Korff - Complaint No CB6888962 [2013] NZREAA 326 (25 September 2013)

Last Updated: 16 October 2014

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

And

In the Matter of Complaint No: CB6888962 and CB6947048

In the Matter of Sarah Korff

Licence Number: 10032907

and

Licensee Agency
Licence Number: XXXXXXXX

Decision of Complaints Assessment Committee

Dated this 25th day of September 2013

Complaints Assessment Committee: CAC20004

Chairperson: Paul Morten Deputy Chairperson: Michael Vallant Panel Member: David Russell

Complaints Assessment Committee

Decision finding unsatisfactory conduct

1. The Complaint

1.1 The Complainant in this case has made a complaint against Sarah Korff, who is a salesperson licensed under the provisions of the Real Estate Agents Act 2008. The Licensee worked for Beaven Realty Ltd, which is an agent licensed under the Act. The Complainant has made a complaint against the Agency as well.

1.2 The Agency listed a property for sale in November 2011. The Licensee was the listing agent. The Complainant inspected the property twice in February 2012, and made an offer to purchase on 21 February 2012. The offer was accepted. The sale went unconditional on 6 March 2012.

1.3 During her inspections, the Complainant noticed that the house was untidy and run down; that concrete blocks forming a garage wall had a white powdery coating in places, which she suspected was caused by water leakage; and that a ramp leading up to the front door was in poor condition, with rusty bolts beneath it.

1.4 During a pre-settlement inspection, she noticed a large hole in the carpet in the dining room, previously concealed under a mat.

1.5 In May 2012, after settlement, the Complainant discovered water coming through the block wall of the garage during heavy rain.

1.6 There are a number of aspects to the complaint. The first is the one that has caused the Committee the most difficulty: the Complainant says that the Licensee assured her that there was no water problem with the garage wall, it was just “lime leaching”. In due course, the garage wall leaked.

1.7 Second, she says that the Licensee forgot to deliver the sale and purchase agreement to her Solicitor, as the Complainant had asked her to do.

1.8 Third, the Complainant says that after signing the sale and purchase agreement, she realised she had never raised the garage door. She says the Licensee promised to check it for her, but took about three weeks to do it, and that only after the Complainant threatened not to pay the deposit on the house.

1.9 Fourth, she complains about the hole in the carpet, and that the house was left in a very untidy state at settlement.

1.10 Fifth, she complains about an unsatisfactory meeting with the Principal of the Agency, who she says told her (incorrectly in her view) that the Agency bore no responsibility for any of the issues she mentioned; and who promised to contact the Vendors about the problems she raised, but then later told her he had lost the Vendors’ telephone number

and address; and, she says, became quite intimidating in the process.

1.11 Unsatisfactory conduct which attracts professional discipline, even at the lower end of the scale, must be conduct which departs from acceptable professional standards. That departure must be significant enough to attract sanction for the purposes of protecting the public. A finding of "unsatisfactory conduct" is not required in every case, even where error is shown. The question is not whether error was made, but whether the conduct in question was an acceptable discharge of professional obligations.

1.12 For the reasons set out in this decision, the Committee has decided to dismiss the last 4 aspects of the complaint against the Licensee and against the Agency. It is the Complainant’s obligation to establish that unsatisfactory conduct has occurred. The Committee considers that the Complainant, on balance, has failed to satisfy that onus. But in respect of the first aspect of the complaint, the Committee finds the Licensee — but not the agency — guilty of unsatisfactory conduct, by reason of the breach of rule

6.4 of the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2009.

2. Material Facts

2.1 The Committee has been supplied with over 200 pages of material, including photographs. We have carefully considered all of that material, and particularly the very detailed submissions made by the Complainant.

2.2 In this determination, we restrict ourselves to what we consider to be the relevant points. The fact that we do not traverse every point in detail is not to be taken as an indication that we have not read the material supplied.

2.3 The listing agreement does not disclose any leaks or problems to the concrete block work in the garage. The Licensee states that she specifically asked the Vendors whether there was anything that Prospective Purchasers should know about the property, and they told her there was nothing to disclose. The Complainant is unable to contradict that evidence.

2.4 Advertising for the property said that for the summer evenings Purchasers could “enjoy the large deck which opens off the dining area and conservatory and overlooks the back garden.... Now you have heard the benefits, now you need to grab the opportunity to view this great home......”

2.5 The Complainant inspected the property twice on 14 February 2012, and again a couple of days later. On the second occasion, she went through with a friend (Mr B). The Licensee thought the friend was a Builder. Mr B has advised that he is not a Builder, and has never been connected to the building trade.

