Practice Reviews provide Learning Opportunities for New Condominium Managers
| December 05, 2022
by Doug Dixon, RECA Regulatory Compliance Advisor, Real Estate and Condominium Brokers
with Kyle Schaub, RECA Practice Review Manager
A practice review is a process RECA’s practice review team undertake to examine a brokerage’s records and activities to ensure they are following their regulatory obligations. Sometimes these reviews result in recommendations for change in control, policy, and procedures.
As a newly-regulated industry, RECA has focused practice reviews on condominium management brokerages that have had no experience in the other areas RECA regulates (real estate, mortgage, property management, etc.). Recent reviews were conducted to ensure the newest brokerages are fully educated on their regulatory requirements, to ensure Real Estate Act Rules are being followed, and that those holding trust money are doing so properly and in the public interest.
In the interest of assisting condominium management brokerages meet their regulatory requirements, the practice review team will be sharing the common issues they are seeing in their reviews. Below are some of the learnings we’ve encountered recently:
- 70% of brokerages had issues with their management agreement, such as identifying a bank account as a trust account, the brokerage name not being correct, the agreement itself not being signed, or instances where the agreement is expired and/or not properly dated
- 50% of brokerages were identified to have issues such as condominium corporation bank accounts labeled as trust accounts, not having the condominium corporation number on the account, condominium corporation board members not having signing authority on the bank account, and having missing reserve fund accounts
- 43% of brokerages had issues with basic procedures such as not having a policy and procedures manual or not having a brokerage agreement in place when the broker did not own the brokerage
- 30% of brokerages reviewed had accounting discrepancies including financial statement errors and payments being made to the brokerage’s general account instead of the condominium corporation
- 7% did not have the brokerage registered name with RECA on the brokerage general account
Best Practices: Condominium Corporation Bank Accounts
During our reviews, the RECA team came across several bank accounts for condominium corporations that were labeled and identified as trust accounts by the bank and on the management agreement. There were also many instances where it was identified that brokerages were operating condominium corporation bank accounts improperly. Please review the following best practices when it comes to operating a bank account on behalf of your condominium management clients.
The Condominium Property Act refers to the money being held in trust and the Real Estate Act s.25 is clear on what constitutes a trust account.
The bank accounts in a condo corporation’s name are not constituted as trust accounts under the Real Estate Act s.25 and all brokerages need to ensure these types of accounts are set up as regular accounts. When funds are held in a condominium corporation’s named bank accounts, they are just bank accounts, not trust accounts.
For instance, we have seen examples where a brokerage will open a bank account, on behalf of a condominium corporation they manage, in the corporation’s name. In this situation, if the management agreement ends, the brokerage would require the new condominium manager or the condominium board itself to open a new account and the funds would need to be transferred from one account to another. This process could lead to issues and/or delays that result in funds not being transferred within the required 30 days period.
To avoid this situation, brokerages should have the corporation open the account in their own name and then have them give the brokerage either broad or limited access to that account, including whether the brokerage has signing authority. This allows the condo corporation to have more control over their funds should the agreement with your brokerage end.
We’re Here to Help
RECA’s goal as your regulator is to ensure brokerages and all licensees have the information they need to operate in accordance with the legislation. If you are ever unsure of the proper practices your brokerage should follow or need help interpreting the Real Estate Act or Rules, it is best to reach out proactively and ask questions, rather than wait for your practice review or another instance where issues could be identified. If you’re a broker in need of regulatory compliance advice, contact RECA’s Regulatory Compliance Advisors—they are here to work with you.