Complaint No C03005 [2013] NZREAA 258 (29 November 2013)

Last Updated: 3 August 2014

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

And

In the Matter of Complaint No: C03005

In the Matter of Licensee 1, Licensee 2 and the Agency

Licence Number: XXXXXXXX, XXXXXXXX and XXXXXXXX

Decision of Complaints Assessment Committee

Dated this 29th day of November 2013

Complaints Assessment Committee: CAC20009

Chairperson: Paul Biddington Deputy Chairperson: Stuart Rose 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 1, Licensee 2 and the Agency. The Licensees are licensed Salespersons under the Real Estate Agents Act 2008 (the Act). Both Licensees are employed by the Agency.

1.2 The complaint relates to the conduct of the Licensees during the purchase of 1312 Huia Road, Huia, Auckland (the Property), by the Complainants in February 2013. The Complainants allege that Licensee 1 misrepresented to them that the Property had been owner occupied and not tenanted. The Complainants further allege that Licensee 2 did not disclose to them that there had been issues with the tenants during the tenancy and the Property had been left in a poor state.

1.3 The complaint was received by the Authority on 10 July 2013 and referred to a Complaints

Assessment Committee (the Committee). The Committee initially considered the complaint on

16 July 2013 and made a decision pursuant to section 79(1) of the Act to inquire into the complaint. The Committee considered further evidence gathered on 18 October 2013.

2. Material Facts

2.1 The vendors purchased the Property in 1995 and resided there. Between 2004 and 2011 the Property was tenanted. During 2011 the tenants vacated and the Vendors moved back in and lived in the Property for approximately 2 years before deciding to sell.

2.2 On 10 February 2013 the Vendors signed an agency agreement with the Agency for the sale of the Property. The listing salesperson was Licensee 2. Licensee 2 stated at the time of listing , the Property was in a “tired condition” and had deferred maintenance. Licensee 2 further stated that there did not appear to have been any refurbishment done prior to the Vendors listing the Property and when he visited the Vendors they were living in the cottage and had possessions stored in the sleep-out.

2.3 Licensee 2 stated he initially asked the Vendors whether they actually wanted to sell or rent the Property, because the Vendors had purchased a bigger property closer to work and their daughter’s school. Licensee 2 further stated that he and the Vendors discussed the rent or sell option and the Vendors advised that renting the Property had its difficulties and they didn’t want to do it again. Licensee 2 also stated that the Vendors did not offer any more information about the rental history of the Property and that he had no reason to ask. Licensee 2 further stated that the Vendors did not inform him that the Property had been left in a poor state or disclosed that they knew of any hazards with the Property.

2.4 On the 14 and 16 February 2013 the Complainants viewed the Property with Licensee 1 and at the second visit on 16 February 2013 the Complainants signed a sale and purchase agreement to purchase the Property with a settlement date of 1 March 2013.

2.5 The Complainants submit that during the first visit to the Property on 14 February 2013, Licensee 1 advised that the Vendors had owned the Property for 18 years and furthermore when they inquired from Licensee 1 if it was owner occupied, he stated it was, however that they did not inquire if the Property had been tenanted. The Complainants further submitted that they gathered from this statement by Licensee 1, a clear inference that the Vendor had occupied the Property all that time which they considered a good sign, and as such, only undertook basic investigations such as a building inspection and a LIM report. The Complainants also submitted that had they known that the Property had been tenanted, they would have been more careful in their investigations, however the Complainants do not state in what way they would be more careful, or whether they would have employed greater due diligence.

2.6 The Complainants took possession of the Property on 21 March 2013. On 31 March 2013 the neighbours advised the Complainants that the Property had been tenanted for about 7 years and had been used as a P Lab.

2.7 The Complainants contacted Licensee 1 around the middle of April 2013 requesting the contact numbers of the previous owners as they wanted to ask them if the Property had ever been tenanted. The Complainants advised Licensee 1 that they had learnt from the neighbours that the Property had been used as a P house. Licensee 1 advised the Complainant that if the previous Vendor’s contact numbers were not on the sale and purchase agreement he could not supply them.