2.6 The Complainant says that when she saw the marks on the concrete blocks at the north end of the house she told the agent the house had a water problem; and that the agent replied to the effect that it was “just the lime leaching in them — that’s what they do”.

She says that as a result of that assurance, she decided not to require a pre-sale building inspection.

2.7 The Licensee (through her Solicitors) says that a discussion took place in the basement about white marks on the concrete blocks on 2 of the walls. The Licensee says she told the Complainant that this was unusual, and that she hadn’t seen anything like that before. She says that she suggested to the Complainant it might be an old leak, as there was some pipework along the back of those walls. She says that it was the Complainant

— not her — who suggested it was lime leaching out of the blocks, as apparently that was a fairly common occurrence; and that the Complainant and her friend were happy with this assumption. The Licensee says she had never heard of this before. She says that she told the Complainant that if she was concerned about this, she should get a Builder to check it out.

2.8 The Complainant says the wall with the pipework was a different wall. She denies that she made the comment about the lime leaching.

2.9 Ms H, who went through the house with the Complainant, says she was out in the garden when the Complainant and the Licensee were looking at the basement. While she has heard about the lime leaching comment, she cannot recall who said it, or even whether it was that day or later as problems became known. She says she would be surprised if it was that day, as all she did was pass through the basement on the way to the garden.

2.10 The Complainant says that in a meeting with Mr E and the Licensee on 17 May, the

Licensee admitted that she was the one who made a comment about the lime leaching.

2.11 That means we are left with a factual conflict between the Licensee and the Complainant which the Committee finds impossible to resolve on the basis of written evidence. On the 19 February 2012, the Complainant advised the Licensee that she was interested in making an offer on the property. She met the Licensee, and Mr E at the Agency office on 22 February 2012. Mr E asked the Complainant whether she wanted the details of the contract explained to her, but the Complainant advised she was happy to seek her Solicitor’s approval of the contract. A Solicitors’ approval clause was therefore included in the sale and purchase agreement.

2.12 The Licensee advised the Complainant she could make the agreement conditional on a Builder’s report or a LIM. The Complainants said she was satisfied she did not need a LIM. She told the Licensee and Mr E that a Builders report would not be necessary.

2.13 At the end of the meeting, the Licensee agreed to drop the sale and purchase agreement off to the Complainant’s Solicitor that afternoon. She was delayed, and did not manage to do so until the next day. We accept the submission by the Licensee that a delay of less than a day in delivering the sale and purchase agreement does not constitute unsatisfactory conduct. This is the second aspect of the complaint. It fails.

2.14 There was some further negotiation, but a conditional agreement was entered into by the parties on 21 February 2012.

2.15 The Licensee accepts that the Complainant asked her to check the roller door, and states that this slipped her mind, but she did eventually confirm with the Sellers that the door was working. The Committee does not consider that any delay by the Licensee in checking out the roller door could possibly constitute unsatisfactory conduct. In any event, this was a matter that arose post-settlement. This third aspect of the complaint also fails.

2.16 There was a final inspection on 12 April 2012, which is when the Complainant noticed the hole in the carpet where the dining room table had been.

2.17 The parties disagree about whether the Licensee told the Complainant to raise this, and the fact that the house was a dirty, with her Solicitor the next day, so that funds could be withheld on settlement. The Committee does not need to resolve that dispute. The Committee agrees that the issue with the carpet and the state of tidiness of the house on settlement were matters for the Complainant to take up with the sellers. There is no evidence that the Licensee knew about them. This fourth aspect of the complaint is dismissed.

2.18 A few days after settlement, the Complainant contacted the Licensee about a broken towel rail, some taps that were not working, and the hole in the carpet. The Licensee says she knew nothing about these issues prior to them being raised by the Complainant, and points out that the Complainant had the opportunity to seek her Solicitor’s advice if she had any concerns arising from the final inspection.

2.19 On 17 May 2012, the Complainant phoned Mr E about the leak in the basement, and met him and the Licensee that day. He accepts that he told the Complainants he would try to track down the Vendors. The Licensee was unable to contact the sellers on their phone number. She was unable to locate their address. Their Solicitors refused to pass on the address to the Licensee. They indicated that correspondence addressed to the sellers should be directed to them, and they would pass it on.

2.20 The Committee considers that the Complainant – who is responsible for proving her complaint on the balance of probabilities — has failed to point to any evidence which shows the Licensee or Mr E’s conduct at the meeting were somehow inappropriate. This fifth aspect of the complaint also fails.

