Trust Accounting for Rental Payment Platforms

Hello Team!

Is there anyone here that understands/knows how property rental platforms work? More specifically, regarding their trust accounts? Do they need an agent license, or do they just need to have a trust account set up that all tenants pay their rent into and then distributed to landlords?

Any clarification will be helpful.

Thank you in advance
Damian

 

Hi @Damian Hillsworth

I think to own a trust account, you need to give business details. There is a lot of compliance around trust accounts and some states' RE license also needs a trust account to be opened.

In order to manage properties, one needs to have a license (if that was your question).
@Mel Morgan is a Property Manager and should be able to answer any specific question.

Regards
Ashish

 

Hi @Damian Hillsworth

Which state you're based in will vary the response. In NSW you need a fair trading code in order to open a trust account and needs to be operated by a Class 1 Licence holder.

With 'property rental platforms' are you referring to the online based ones that say they'll collect rent for you? The ones that i'm familiar with tend to direct debit the tenant and put straight into the owner's account so it bypasses the need for their own trust account.

 

As @Mel Morgan pointed out, to open a 'statutory trust account' you need a Class 1 licence and comply with OFT requirements.

Sales deposits are held in a separate trust account to rental monies.

 

Hi guys,

Thanks for all the responses, all very helpful.

@Mel Morgan - Looking across all states at the moment.

If rental platforms use direct debit (tenant to landlord), how do the platforms know if rent has been paid?

 

Its processed through the platform. The platform acts like a clearing house. Some of them rely on credit and debit cards to do this and that is dodgy. And I wouldnt give a platform authority to debit a bank account. They control the payment rather than it being paid into them, they are taking payment. Hence the extra costs and problems with a "free" method. One who does this claims they dont need a trust account as its collected and paid but NSW Fair Trading are investigating as money is credited and on-forwarded to owners - But its still acting like a trust account ! Whether its a month. fortnight, a week , a day or 5 mins or 1 second its all same. Money goes in then out its going to need a trust account.

Based on what I have read of late its an area I would have zero comfort as a owner and even less for a tenant as some seem to be playing games with what a "free" method is to pay rent. These platforms seem to need to control the collection to work. If a PM told me they wanted to use a platform its a sign I dont need them as a PM. I expect all elements of the PM role are inhouse and there are some renters who want to pay weekly or by Bpay etc. Last thing I would do is make rules about limiting rent being received.

 

To add on to this, what if a payment must be reversed or the wrong amount is paid or the former tenant pays to this by mistake (that happens from time to time they have mental blanks and transfer rent to their old PM because it's saved in their payees list etc). Imagine the headache for the Owner who now has to deal with this and the platform likely has little to no phone support because it's another upstart 'disruptor' model running on a boot string budget thinking it's going to be the next big thing by skirting to the law and protections in place for consumers and for very good reason .....

 

@Paul@PFI - Agreed Paul! I think it is somewhat (very) unclear and sits in a grey area of legislation. I've read about property managers forcing tenants to pay through an app resulting in the tenant paying a fee. The free option they offer is cash or cheque delivered to the agency which is hassel forcing tenants to go through the app and incurring the fee.

@Michael Mitchell - Also agree! I think a lot of proptech startups aren't necessarily solving a problem but rather making a bigger problem. In saying that though, I do believe that there is a way (legally and fairly) introduce tech to residential properties that helps everyone (landlord, property manager and tenant). I feel that the technology we currently have in the world hasn't been put to good use in the property space when you compare it to other industries such as finance, banking and e-commerce to name a few. But I think it's slowly heading in the right direction.

 

I think the number of agencies using those systems are very minor. And the articles 'exposing' them were exagerating as well.

As someone who is rather tech savvy, I think there's enough proptech. We already pay monthly subscriptions for a million different things, there's not much margin left.

 

The squeaky wheel?