council approved amendments to the Real Estate Act Rules that allow brokerages the option to deposit commissions or remuneration to a brokerage general or “other” account. The other account is not a trust account under the Real Estate Act or Real Estate Act Rules. Brokerages will no longer pay or hold commissions in a RECA regulated trust account.
The “other” account can be used to segregate commissions from which a brokerage can pay professionals’ commissions. If a brokerage sets up the other account as a non-RECA regulated trust account, it cannot hold consumer deposits.
The amendments also clarify that the Real Estate Assurance Fund is a consumer protection fund and is for consumers only. In the case where a brokerage closes, the amendments do not protect commissions under the Real Estate Act or Real Estate Act Rules.
Reasons for the change
- In early 2016, two large, Calgary area brokerages closed. Many real estate professionals contacted RECA and their industry associations regarding unpaid commissions owing from these brokerages. Under the Rules, commissions are held in brokerage general accounts. Shortly after these closures, the Alberta Real Estate Association At-Risk Commissions Working Group (ARCWG) formed with representatives from the Alberta Real Estate Association, the Calgary Real Estate Board, the REALTORS® Association of Edmonton, RECA, and the Real Estate Insurance Exchange. The ARCWG’s goals were to study the issue of commission losses and determine whether there were solutions. The ARCWG recommended to RECA that RECA amend the Real Estate Act Rules to create the proposed “other account” option for brokerages. Brokerages may choose to set the other account up as a non-RECA regulated trust account.
- Mitigate Potential Risk to Real Estate Assurance Fund. The Real Estate Assurance Fund was intended as a consumer compensation fund in cases of an industry professional’s fraud, breach of trust, or failure to disburse or account for money held in trust. It was not intended as a commission compensation fund. The current trust provisions in the Real Estate Act Rules needed to be clarified and amended to ensure there was no ambiguity with respect to the consumer purpose.
On August 1, 2018, RECA opened a 90-day consultation period on proposed amendments to Rules 96 and 97. Feedback from individual industry professionals was minimal. Council took all feedback into consideration when making their decision.
Review the Consultation Paper—Proposed Amendments to Real Estate Act Rules 96 and 97 that respondents used to provide feedback.
What has changed for professionals
- Brokerages now have the option to open and use an “other” account to segregate commissions from the general account.
- Brokerages now have to pay all commissions or remuneration to a brokerage general account or other account.
- When a brokerage is sharing and paying commissions to another brokerage, they must pay the commissions directly from the trust account to the other brokerage’s general account or other account first and then the remaining commissions must be immediately transferred to the brokerage’s general or other account.
- When commissions are shared between two or more brokerages and the client hasn’t paid the commissions in full when due, any amounts already received will be shared as agreed by the brokerages, and in an absence of agreement, the money must be immediately paid into a lawyer’s trust account.