Complaint No CB7203638 [2013] NZREAA 214 (15 October 2013)

Last Updated: 12 July 2014

In the Matter of Part 4 of the Real Estate Agents Act 2008

And

In the Matter of Complaint Nos: CB7203638, CB7203818 & C03412

In the Matter of Licensee One

Licence Number: XXXXXXXX

Licensee Two

Licence Number: XXXXXXXX

The Agency

Licence Number: XXXXXXXX

Decision of Complaints Assessment Committee

Dated this 15th day of October 2013

Complaints Assessment Committee: CAC20007

Chairperson: Ann Skelton Deputy Chairperson: Paul Biddington Panel Member: Joan Harnett-Kindley

Complaints Assessment Committee

Decision to take no further action

1. The Complaint

1.1. The Complainants have complained to the Real Estate Agents Authority (the Authority) about the conduct of Licensee One and Licensee Two. Licensee One and Licensee Two are licensed under the Real Estate Agents Act 2008 (Act). Both hold a salesperson’s licence and both work for the Agency. During the course of the investigation, the Complaints Assessment Committee (Committee), pursuant to section 78(b) decided to inquire into the practices of the Agency, more particularly an apparent failure to retain copies of all offers for a period of 12 months as required under Rule 9.21.

1.2. The Complainants allege that Licensee One and Licensee Two misrepresented that the Property did not have any issues regarding code compliance or weather-tightness.

1.3. The complaint was received by the Authority on 23rd November 2012 and referred to a Committee. The Committee considered the complaint on 23 January 2013 and made a decision pursuant to section 79(1) of the Act to inquire into the complaint. The Committee met again on

29 July 2013 and 19 August 2013 to consider further evidence provided and to decide whether the Licensees’ and Agency’s alleged conduct:

• Amounted to Unsatisfactory Conduct (section 72 of the Act) or Misconduct (section 73 of the Act) or either

• Breached Rules 6.4 or 9.14 of the Real Estate Agents Act (Professional Conduct and

Client Care) Rules 2009.

2. Material Facts

2.1. On 1 June 2012 the Property was listed with the Agency, Licensee One as the Listing Agent. The

Agency obtained a LIM dated 26 June 2012 relating to the Property. The Property was tenanted.

2.2. On about 7 July 2012 the Complainants attended an open home at the Property. Licensee One was the agent present. The Complainants state that they asked Licensee One whether there were any problems with the Property that they should know about. According to the Complainants, Licensee One said “there were no problems” and “the whole house was built in the 1950s”. Licensee One also stated that the Vendor would not accept any conditional offers.

2.3. The Complainants made an unconditional offer of $610,000.

2.4. Licensee Two, who works as Licensee One’s personal assistant, contacted the Complainants to advise them that there was a multi-offer situation, with three other offers. The Complainants stated that Licensee Two persuaded them to make a higher offer. During this conversation, the Complainants state that they asked Licensee Two if there were any quality issues with the Property and why the Vendor would not accept any conditional offers. According to the Complainants, Licensee Two stated that there were no problems with the Property and the Vendor was moving overseas so was looking for a quick sale.

2.5. The Complainants state that they relied on the representations of both Licensee One and

Licensee Two in making their increased offer of $640,000, with a settlement date of 16 October

2013. A deposit of $32,000 was paid.

2.6. Licensee One stated that the Complainants filled out their own Sale and Purchase Agreement as they were experienced at buying property. This was emailed back to Licensee One.

2.7. One of the Complainants contacted Licensee One requesting permission to access the Property to conduct a valuation report. According to the Complainants, this request was initially rejected by Licensee Two. The Complainants phoned Licensee Two again and said that their bank required a valuation in order to approve finance. According to the Complainants, Licensee Two agreed to allow access on the condition that there would be no final house inspection prior to settlement.

2.8. The valuation report was completed by Eyles McGough on 10 September 2012. The report identified that there may be a potential issue with the lower level cladding and it recommended a building report be commissioned. As a result of this report, the Complainants stated that the bank would only approve finance if a building inspection was carried out to prove there was no issue with weather-tightness.

2.9. Settlement did not occur on 16 October 2012 and on 17 October 2012 the Complainants were served notice by the Vendor’s solicitor requiring settlement.

