Trust Accounts In Real Estate

Trust accounts are the backbone to a company that transacts with  other people’s funds. In Zimbabwe the running of a Trust Account is  governed by the law under Section 50 of the Estate Agents Act (27:07).  If your funds are mismanaged or abused in anyway you have the right to  report the matter to the Police and the Estate Agents Council of  Zimbabwe.

A Trust Account is basically a bank account that is used to receive  and pay for transactions such as taxes, insurances or even minor repairs  for a property in a client’s name. As an investor or a property owner,  if you wish to employ an agency to manage your property, the agency  signs up a contract with you and is now made liable for the amount that  is received by them. The funds received by the agency is held under  trust and according to law, can only be used once approval is given by  the property owner. Agencies that misuse trust funds can face major  audit consequences and therefore it is important to understand the legal  guidelines in respect to trust accounts.

As an agency, a contract is normally drawn up on behalf of the  property owner between “the property owner-(landlord) and the tenant.”  This becomes a legal binding document and therefore the funds received  on their behalf should be handled according to trust fund accounting  standards. The management company or the agency, takes this function  upon themselves and are fully responsible and accountable for your  funds.

Some key points on trust fund accounting.

The managing company needs to set up a separate bank account to its  company account. This account is used at the “operations” account into  which rentals and sale proceeds are deposited, payments and  distributions are made from and funds are held for future use. The  individuals taking care of the Trust Accounts for a company needs to  notify the Estate Agents Council on his or her appointment.

Any monies received by an agent needs to ensure a deposit is made  into the Trust’s bank account within six days of receiving them.

The individual appointed to take care of the accounts has to keep  proper records with particulars and information on monies received and  any monies being paid on behalf of the owner. Auditors can query a  payment made from the landlord’s funds, and each payment should have a  source document to prove it was for a valid property expense.

Accounting for trust can be complicated, but once the concept is  adopted it can be very simple to ensure the accounting is being done  well. A simple way to tell your accounts are in order is to make sure  each month the monies received for landlords in your books matches the  monies in the bank statement. At any given point, the bank statement and  the landlord ledger always have to be equal.

In accordance to the Public Accountants and Auditors Act, the trust  accounts have to be audited every once a year by a registered Auditor.  The Auditor then submits his findings to the Estate Agents Council, only  after which the council issues a renewed CompensationFund Certificate  for the Agency. The Estate Agents Council also has a right to appoint  their own registered auditor to inspect the books of accounts of any  person practicing as an Estate Agent in order to ascertain that the  rules and regulations are being observed at their own cost.

The rules governing trust accounts are very stringent and therefore a  registered agent will by all means try and keep his records upto date  and clean to avoid adverse consequences by the council. Therefore,  property owners, hand over the stress of managing / selling your  property to a registered Estate Agent- without any fear or stress as you  are covered by the law!