2.8 The Agency advised the Complainants that they could not disclose the information in regard to the previous Vendors contact details and they should contact the Vendor ’s solicitor. The Agency further advised that the Complainants have the Property tested by NZDDA or some other appropriate organisation.

2.9 Licensee 1 spoke to Licensee 2 a few days later who confirmed that the Property had been tenanted. According to Licensee 1 this was the first time he knew of the tenancy.

2.10 On 3 May 2013 the Complainants stated they had the Property tested for P contamination. The first test of the house came up negative but the studio was contaminated. The house was tested again and found positive for P contamination. The Agency stated that this illustrates the difficulty of identifying the presence of P even with specialist testing.

2.11 On 13 June 2013 when the Complainants contacted Licensee 2 and he confirmed that he had been the listing agent for the Property but refutes that he told the Complainants that the Property was tenanted for 7 years, or that it had been left in a mess when the tenants vacated. Licensee 2 further states that he can only assume that that information was provided to the Complainants by the neighbours.

2.12 On 14 June 2013 the Complainants met at the Agency with Ms N the Director and Principal

Officer of the Agency. Ms N stated that the Complainants requested that the Agency pay

$25,000, being the estimated cost of cleaning up the Property. The Complainants state they contacted Campbell Live because they wanted to publicise the issue as they didn’t want anyone else to go through what they had. On 8 July 2013 the Agency was contacted by a spokesperson from a television show. The Agency declined to be interviewed.

2.13 The Complainants made contact on 10 July 2013 with the previous Vendors who submitted that they were certainly unaware that the sleep-out had been used as a P Lab and had no knowledge of what the tenant did in the cottage. They further submitted that they lived in the cottage for two years and occasionally had guests stay in the sleep-out. Had they known about the

contamination they would never have moved in and exposed themselves to dangerous toxins.

2.14 The Complainants stated they asked the Vendors how they found the Property when they returned and they submitted it was neglected and they had a huge mess to clean up. The Complainants further stated that they asked the Vendors what they had said to Licensee 2 in relation to the history of the tenancy and the Vendors submitted that they couldn’t recall every detail and were unsure if they had mentioned to Licensee 2 about the mess they had to clean up, but they were sure they mentioned that the Property had been tenanted.

2.15 Ms N stated that the Agency had made changes to their procedures after the complaint was received. Changes had been made to their agency agreements and clauses related to possible P contamination added to their sale and purchase agreements. She further stated that all Licensees from the Agency had attended training sessions with the Police Clan Lab Team so that they will be more alert to the possibility of P contamination. Ms N also stated that when Licensees visited new listings, the listing licensee would pass on all information to the Agency’s Licensees about the property and all the listings were discussed again at the weekly sales meeting. If any further information came to light all licensees were advised.

2.16 On 19 July the Real Estate Institute of New Zealand for the first time issued a best practice guideline for addressing the P issue. The Agency stated that it introduced the guideline to its sales team at a weekly meeting on 23 July 2013.

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). 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.

3.2 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 wilful or reckless contravention of- (i) this Act; or

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

(iii) regulations or rules made under the 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.

3.3 50 Salespersons must be supervised

(1) A salesperson must, in carrying out any agency work, be properly supervised and managed by an agent or a branch manager.

(2) In this section properly supervised and managed means that the agency work is carried out under such direction and control of either a branch manager or an agent as is sufficient to ensure-

(a) that the work is performed competently; and

(b) that the work complies with the requirements of this Act.

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) these rules are not meant to be an exhaustive list, they set minimum standards that licensees must observe and are 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: 6.5 A licensee is not required to discover hidden or underlying defects in land but must disclose known defects to a customer. Further, where it appears likely, on the basis of the licensee’s knowledge and experience of the real estate market, that the land may be subject to hidden or underlying defects, the licensee must either-

(a) obtain confirmation from the client that the land in question is not subject to a defect; or

(b) ensure that a customer is informed of any significant potential risk so that the customer can seek expert advice if the customer so chooses.