2.21 In May 2012, a Home Inspection Company prepared a report on the house. Among other things, the Inspector recorded that the timber deck at top floor level needed urgent remedial work to prevent collapse, because the original bolts holding the boundary joist supporting all the decking joist thing had bolts that had completely rusted away. In addition, during heavy rain, water ran down the inside of the concrete blocks on the north side of the basement garage, a problem that the Builder identified as having occurred for many years because of heavy rust deterioration to a steel beam at the northern end of the building. The Builder recommended that blockwork needed sealing

to prevent moisture passage. Heavy rust to the northern end of the structural steel support beam needed urgent treatment. Additional stainless steel bolts were urgently required to the boundary joist to prevent complete collapse. Joins between the decking material on the house needed to be sealed to prevent moisture ingress.

2.22 The Complainant had wanted a house that required at most, minor maintenance and painting, work that the Complainant would be able to do herself. Unfortunately, that was not what she got, and she has incurred significant expense in carrying out critical repairs. For 9 months she was unable to use the deck, because it was too dangerous to walk on. She states she has lost almost a year of her life because of the water problems and the drama that has gone with the house. She has lost all her retirement money, her peace of mind, and we have no doubt the stress has been immense.

2.23 That means the only complaint left for the Committee to consider is the complaint which is in effect about the weathertightness of the garage.

3. Relevant Provisions

Section 72 of the Act defines what constitutes "unsatisfactory conduct". It provides as follows:

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.

Relevant rules from the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2009 (the Rules) are as follows:

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.

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 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 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 There are two Real Estate Agents Disciplinary Tribunal decisions regarding Licensees' disclosure obligations under the Act which are relevant to this case. The first is B v CAC

& An Agency [2011] READT 19. Three Licensees were well aware of the leaky homes

syndrome. Purchasers had no knowledge of the syndrome. There were fairly obvious signs of present and potential problems. The house had monolithic cladding. The Licensee recommended a Building report, and gave out the name of an inspector with a less than glowing reputation. That in itself was not unsatisfactory conduct, the Tribunal said, although it was not great. The Licensees thought that it was enough simply to tell the Purchaser to get a building inspector's report. The Tribunal said that that "one size fits all" approach was insufficient. Each of the Licensees had knowledge that they ought to have shared with the Purchasers. The tribunal said that the Licensees had an obligation to raise the issue with the Purchasers, given that they knew the property was of materials and design which rendered it likely to be leaky.

4.2 The second decision is Wright v CAC and Woods [2011] NZREADT 21. The owners told the Licensees that a ceiling had been repaired because there was a leak. The roof was in a poor state. There were obvious repair marks on it. They were not obviously recent. The agent told the Purchasers that the roof was asbestos, that there had been a leak in one room which had been repaired, and she advised the Purchasers to get a Building report. A Builder told the Purchasers there were buckets in the ceiling to catch water, but no evidence of water in them. Moisture readings did not show evidence of high moisture. The Purchasers put conditions on the sale and purchase agreement, which did not include anything to do with the roof. The Tribunal said rule 6.4 and 6.5 meant that Licensees had to ensure they were honest and open with Prospective Purchasers, so that Purchasers were not misled in their decision to make an offer to purchase. A duty of utmost good faith was required. Simply suggesting a Building report should be obtained could not avoid liability. The Tribunal recognised that each case depended on its factual circumstances, and the relationship between the agent and Purchaser. But an agent could not turn a blind eye to problems with the property.

4.3 The Committee has found this a difficult case. We note that prior to making an offer to purchase the property, the Complainant was given the Residential Property Sale and Purchase Agreements Guide. She thought she had been given the REAA booklet, but was not certain. Interviewed by the investigator appointed by the Committee, she was uncertain whether her own Solicitor had advised her to do her own due diligence, with emphasis on getting a Builder’s report on the property before making offers. She said she thought he had said something of that nature to her. Asked whether the Licensee had given her similar advice, she agreed that the Licensee had, but she thought that that was unnecessary.

4.4 When it was suggested to the Complainant that, with the benefit of hindsight, she probably now wished she had sought a full Builders report on the property, she reluctantly agreed that that was correct.

4.5 We note that in this case the Complainant noticed the marks on the concrete blocks in the garage, and specifically raised the issue of water damage with the Licensee. Regardless of whether the Licensee or the Complainant made the comment about “lime leaching”, the Complainant does accept that the Licensee suggested a condition be inserted in the sale and purchase agreement regarding a satisfactory Builders report. It was the Complainant who decided that obtaining a Builder’s report was not necessary.

4.6 Given the Complainant’s concern about buying a house that might have maintenance problems, the Committee simply cannot understand why the Complainant did not take the simple precaution of insisting on obtaining a Building report.

