Edinburgh Realty Ltd - Complaint No CB7002092 [2013] NZREAA 346 (18 October 2013)

Last Updated: 21 January 2015

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

And

In the Matter of Complaint No:

CB7002092

Edinburgh Realty Ltd

Licence Number: 10022647

CB7015844

Clayton Sievwright

Licence Number: 10007503

CB7015781

Barclay Sievwright

Licence Number: 10004286

CB7015817

Lane Sievwright

Licence Number: 10000945

CB7016852

Matthew Shepherd

Licence Number: 10012333

CB7016762

Licensee One

Licence Number: XXXXXXXX

CB7016825

Licensee Two

Licence Number: XXXXXXXX

CB7016699

Licensee Three

Licence Number: XXXXXXXX

Decision of Complaints Assessment Committee

Dated this 18th day of October 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 Family Trust owned a property (the Property). The trustees were Miss N; Barclay Sievwright (a salesperson licensed under the Real Estate Agents Act 2008 (the Act)); and Lane Sievwright (also a licensed salesperson).

1.2 The settlor of the trust was Barclay Sievwright. The beneficiaries were Barclay and his wife; and their children (Lane and Clayton, who is also a licensed salesperson).

1.3 The Family Trust decided to sell its Property. It was sold by Edinburgh Realty Ltd, an agent licensed under the Act. There is no listing agreement. There does not appear to be an appraisal document. The Committee has been advised by Barclay Sievwright that Edinburgh Realty Ltd’s rules allow for one private sale per annum with no commission.

1.4 The complainant bought the Property on 21 November 2009 from the Family Trust.

1.5 She complains about the conduct of the Agency; Barclay and his two sons, Lane and Clayton; Matthew Shepherd; Licensee One; Licensee Two and Licensee Three.

1.6 At the time of the conduct, Matthew was a licensed salesperson, although his licence expired on

31 March 2012. He was the Licensee who sold the Property to the Complainant.

1.7 Lane and Clayton describe themselves as the selling agents. They were also, in effect, the listing agents (despite the absence of a listing agreement). They are the sons of Barclay. Their photographs appear in advertisements for the house. Clayton’s email address is on the advertisement. So is the following email address: [e-mail]. We are told that Barclay and Lane share the same email address. Prospective customers would view both of them as involved in the sale of the Property.

1.8 Clayton says that he made buyers he dealt with and who showed interest in the Property aware of his relationship with the owners (he was not a trustee himself) and the fact that Lane Sievwright used to live next door.

1.9 Licensee One was a licensed salesperson employed by the Agency, but he is now with Agency X.

At the time, he happened to be the son of the builder, Mr. R, who carried out a property inspection on behalf of the Complainant. Licensee Two was a licensed salesperson, also now with Agency X. She is Licensee One’s wife.

1.10 Neither Licensee One nor Licensee Two had anything to do with the sale. They are not responsible for work done by Licensee One’s father. The Complainant says that the Agency ought to have disclosed the relationship between Mr. R, and Licensee One and Licensee Two. That provides no foundation for a complaint against Licensee One and Licensee Two themselves. It is for a Complainant to establish a complaint on the balance of probabilities: Hodgson v CAC & Arnold [2011] NZREADT 03. The Committee therefore dismisses the complaint against them from the outset.

1.11 Licensee Three was also a licensed salesperson. He is currently a licensed agent. He was a director of the Agency in 2009. He believes he was the Principal Officer at the time. He is

currently a “Principal Officer”; and “Eligible Officer; and “Other Officer” for the Agency.

1.12 There are a number of aspects to the complaint. The Complainant says that there was a failure by Licensees carrying out real estate agency work in respect of the Property to disclose in writing to her whether or not that Licensee, or persons related to the Licensee, might benefit beneficially from the transaction, a breach of section 136 of the Act. A person is “related” to a licensee if they are the licensee’s partner (under a partnership agreement); an employee; a branch manager or salesperson engaged by the licensee; the licensee’s spouse or civil union partner; their de facto partner; or a child, grandchild, brother, sister, nephew or niece of the licensee, the licensee’s spouse or civil union partner, or de facto partner. For the reasons that follow, the Committee finds this aspect of the complaint proved against Lane, Clayton, and Barclay, and also against Edinburgh Realty Ltd.

1.13 The second aspect of the complaint relates to the condition of the house. The Complainant says that the Family trust, and Matthew Shepherd, knew the Property was subject to underlying defects, and that there was a failure to disclose those defects to her. Associated with this is her complaint that the vendors tried to conceal these defects (by painting and carpeting). Both aspects of this part of the complaint are dismissed.

1.14 The Complainant complains that the Agency arranged and promoted the work of a building inspector (Mr. R) who provided a report misrepresenting the condition of the Property. She complains that the Agency ought to have disclosed the relationship between the building inspector, and Licensee One and Licensee Two. We have already dismissed this complaint to the extent that it relates to Licensee One and Licensee Two. The Committee rejects the associated complaint against the Agency.