4. Discussion

4.1 The Complainants allege that when Licensee 1 introduced them to the Property and they asked who lived there, he misrepresented to them that the Property had been owner occupied for 18 years and never disclosed that the Property had been tenanted. Licensee 1 stated that he did not know at the time of the introduction that the Property had been tenanted and could not disclose to the Complainants such information. The Complainants further alleged that the inference they gained from Licensee 1 was that it had always been owner occupied and had they known that the Property had been tenanted they would have made further inquiries before purchasing.

4.2 The Committee is of the view that for the Complainants to infer that Licensee 1 misrepresented to them that the Property was owner occupied suggests that he intentionally did not disclose

knowledge of the tenancy which the Committee does not accept. Although the Complainants in their evidence do not claim that Licensee 1 actually advised them about the past tenancy they suggested that he knew of it. The Committee finds on the balance of probabilities Licensee 1 did not misrepresent to the Complainants the past history of the property and only became aware of the tenancy when informed by Licensee 2 after the Complainants had taken possession.

4.3 In relation to the Complainants alleging that had they known that the Property had been tenanted, they would not have undertaken basic investigations and would have taken more care and greater due diligence, the Committee notes that the Complainants do not say what sort of care or further due diligence they would have carried out. The Committee is of the view that Licensee 1 fulfilled his obligations in relation to disclosure and accordingly the Committee finds that the Licensee 1 has not breached the Act or the Rules in this part of the complaint.

4.4 In relation to the Complainants alleging that Licensee 2 had fai led to disclose to them that there had been issues with the tenants and the Property had been left in a poor state, the Committee is of the view that Licensee 2 did discuss with the Vendors the option of renting or selling. The Committee also accepts that the Vendors did advise Licensee 2 that he had had difficulties with tenants and would not do it again. The Vendor ’s evidence supports this where they state they are uncertain whether they advised Licensee 2 about the poor state of the Property after the tenants had vacated, but they were sure they had mentioned it had been tenanted.

4.5 The Committee considered that once Licensee 2 knew that the Property had been tenanted, he should have recorded this information on the agency agreement which would have alerted Licensee 1 to this information. The Committee is of the view that as the Vendors did not volunteer any further rental history in relation to the Property Licensee 2 had no reason to ask. The Vendors were more interested in selling. The Committee also accepts on the balance of probabilities that Licensee 2 did not fail to disclose to the Complainants the poor state of the Property after the tenants vacated as Licensee 2 was not advised by the Vendors of this. Furthermore, the Committee is of the view that the discussion between Licensee 2 and the Vendors concerning the Property having been tenanted was not considered an important issue until it was discovered there were signs of methamphetamine residue on the Property and the subsequent media attention. Accordingly, the Committee finds that Licensee 2 has fulfilled his obligations in relation to disclosure and finds that Licensee 2 has not breached the Act or the Rules in this part of the complaint.

4.6 The Committee also considered the Agency’s role in this complaint. The Committee accept that the Agency has made changes to its processes and procedures after the complaint. The Agency’s licensees have attended extra training in relation to awareness of possible P houses and this is to be commended. The Committee accepts that the complaint has drawn attention to this matter along with the publicity that followed and the Agency has, as will other agencies make changes to their processes and procedures accordingly. Therefore, the Committee finds that the Agency has not breached the Act or the Rules in this part of the complaint.

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 to 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 Licensees, the Agency and any third parties in the publication of its decision.

6.4 The Authority will publish the Committee’s decision after the period for filing an appeal has ended unless an application for an order preventing publication has been made to the Real Estate Agents Disciplinary Tribunal (Tribunal). Such an application can only be made as part of an appeal to that Tribunal. In order to ensure publication of the decision does not take place it is important that you serve a copy of your application on the Authority. Publication of the decision will not take place until the Tribunal has made a decision on the application.

7. Right of Appeal

7.1 A person affected by a determination of a Committee may appeal to the 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 filing an appeal is available by referring to the Guide to Filing an Appeal

at www.justice.govt.nz/tribunals.

Signed

Paul Biddington

Chairperson

Complaints Assessment Committee

Real Estate Agents Authority

Date: 29 November 2013