Who Holds Your Deposit When You Buy a House in Alberta?

When your offer on a home is accepted, you usually hand over a deposit. It can be a large sum, and it is natural to wonder where it goes, who can touch it and what happens if the deal changes.

In Alberta, the money is generally held by the brokerage in a trust account governed by the Real Estate Act and its regulation. This article walks through the main rules, the exceptions for builders and new condominiums, and the time limit for making a claim.

This article covers the law of Alberta.

Where your deposit goes after the offer is accepted

Money received in trust must be deposited within 3 business days of receipt. For money that came with an offer to purchase, those 3 business days run from acceptance of the offer.

The licensee must deposit it in an interest-bearing account at a bank, loan corporation, trust corporation, credit union or treasury branch. The account must be in the licensee's name and designated as a trust account. Before receiving any money, the licensee must also sign a service agreement that acknowledges the trust arrangement and sets out how the money will be received, held and disbursed.

Rules that protect the money

• Trust money must be kept separate from the licensee's own money.
• It must be kept on deposit in Alberta. Licensees with business premises in Lloydminster may use a local trust account.
• A brokerage must not use trust money to pay its own general office expenses or commissions owed to its brokers or associates.
• Payments out of trust must be made by cheque or bank transfer, with supporting documentation.
• A licensee cannot get a client to waive these trust-account duties. Any such waiver or release is void.

Interest is treated differently from what many people expect. A deposit in a brokerage trust account earns interest that is paid to the Alberta Real Estate Foundation, at least quarterly and less service charges. Neither the buyer nor the seller receives it.

When can the brokerage release the money?

A licensee may pay out trust money only in accordance with the Rules and the terms of the trust. Those terms must be in writing and agreed to by the licensee and all other parties. In practice, a brokerage holding your deposit cannot simply release it to one side on its own say-so. Release follows the written terms, such as the purchase contract or a written direction.

What happens to a deposit if a deal collapses depends on the signed contract and on how courts have applied it. If that is your situation, have a lawyer read your contract before you act.

Bounced cheques, statements and unclaimed money

• If an expected deposit is not received or a deposit cheque is not honoured, the brokerage must notify all parties in writing. An associate must tell the broker if an expected deposit has not arrived.
• A brokerage must give a client a statement of receipts and disbursements of the client's trust money within a reasonable time after the client asks, unless otherwise agreed.
• If a licensee holds trust money for more than 2 years and cannot locate the owner, the licensee must pay it to the Alberta Real Estate Foundation. The Foundation pays it to the rightful owner if entitlement is later established.

Builders and new condominiums are different

If you buy a new home from a builder and pay a deposit to the builder, you may register a caveat on the land title to protect it.

For a new condominium unit bought from a developer, the developer must hold your money (other than rents or security deposits) in trust until title is issued. It must be deposited in an Alberta trust account within three days excluding holidays and Saturdays, and kept on deposit in Alberta. The developer is entitled to the interest. If the developer has not met the conditions for releasing the money, the condominium corporation or an interested party may apply to the Court for an order for payment out. The Court may direct who is paid, appoint an administrator or receiver, and award costs.

Time limits and next steps

A claim, for example for breach of a purchase contract or return of a deposit, must be brought within 2 years after you first knew, or ought to have known, of it, or 10 years after the claim arose, whichever expires first. Other provisions may affect a contract claim, so check the specific facts.

• Keep your signed contract, receipt and proof of payment.
• Ask the brokerage in writing to confirm when and where the deposit was placed.
• Request a statement of receipts and disbursements if you want one.
• Do not sign a release or direction before you understand it. Having a lawyer review it first is an option.
• Note the date you first learned of any problem, because time limits run from then.

Frequently asked questions