4.7 In B (above), the Tribunal noted the commentary in (2010) 14 BCB 1 regarding the changes in the law brought about by the introduction of the Rules. The commentary recorded that the rules imposed a clear duty on agents towards Purchasers in respect of “leaky homes” where the agent knew the property had been the subject of prior sales which had fallen through following Building reports; or knew the property was of materials and design rendering it likely to be leaky; or knew of other units in a complex which were leaky; or suspected from his or her experience the premises might be a leaky home.

4.8 There is no doubt that the Complainant raised the issue of the white marks on blocks in the garage. In response to that, the Licensee suggested that if the Complainant was concerned, then she ought to commission a Building report. The question for the Committee is whether that satisfies the Licensee’s obligations under rule 6.4 and 6.5.

4.9 The Committee considers that this is a case where the imposition of the utmost duty of good faith on Licensees means that the Licensee had an obligation to do more than simply recommend that the Complainant get a Builder’s report. What she ought to have done to satisfy her obligations is to have gone back to the sellers, and specifically asked them about the weathertightness of the garage. Had she done so, she then would have been able to report to the Complainant either that the Vendors had assured her that the garage did not leak; or that it was subject to water damage, which the Complainant could then have investigated through her Builder. If an assurance had been given that the garage was waterproof, and the garage then leaked, the Licensee could then quite properly have said that she was acting as a conduit for the Vendors (who the Complainant’s Builder suggests must have known about water ingress into the garage); and that she had fully satisfied her professional obligations.

4.10 Unfortunately, those are not the prudent steps that the Licensee took. It follows that in the Committee’s view the Licensee has breached the rules, and is guilty of conduct falling short of the standard that a reasonable member of the public would expect from a reasonably competent Licensee.

4.11 The Committee considers that the fault here lies with the Licensee. It does not consider that the Complainant has established that the agency has somehow fallen short of its own professional obligations. While, with the benefit of hindsight, the praise of the deck in the advertisement might seem misleading, there is no evidence that the Licensee or the agency were aware of the serious defects in the deck subsequently revealed by the Building report obtained by the Complainant. The Committee considers the advertisement is mere “puffery”. The complaint against the agency has dismissed.

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 that the Licensee is guilty of unsatisfactory conduct pursuant to section 72(b) and (a) of the Act.

5.3 The Committee has determined pursuant to section 89(2)(c) of the Act to take no further action against the agency with regard to the complaint allegation or any issue involved in the complaint or allegation.

6. Orders

6.1 The Committee will conduct a separate hearing on the papers to decide what orders, if any, should be made under section 93 of the Act against the Licensee.

Section 93 provides:

93 Power of Committee to make orders

(1) If a Committee makes a determination under section 89(2)(b), the Committee may do 1 or more of the following:

(a) make an order censuring or reprimanding the Licensee;

(b) order that all or some of the terms of an agreed settlement between the Licensee and the Complainant are to have effect, by consent, as all or part of a final determination of the complaint;

(c) order that the Licensee apologise to the Complainant; (d) order that the Licensee undergo training or education;

(e) order the Licensee to reduce, cancel, or refund fees charged for work where that work is the subject of the complaint;

(f) order the Licensee:

(i) to rectify, at his or her or its own expense, any error or omission; or

(ii) where it is not practicable to rectify the error or omission, to take steps to provide, at his or her or its own expense, relief, in whole or in part, from the

consequences of the error or omission;

(g) order the Licensee to pay to the Authority a fine not exceeding $10,000 in the case of an individual or $20,000 in the case of a company;

(h) order the Licensee, or the agent for whom the person complained about works, to make his or her business available for inspection or take advice in relation to management from persons specified in the order;

(i) order the Licensee to pay the Complainant any costs or expenses incurred in respect of the inquiry, investigation, or hearing by the Committee.

(2) An order under this section may be made on and subject to any terms and conditions that the Committee thinks fit.

6.2 The Committee requires the Case Manager to obtain a record of any previous disciplinary decision in respect of the Licensee under either the Real Estate Agents Act 1976 or the Act, if any such decision exists, and provide it to the Committee.

6.3 The Licensee and the Complainant may file submissions on what orders, if any should be made.

The Complainant may file submissions within 10 working days from the date of the decision. These submissions, if any, will then be provided to the Licensee, with a timeframe for filing final submissions.

7. Publication

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

decisions.

7.2 The Committee has deferred making any decision on publication until its hearing to decide what orders, if any, should be made.

8. Right of Appeal

8.1 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.

8.2 Appeal is by way of written notice to the Tribunal. You should include a copy of this

Notice with your Appeal.

8.3 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 Morten

Chairperson

Complaints Assessment Committee

Real Estate Agents Authority

Date: 25 September 2013