How Condominium Management Brokerages Handle Trust Funds
A trust fund is money held by a condominium management brokerage on behalf of a condominium corporation. These funds may include:
Operating funds (used for day-to-day expenses).
Reserve funds (set aside for long-term repairs and replacements).
Under Alberta’s Real Estate Act Rules, brokerages that manage condominium corporations must adhere to strict trust fund handling requirements.
Key Requirements for Handling Trust Funds:
A brokerage who maintains funds on behalf of condominium corporations must maintain a separate trust account for each client.
Funds cannot be co-mingled with other accounts, including brokerage operating accounts.
Transactions must be properly documented and align with the condominium corporation’s instructions.
Monthly reconciliations must be performed to ensure accuracy.
Funds must only be used for authorized condominium expenses.
Legislative Reference: Real Estate Act Rules states: A brokerage that receives money in trust for a client must deposit the money in a trust account at a bank, loan corporation, trust corporation, credit union, or treasury branch in Alberta, in the name of the brokerage, within two banking days after receiving the money.
Comparing Brokerage Models for Holding and Managing Trust Funds
There are two primary brokerage models for managing trust funds:
Brokerages That Hold Trust Funds
In this model, the condominium management brokerage maintains dedicated trust accounts for each condominium corporation they manage.
Advantages:
Provides centralized financial management with clear oversight.
Ensures compliance with Real Estate Act Rules and Condominium Property Act.
Reduces the risk of unauthorized transactions or missing funds.
Disadvantages:
Brokerages must meet strict audit and reporting requirements.
If a brokerage mishandles funds, it may result in regulatory penalties or legal action.
Brokerages That Do Not Hold Trust Funds
In this model, funds remain under the direct control of the condominium corporation, typically managed through board-controlled bank accounts. The brokerage assists in financial management but does not directly handle trust funds.
Advantages:
Condominium boards retain direct control over their finances.
Eliminates risk of brokerage mismanagement of funds.
Disadvantages:
Boards take on full responsibility for financial compliance and record-keeping.
Without professional oversight, errors or mismanagement may occur.
Key Considerations When Choosing a Brokerage Model:
Condominium boards must evaluate the level of financial oversight they require.
Brokerages that hold trust funds must be properly licensed and adhere to strict trust fund regulations.
A clear management agreement must define how funds are handled, who has authority over transactions, and how reporting is conducted.
Evaluating Legal Risks of Improper Trust Fund Management
Improper trust fund management can have serious legal and financial consequences for both condominium management brokerages and condominium corporations.
Common Trust Fund Violations
Co-mingling funds: Mixing trust funds with brokerage operating accounts.
Unauthorized withdrawals: Using condominium funds for non-approved expenses.
Failure to reconcile accounts: Not maintaining accurate financial records.
Delay in deposits: Not depositing trust funds within the required timeframe.
Legal and Financial Consequences
Regulatory penalties: Brokerages found in violation of trust fund rules can face fines, license suspensions, or revocations from the Real Estate Council of Alberta (RECA).
Financial loss to the condominium corporation: If funds are misused or missing, the condominium board may be unable to cover expenses.
Litigation risks: Condominium corporations or unit owners may take legal action against a brokerage for financial mismanagement.
Audits and compliance issues: RECA conducts random and complaint-based audits. Non-compliance can result in mandatory corrective actions or disciplinary measures.
Case Study: Impact of Trust Fund Mismanagement
Scenario:
A condominium management brokerage fails to separate trust funds and uses reserve funds to cover a shortfall in their operating account. When the condominium corporation needs funds for repairs, they discover that the money is missing. The board reports the issue to RECA, triggering an audit. The brokerage is found in violation of Real Estate Act Rules and is fined, while the condominium corporation faces financial hardship.
Lessons Learned:
Always maintain separate trust accounts.
Conduct regular internal audits to ensure financial integrity.
Ensure transparent reporting to the condominium board.
Developing a Compliance Checklist for Trust Fund Management
To ensure proper handling of trust funds, condominium managers should follow this compliance checklist:
Trust Account Setup & Compliance
Establish a separate trust accounts (operating and reserve) for each condominium corporation.
Ensure trust accounts are held at an approved financial institution in Alberta.
Keep accurate and up-to-date records of all deposits and withdrawals.
Transaction Management
Deposit trust funds within two banking days of receipt.
Ensure all payments are authorized by the condominium board.
Retain detailed documentation for every transaction.
Reporting & Reconciliation
Perform monthly bank reconciliations to ensure accuracy.
Provide financial reports to the condominium board as outlined in the management agreement.
Maintain records in accordance with audit and compliance requirements.
Legal & Regulatory Compliance
Ensure all trust fund handling complies with the Real Estate Act Rules.
Avoid co-mingling funds or using trust funds for unauthorized purposes.
Be prepared for random audits by maintaining well-documented financial records.
Risk Management & Best Practices
Train condominium managers on proper trust fund handling procedures.
Implement internal audits to identify and correct potential issues early.
Ensure transparency by keeping the condominium board informed of all financial transactions.
