Markets in a ‘sound’ state despite shift: PIPA
The winds of change are sweeping through the country’s real estate market, but for Property Investment Professionals o...
Allegations of trust account abuse by a Sydney-based real estate franchise – which has since had its franchise agreement cancelled by the franchisor - follow two recent cases relating to Gold Coast agents who were found to have breached trust account rules.
NSW Fair Trading said it is investigating a Surry Hills real estate franchise following allegations of trust account deficiencies.
Fair Trading Commissioner Rod Stowe said earlier this week that his agency is investigating irregularities in the trust accounts operated by CBD Commercial Pty Ltd, trading as LJ Hooker Surry Hills.
A LJ Hooker spokesperson told Real Estate Business: “I can confirm we have terminated the franchise agreement with the CBD Commercial Pty Ltd due to a fundamental breach of the franchise agreement.”
Fair Trading appointed an independent manager to operate the agency on November 4.
Mr Stowe urged clients of the real estate agency should contact the appointed independent manager as matter of urgency. “Fair Trading is also available to deal with vendors, purchasers, landlords and tenants involved in this matter and can be contacted on 13 32 20,” he said.
“In particular, this applies to anyone who has purchased a property or entered into a lease using this agency.”
“Fair Trading requires real estate agents to comply with the laws that govern the industry and to ensure appropriate arrangements are in place to manage large sums of clients’ money,” he said.
“Consumers can apply for redress to the Property Services Compensation Fund operated by Fair Trading.”
Earlier this week a former Gold Coast agent -Jeffrey Dean Allen - was fined $100,000 and ordered to do community work after admitting he used his agency’s trust account to prop up his business during the GFC.
According to the QLD Office of Fair Trading, a court heard Mr Allen’s illegal transactions included withdrawing commissions before sale contracts had settled. No conviction was recorded against Mr Allen, and he has surrendered his real estate licence and is no longer operating as an agent.
QLD Office of Fair Trading executive director Brian Bauer said Mr Allen admitted to the breaches, saying he withdrew the money because the business’ cash flow was suffering from the global financial crisis.
Another Gold Coast real estate agent – Michael John Baldwin - was banned for life after he made unauthorised withdrawals from a company trust account to prop up his failing business. In a judgment issued in October, the Queensland Civil and Administrative Tribunal (QCAT) disqualified Mr Baldwin from holding a real estate licenced and also fined him $9000.
Furthermore, Golf Coast Property Investments and Management Pty Ltd, which traded as Ray White Southport – of which Mr Baldwin was a director between 2002 and 2008 - was also banned from trading.
According to the QCAT judgment, Mr Baldwin signed cheques to effect five unauthorised withdrawals from the company trust account, worth a total of $712,000, from March 31 to June 10, 2008.
The judgment said the company was placed under external administration, with the administrator identifying a shortfall in the rental and sales trust accounts totalling $613,186.
“The funds were not recovered and the department was required to make payments from the statutory fund to consumers,” the judgement read.
“Neither the company nor Mr Baldwin has reimbursed the statutory fund.”
"The transactions occurred over a fairly short period at a time when the global financial crisis was affecting the Gold Coast property market.
"There is no suggestion he was engaged in any conduct calculated to deliberately deceive or defraud the public."
Ben White, Ray White director, told Real Estate Business that Ray White's franchising arrangements require their hundreds of principal members to maintain trust accounting systems and records that comply with the law.
"Ray White has the ability, on short notice, to inspect those records, audit and review them. Over the past 12 months we have exercised that audit power judiciously," Mr White said.
"In fact, we are designing software systems for use by franchisees that make it easier to detect irregularities and which automatically generate exception reports."
Trust is a fiduciary relationship in which a trustor gives a trustee the right to hold title to property or assets for the benefit of a third party.