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Guide to receiving client monies

Friday, June 19, 2009

Catherine Deshayes

The Association of International Property Professionals (AIPP) has produced a guide to help and advise both agents and developers through the process of receiving client monies, but they suggest that agents do not receive client monies to pass onto a third party unless absolutely necessary...

Increasingly, agents in the international property market are encouraging their clients to pay money directly into the agent's accounts.

AIPP has spoken to member agents who have introduced different payment schemes in which they receive all or part of the total monies due for the purchase of a property overseas by one of their clients. This is sometimes done in order to secure receipt of the commission due from sales.

When agents receive money from a client that is to be passed on to the developer or another vendor, that act alone carries considerable extra obligations. By taking client monies, you may be taking on more than you think. There is a fear that many agents doing this have not thought through the consequences.

AIPP's guidance is that agents are advised NOT to receive client monies to pass on to a third party. If agents still wish to take money from clients, they should think very carefully before doing so.

Paul Owens, Chief Executive of AIPP said, "Our guidance to AIPP Members about the receipt of client monies should help protect themselves, their companies and, most importantly, their clients."

The following guidance is issued to companies in the UK by the Office of Fair Trading, ‘If operating from the UK, you should be aware that if you don't handle clients' money correctly you could be convicted by a court, get a warning or prohibition order and you could be sued.'

If you still choose to take client monies on behalf of a third party, follow the guidelines below:

1. Check your obligations in advance

Your obligations to the payer of the monies are significantly increased when you accept money from them. You may find it helpful to consult your accountant and/or lawyer about all requirements in the country(ies) in which you do business. In most cases, you are effectively holding the client's money on trust and there are procedures you should follow when dealing with it.

2. Deposits

All deposits should be held in a separate account (preferably called a ‘client account') set up for this purpose at a bank. No other money should be paid into this account.

3. Keeping accounts

You should keep detailed records of all the transactions relating to a client account and keep detailed receipts for all the money you receive. (Under UK law, it is an offence for agents not to do so. This may be the case in other countries too).

It is recommended that your accounts are examined and reported on by a qualified auditor within six months of the end of your accounting period.

Accounts and records should be kept for several years after the end of the accounting period to which they relate. (UK law requires that records are kept for six years. You should check the local requirements if based in other countries).

4. Receipts

Your receipts for money received should include the following items:

The amount

The date of receipt

The name and address of the payer

Whether it is a contract or pre-contract deposit (and whether any money is for a connected contract)

If the amount includes a sum which is not to go towards payment for the property or is not in respect of a connected contract, the purpose of the payment and the form in which it is received

Particulars of the property

(Guidance from the Office of Fair Trading in the UK. Similar guidance available in other countries.)

5. Money paid in

Records should show items 1-6 under ‘Receipts' above and:

The name of the seller

The capacity in which the money is received.

The name of the person or company for whom the money is received and, if a change occurs so that the money is held for someone else, the name of that person or company (if known)

6. Money paid out

Records should show:

The amount

The date of payment

The name of the payee

Particulars of the property

The corresponding payment into the account

The occasion of the payment (for example, completion of sale)

If money is paid out for estate agency work there should be enough detail in the records to explain what the payment is for. The same applies if you exercise a legal right to deduct money owing to you before paying any balance over to another party.

If money is transferred from one client account to another, you should record the reason for the transfer and identify the corresponding payment into the account.

AIPP is currently looking at different options to advise agents and developers on receiving client monies and will send out further guidance to members in due course.

Picture by danzo08

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