- Trust Money and Interest
A Property Practitioner –
Code:
9.1 Shall not solicit or influence any person entitled to trust funds in the practitioner’s possession or under his control to make over or pay to the Property Practitioner directly or indirectly any interest on money deposited or invested in terms of section 32(1) or 32(2)(a) of the Act;
9.2 Shall, before he receives any money in trust in respect of a contract of sale or lease, disclose to the parties concerned that unless they agree in writing to whom interest earned on such money must be paid, the interest shall, in terms of section 32(2)(c) of the Act, accrue to the Property Practitioners Fidelity Fund;
9.3 Shall, if any money is invested by him pursuant to section 32(2)(a) of the Act or pursuant to an instruction by the party entitled to the interest on money held in trust by the Property Practitioner –
9.3.1 Invest such money at the best interest rate available in the circumstances at the bank or building society where he normally keeps his trust account or accounts, and
9.3.2 Pay the full amount of the interest which accrued on the investment to the party entitled to such interest, or the PPRA, as the case may be, subject to any written agreement in this regard between him and such party;
Discussion:
9.1 – 9.3
These clauses deal with interest earned on money held by a Property Practitioner in trust. The Property Practitioners Act provides that all interest earned on monies held by a Property Practitioner in a trust must be paid to the Property Practitioners Regulatory Authority for the benefit of the Property Practitioners Fidelity Fund unless the parties to an agreement of sale or lease have agreed otherwise in writing. The Code requires that a Property Practitioner must disclose the position to the parties concerned before he receives money in trust.
The standard agreement of sale or lease documents used by some Property Practitioners specifically provide for payment of the interest to one of the parties to the agreement. This constitutes sufficient compliance with the provisions of clause 9.2 of the Code. A Property Practitioner using standard documentation that is silent on this point must specifically explain to the parties the position concerning interest earned on trust money (on the assumption that the money will be entrusted to the Property Practitioner pursuant to the agreement in question).
In terms of clause 9.3.2, a Property Practitioner must pay all the interest earned on trust money invested by him to the party entitled to such interest in terms of the sale or lease agreement. In the absence of a provision in such sale or lease agreement regulating the payment of such interest, the full amount of interest earned must be paid to the Property Practitioners Regulatory Authority for the benefit of the Fidelity Fund. The following application of this clause can be illustrated by the following example:
A lease agreement negotiated by a Property Practitioner provides that the lessee is to pay a “key breakages” deposit to the Property Practitioner to be held in trust, interest thereon to accrue to the lessee. The lessee and the Property Practitioner have agreed in writing that the Property Practitioner will charge a holding fee in respect of the deposit and that this fee may be deducted from the interest to be paid to him by the Property Practitioner.
In the above example, the Property Practitioner would not contravene the Code by deducting his holding fee from the interest earned on the deposit, as he is acting in terms of a prior written agreement.
What is the position where the rate of interest or basis of the investment is spelled out in the agreement of sale or lease, but where the Property Practitioner, through an investment of bulk funds held in the trust account, is able to secure better rates? Can the Property Practitioner in such an event deduct or charge a fee for administering the bulk fund? In terms of clause 9.3.2 of the Code, a Property Practitioner must pay the full amount of the interest which was earned on the investment to the party entitled to the interest, or the Property Practitioners Regulatory Authority for the benefit of the Fidelity Fund, as the case may be, in the absence of a contrary written agreement in this regard between them.
Such a party would be entitled, in such a case, to the full interest earned on his pro-rata share of the bulk investment. The Property Practitioner may charge a fee for administering the trust account, provided this is done in terms of a written agreement concluded between him and the party entitled to the interest.
Code:
9.4 Shall not include, or cause to be included or accept the benefit of, any clause in a contract of sale of immovable property negotiated by him, providing for payment to the seller, prior to registration of transfer of the property in the purchaser’s name, of any portion of the purchase price entrusted to the Property Practitioner by the purchaser: provided that the foregoing shall not apply if
(aa) Good cause exists; and
(bb) The purchaser has, prior to his signature of the contract in question, consented in writing in a document executed independently of the said contract, to such payment; and
(cc) Such document contains an explanation of the implications and financial risks of such payment for the purchaser; and
(dd) Such document is signed by both the seller and the purchaser and the Property Practitioner in question.
Discussion:
The application of this clause has been explained above: see the discussion on clause 8.5.