2.10. On 1 October 2012 the Complainants’ solicitor wrote to the Vendor ’s solicitor stating that the Complainants did not intend to settle due to code compliance issues with the Property and failure to disclose issues relating to water-tightness. A request was made to refund the deposit. A copy of this letter was received by the Agency on 5 October 2012.

2.11. On receiving this letter, Licensee One stated that she contacted the Complainants immediately who mentioned that there were problems with the Property but would not elaborate as she stated that their solicitor was dealing with it. Licensee One stated that she had no further contact with the Complainants after that conversation.

2.12. Licensee One submitted that she also contacted the Vendor about this letter. According to Licensee One, the Vendor did not accept there were any issues relating to code compliance and stated they would be pursuing settlement.

2.13. On 24 October 2012 the Complainants engaged building experts who conducted an exterior roadside inspection of the Property on 25 October 2012. The Vendor would not allow access to the Property. The report identified cracks in the lower level cladding, staining and that the building decks were hard up against the cladding. Based on this visual inspection it was estimated that the cost of recladding the lower portion of the house would be in the vicinity of

$162,000 plus GST. The report stated:

“...It is therefore that for the purposes of this report, that the lower storey of the property is reclad to address defects that are apparent. This assumption is made without the benefit of moisture testing of any form and the validity of the assumption can only be confirmed, or otherwise, via a scheme of comprehensive testing. The extent of any water ingress could not be confirmed during our limited roadside visual inspection....”.

2.14. The Complainants, through their solicitor, contacted the Vendor and, based on the report, offered to settle if the purchase price was reduced to $620,000. This was rejected.

2.15. On 30 October 2012 the Complainants’ solicitor stated that they were prepared to proceed to settlement. On 2 November the Vendor’s solicitor wrote to the Complainants’ solicitor cancelling the agreement on the basis that they had failed to settle.

2.16. The Vendor refused to return the deposit of $32,000 as the Sale and Purchase Agreement did not contain a right to refuse to settle and based on their legal advice, they were entitled to retain the deposit. The Agency retained $24,265 of this deposit, the balance being paid to the Vendor.

2.17. The Complainants seek return of their deposit. The Complainants had attempted to negotiate a reduced settlement and failing that, offered to settle in full. Both offers were declined by the Vendors.

2.18. The Property was remarketed by way of auction. The Licensees made disclosures to the new owner around the previous non-settlement and Code Compliance being an issue. There were no disclosures made about weather-tightness.

2.19. An investor purchased the Property for $642,000 prior to auction after having completed his own due diligence.

3. Relevant Provisions

3.1. A complaint can only be made in relation to alleged unsatisfactory conduct (section 72 of the

Act) or alleged misconduct (section 73 of the Act).

3.2. Section 72 of the Act provides:

72 Unsatisfactory conduct

For the purposes of this Act, a licensee is guilty of unsatisfactory conduct if the licensee carries out real estate agency work that –

(a) falls short of the standard that a reasonable member of the public is entitled to expect from a reasonably competent licensee; or

(b) contravenes a provision of this Act or of any regulations or rules made under this Act; or

(c) is incompetent or negligent; or

(d) would reasonably be regarded by agents of good standing as being unacceptable.

3.3. Section 73 of the Act provides:

73 Misconduct

For the purposes of this Act, a licensee is guilty of misconduct if the licensee’s conduct –

(a) would reasonably be regarded by agents of good standing, or reasonable members of the public, as disgraceful; or

(b) constitutes seriously incompetent or seriously negligent real estate agency work; or

(c) consists of a willful or reckless contravention of—

(i) this Act; or

(ii) other Acts that apply to the conduct of licensees; or

(iii) regulations or rules made under this Act; or

(d) constitutes an offence for which the licensee has been convicted, being an offence that reflects adversely on the licensee’s fitness to be a licensee.

3.4. The Real Estate Agents Act (Professional Conduct and Client Care) Rules 2009 (the Rules) set out the standard of conduct and client care that agents, branch managers or salespersons (licensees)

are required to meet when carrying out real estate agency work and dealing with clients. Whilst these rules are not meant to be an exhaustive list, they set minimum standards that licensees must observe and a reference point for discipline.

3.5. In relation to this complaint the following Rules may apply:

Rule 6.4 A licensee must not mislead a customer or client, nor provide false information, nor withhold information that should by law or fairness be provided to a customer or client.

Rule 9.14 A licensee must retain copies of all offers (whether such offers resulted in a transaction or not) for a period of 12 months.

