Commercial Property

19 Nov 2009

Real Estate Agents Act 2008

The Real Estate Agents Act 2008 is now in force and establishes a new regulatory regime for people working in the real estate industry. The Act was passed in the wake of a great deal of publicity about the industry and follows the general trend of regulatory reform in recent years, placing emphasis on consumer information and protection. This FYI briefly outlines the changes made by the Act and how it will affect businesses directly involved in property transactions.

Focus of the Act

The purpose of the Act is to protect the interests of consumers in respect of transactions that relate to real estate and to promote public confidence in the performance of real estate agency work. To achieve this, it introduces the new Real Estate Agents Authority and new regimes for complaints and discipline, licensing of real estate agents and disclosure by the agents.

Real Estate Agents Authority

The Real Estate Agents Authority (Authority) is a new body. It takes over the regulatory functions that were previously exercised by the Real Estate Institute of New Zealand. This is one of the main changes that the Government hopes will restore public confidence in the independence of the complaints procedures and complaint resolution. There has been a suggestion that the complaints procedure was not transparent enough and the new independent body should go some way to resolving that issue.

The Code of Conduct

The Authority is also responsible for establishing a code of conduct for real estate agents. The Real Estate Agents Act (Professional Conduct and Client Care) Rules 2009 sets out a minimum standard that all agents, branch managers and salespersons must abide by.

The code covers:

• standards of professional competence and conduct;
• reporting misconduct or unsatisfactory conduct;
• client care and dealings with customers; and
• obligations to provide information about complaints. 

Some of the more interesting rules are:

• An agent must deal fairly with all parties engaged in a transaction.
• Although an agent is not required to discover defects in land, they must disclose known defects. But if it appears likely to an agent that land may be subject to defects (such as leaky homes), the agent must either obtain information from the vendor that there is no defect or tell the purchaser of any significant potential risk so that the purchaser can get expert advice. What would amount to "significant potential risk" will no doubt become the subject of some debate.
• An agent must explain agency agreements to a prospective vendor including how commissions are paid, how the land will be advertised and ensuring that the prospective vendor is aware that they should legal advice before signing anything. 

The Code of Conduct will become central to most people's relationships with agents and we will expand on the code in a future FYI.

Approved guides

The Act requires agents to provide these to people when entering into agency agreements or agreements for sale and purchase. The central idea is that the person knows what they are about to sign and the implications of signing.

The approved guide for agreements for sale and purchase is quite detailed and should ensure that most people do not sign an agreement in ignorance of their resulting obligations or rights. In brief this approved guide covers:

• What is negotiation?
• Getting legal advice before signing
• What are conditions and how do they work?
• How the purchase price is paid
• What can they expect from the agent
• Complaints and Discipline  

Any person can complain to the Authority about a licensed agent or a former licensed agent. When the Authority receives a complaint, it will be referred to a Complaints Assessment Committee (Committee). The Committee may then investigate the complaint. Once it has done so it can then:

• choose to take no action;
• promote resolution of complaints through negotiation or mediation; or
• publish a decision.

The Committee can also make a number of orders including:

• requiring the agent to apologise or undergo further training;
• reduce, cancel or refund the agent's fees; or
• fine the agent up to a maximum amount of $10,000 for an individual or $20,000 for a company. 

As well as those orders the Committee may also lay charges of misconduct before the Real Estate Agents Disciplinary Tribunal (Tribunal).

The Tribunal is another entity established under the Act. It is also independent of the Real Estate Institute. As well as considering claims laid before it by a Committee, it can also hear appeals about decisions of a Committee or Registrar. The theory is that by making the Tribunal independent the consumer can be more confident of a meaningful decision about misconduct. As with other changes under the Act, this transparency is seen as crucial to consumer confidence in the real estate industry.

If the Tribunal finds that a charge laid against an agent is proven, it can make orders such as:

• cancelling or suspending a licence;
• terminating the employment of an agent;
• imposing a fine of up to $15,000 for an individual or $30,000 for a company; or
• ordering the agent to pay compensation to anyone who has suffered loss through the agent's misconduct of up to $100,000. 

Licensing

Under the Act, all people undertaking real estate agency work, including real estate agents, branch managers and sales persons will need to be licensed. Licensees will be required to get a licence every year.

To become licensed as an agent, a person must:

• be over 18;
• not be prohibited under the Act from holding a licence;
• satisfy the Registrar that they are a fit and proper person to hold a licence;
• have the prescribed qualifications; and
• have three years experience in real estate agency work within the 10 years preceding the application. 

All licensed persons will be listed on the public register of licensees. Again, this is aimed at consumer confidence and transparency. The register will allow the public to make informed decisions when choosing an agent, branch manager or sales person. The register will provide information about whether a person is licensed, the history of their licence and whether they have been disciplined within the last three years.

Disclosure

The Act requires agents to disclose more information to customers. As part of that obligation, agencies are now required to display their agency information in a prominent place. Agents are also now required to disclose the source of all rebates, discounts or commissions that the agent will receive and specify the estimated amount of those rebates, discounts or commissions. By way of example, if an agent receives discounts from an advertising agency or publication the customer will need to be advised of those discounts.

Sole Agency Agreements

Under the Act, clients will now be able to cancel sole agency agreements by 5pm on the first working day after the day they received the agreement. Clients will also be able to cancel sole agency agreements that are for periods longer than 90 days, at any time 90 days after the agreement was signed.

Effect on Businesses

Many businesses are involved in buying and selling properties without the use of a real estate agent. The obvious question is how will these businesses be affected by the changes in the law?

Employees involved in property transactions on behalf of their employer (for example, a property developer) are unlikely to be required to be licensed under the Act. While the Act does extend the type of people needing to be licensed, employees are unlikely to be regarded as carrying out real estate agency work so long as their activities are restricted to dealings with their employer's property. Real estate agency work means any work done or services provided, in trade, on behalf of another person for the purpose of bringing about a transaction. Employees will not be acting "in trade" or on behalf of another person, when engaging in property transactions for their employer.

If third parties, such as independent contractors, are used to help with property transactions they may need to be licensed. Under the Act it is the individual's responsibility to be licensed and therefore businesses will not be liable for a third party’s failure to obtain a licence.

The broadening of who is required to be licensed means that business brokers are now required to be licensed. Previously, agents involved in the sale and purchase of businesses were not required to be licensed or be members of REINZ. As business brokers are now required to be licensed, the complaints procedure under the Act will be available to businesses. Disclosure requirements and rules regarding sole agency agreements will also be available for businesses involved in such transactions.

Transactions for the sale and purchase of shares in a business will not be covered by the Act unless the shares entitle the shareholder to a licence that is registrable under the Land Transfer Act 1952.

Authors

Phillip Merfield

Partner - Property & Infrastructure

DDI: +64 9 977 5096

Mobile: +64 21 935 407

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Michael Scannell

Partner - Property & Infrastructure

DDI: +64 4 924 3416 / +64 3 365 4312

Mobile: +64 21 437 644

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Greg Towers

Partner - Property & Infrastructure

DDI: +64 9 977 5051

Mobile: +64 21 963 653

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Michael Wood

Partner - Property & Infrastructure

DDI: +64 9 977 5329

Mobile: +64 21 772 974

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Greg Allen

Senior Associate - Property & Infrastructure

DDI: +64 9 977 5164

Mobile: +64 21 534 464

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John Craig

Senior Associate - Property & Infrastructure

DDI: +64 4 924 3426

Mobile: +64 21 044 6941

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