Who holds the deposit when an Ontario business broker is involved?

If a buyer’s deposit is paid to an Ontario brokerage in a business sale, trust rules apply to it. This page covers only the brokerage’s trust-account duties under the Trust in Real Estate Services Act, 2002 (TRESA) and O. Reg. 567/05. They reach a business sale because the Act’s definition of “real estate” includes businesses. For lawyers and trust companies as holders, see who is regulated to hold escrow money. This covers Ontario; check the rules where you are with a lawyer.

What the brokerage must do with trust money

Under TRESA s. 27(1), a brokerage must keep in Ontario an account designated as a trust account at a bank or authorized foreign bank, a loan or trust corporation, or a credit union. It must deposit into it all money that comes into its hands in trust for other persons in connection with its business, keep that money separate from its own at all times, and disburse it only in accordance with the terms of the trust. Under O. Reg. 567/05 s. 17(1), the deposit must go in within five business days. A brokerage may not maintain more than one such account unless the registrar consents in writing (O. Reg. 567/05 s. 14), and may not engage in any transaction involving trust money unless its broker of record authorizes it (s. 19).

How the money comes out

Under O. Reg. 567/05 s. 18, if a brokerage receives a request for a disbursement from the trust account and the disbursement is required by the terms of the applicable trust, it must disburse the money as soon as practicable, subject to those terms. Where a registrant represents a client and the client has made an agreement in connection with the trade requiring the registrant to deliver a deposit or documents, s. 22.11 says to deliver them in accordance with the agreement, except as otherwise provided by law. RECO says that in a dispute over ownership of a deposit, a brokerage can disburse it only in accordance with a mutual consent and/or release form signed by both buyer and seller, or by following instructions in a court order. It says a lawyer can advise on the steps to take in such a dispute.

What a buyer can ask

Under TRESA s. 27(2), a brokerage must disclose in writing to the person depositing the money the terms on which it deposits it, including whether it is in an interest-bearing account and the interest rate the brokerage receives. Unless the contract says otherwise, s. 27(3) sends interest to the beneficial owner of the money. So ask which trust account will hold the deposit, who authorizes its release, and what the contract says about interest. RECO also says all brokers and salespersons are required by law to take part in an insurance program that includes consumer deposit insurance. It says the coverage responds to events such as brokerage theft, fraud, insolvency or misappropriation of funds, subject to the policy’s terms and conditions, and does not respond where the parties simply cannot agree on who gets the deposit. See also whether a seller can keep a deposit if you back out.