4. Discussion

4.1. The Committee was not satisfied, on the balance of probabilities, that there was sufficient evidence to substantiate the complaint made by the Complainants about the conduct of Licensee One or Licensee Two.

4.2. The Complainants assert that they based their offer to purchase the Property on representations made by Licensee One and Licensee Two. More particularly, they point to the positive statement by Licensee One that “there are no problems with the house”, or words to that effect. The Complainants then had suspicions raised about aspects of the Property through comments made in a valuation report commissioned prior to settlement date and as a result had a builder’s report done. Due to not being able to access the Property, this inspection was only done from the roadside and did not involve any testing or close-up inspection.

4.3. The Committee does not condone the practice of licensees making positive statements about properties that are outside the experience or knowledge of the licensee or have not been verified independently. The Committee accept it was unwise for Licensee One and Licensee Two to state that there were no problems with the Property. It would be a more prudent practice to defer any statement and suggest prospective purchasers undertake their own due diligence. However, balanced against that, the evidence provided by the Complainants regarding alleged weather tightness issues was inconclusive and based on assumption. The report itself stated that this assumption could only be tested with comprehensive moisture testing, which had not been carried out at the time the Complainants decided not to settle. In other words, the Committee has not been provided with any reliable evidence to show the Property does have weather-tightness problems.

4.4. Leaving that aside, the contract between the Vendor and the Complainants was such that it did not include a clause allowing the Complainants to refuse to settle. Furthermore, by making an unconditional offer the Complainants left themselves in a position whereby they took on all the risks usually covered by conditions to the agreement. The Committee understands that the Complainants felt they needed to make an unconditional offer based on the statements of the Licensees. Other offers made in the multi-offer situation were not unconditional, and thus were not successful. It follows therefore that the Complainants had to decide which risk to take; make a conditional offer and potentially not be successful in buying the Property; or make an unconditional offer which may win the Property but had inherent risks with it.

4.5. The Committee finds that although both Licensees were unwise to make sweeping statements

about the state of the Property, it does not find Licensee One or Licensee Two guilty of a breach of the Act or Rules. The Committee is of the view that the Complainants knew, or ought to have known, the risks of making an unconditional offer. The Committee will take no further action against Licensee One or Licensee Two.

4.6. In relation to the Agency, after the initial investigation involving the Licensees, it appeared the Agency had not retained parts of all the offers made in the multi-offer situation, as is required by Rule 9.14. The Committee went back to the Agency to inquire about this. The Agency subsequently produced all relevant copies and the Committee is satisfied that there is no breach of Rule 9.14 by the Agency. The Committee will take no further action against the Agency.

5. Decision

5.1. After conducting an inquiry into the complaint, pursuant to section 89(1) of the Real Estate Agents Act 2008 (the Act), the Committee held a hearing with regard to that complaint. In accordance with section 90(1) of the Act, the Committee conducted the hearing on the papers, and pursuant to section 90(2) the Committee’s determination was made on the basis of the written material before it.

5.2. The Committee has determined under section 89(2)(c) of the Act to take no further action with regard to the complaint or any issue involved in the complaint.

6. Publication

6.1. One of the Committee’s functions pursuant to section 78(h) of the Act is to publish its decisions.

6.2. Publication gives effect the purpose of the Act of ensuring that the disciplinary process remains transparent, independent and effective. The Committee also regards publication of this decision as desirable for the purposes of setting standards and that it is in the public interest that the decision be published.

6.3. The Committee directs publication of its decision, but omitting the names and identifying details of the complainant (including the address of the property), the licensee and the Agency, and any third parties in the publication of its decision.

6.4. The Authority will publish the Committee’s decision after the appeal period has ended. Any application for an order preventing publication must be made to the Disciplinary Tribunal.

7. Right of Appeal

7.1. A person affected by a determination of a Committee may appeal to the Disciplinary Tribunal against a determination of the Committee within 20 working days after the date of this notice.

7.2. Appeal is by way of written notice to the Tribunal. You should include a copy of this Notice with your Appeal.

7.3. Further information on lodging an appeal is available by referring to the Guide to Lodging an

Appeal at www.justice.govt.nz/tribunals.

Signed

Ann Skelton

Chairperson

Complaints Assessment Committee

Real Estate Agents Authority

Date: 15 October 2013