1.15 Finally, the Complainant says that the Agency failed to deal with her concerns adequately. We find this aspect of the complaint not proved.

1.16 The Committee considers that there has been a breach of rule 9.5 by Edinburgh Realty Ltd, which has failed to obtain an appraisal of the Property for the Family trust.

1.17 The Committee further considers that there has been a breach of rule 9.15 by the Licensees who actively marketed the Property — Edinburgh Realty Ltd, Barclay, Lane and Clayton Sievwright — without holding an agency agreement signed by the Family Trust.

2. Material Facts

2.1 The Family Trust bought the Property in September 2006. Mr Sievwright says that there was no mould in the house. It had a DVS outlet in the passage.

2.2 In May or June 2007, three bedrooms, the lounge, the hallway, the dining room and the bathroom were painted, and various bedrooms were carpeted.

2.3 In October 2007, flashing was replaced along the front bedroom side of the house, a floor was repaired in the front bedroom, and the front bedroom ceiling was painted. A leak was repaired in the passage skylight area. Curtains were replaced in bedrooms and living areas.

2.4 Barclay Sievwright says that the tenant had notified him that there was water staining from a roof leak on the ceiling, and it was getting worse at the front corner of the bedroom. The floor at that corner felt springy. He says a builder was sent to repair the floor. The whole ceiling was

repainted (after the carpets were lifted). The builder told him that he had put extra tanalised timber in place in the floor. Mr Sievwright says he thought no further of it after that.

2.5 From November 2007 until November 2008, the Property was rented by Ms. W and two students. She noticed an occasional musty smell, and moisture sometimes present in a wardrobe. She didn’t mention this to the landlord, as she felt that these were issues she expected from an older house.

2.6 In December 2008, Mr. G and his family rented the Property. They left the Property on 20

December 2009, shortly before the Complainant settled the Property. Mr. G was a policeman. There was no mould in the house when he moved out, Barclay Sievwright says. In a letter to the Authority, Mr. G says that there was an occasional musty smell following periods when the house had been shut up; and some dampness in the wardrobe of a room occupied by his daughter, following periods of rain. He says he did not tell the landlord about either of these — the musty smell disappeared after airing the dwelling; and the dampness was by no means constant.

2.7 In October or November 2009, the Property was prepared for sale. Paintwork was touched up where necessary. A skylight was repainted.

2.8 The Property was advertised as a townhouse alternative, with appeal to a multitude of buyers. It was described as “well presented. The advertisement stated that the interior had “recently been repainted”; and that it was “fresh and clean”. In fact, the “repainting” occurred back in June

2007, and the advertisement was not as accurate as it might have been. Barclay Sievwright

accepts that it might have been better to describe the paintwork as “ in as good as new condition”.

2.9 On 21 November 2009 the Complainant viewed the Property with a Matthew Shepherd, and a friend. She thought the Property had a musty smell, and raised that at the time. Mr. Shepherd says that there was some smell, although he did not find it marked or offensive. The Complainant indicated she had some concerns about it, because of her asthma. Mr. Shepherd says he said that she should obtain a building report to satisfy her suspicions regarding the mustiness. If not satisfied, she should not proceed to purchase the Property.

2.10 Mr. Shepherd gave her the name of two people who could prepare a building report: Mr. M; and

Mr. R.

2.11 The Complainant apparently knew Mr. R. Mr. Shepherd phoned him and indicated the Complainant wanted him to complete a report; and pointed out there was a concern with mustiness in the house. The Complainant spoke to Mr. R on Mr. Shepherd’s phone.

2.12 Subsequently, Mr. Shepherd gave Mr. R access to the house so he could prepare a building report for the Complainant.

2.13 On 21 November 2009, the Complainant signed a conditional sale and purchase agreement. The agreement was conditional on a satisfactory building report being obtained by 27 November

2009.

2.14 Mr. R carried out a visual only, non-invasive inspection of areas of the building readily visible at the time of inspection. Inspection did not include areas concealed or closed in behind finished surfaces; or which required anything which impeded access or limited visibility to being moved. It did not assess compliance with the NZ Building Code, including weathertightness requirements, or structural aspects. The purpose of the inspection was to assess the general condition of the building based on a limited visual inspection. The report warned that it might

not identify all past, present, or future defects.

2.15 The Complainant, her brother and sister-in-law went to the first open home on 22 November

2009. She attended a second open home on 29 November 2009.

2.16 Following receipt of the builders report, the vendors agreed to fix the chimney flashing, reduce the price by $5000 (to cover future replacement of the roof), and bring forward settlement date.

2.17 Sale of the Property was meant to settle on 21 December 2009.

2.18 Barclay Sievwright says that he seldom visited the Property during the time he owned it. He never noticed any mould. He never received a complaint from any of the tenants about the house being musty. Lane and Clayton Sievwright both say they never noticed any mould in the house. Lane says that he inspected the house when the last tenants moved out. There was no mould.

2.19 On the date of settlement, the Complainant said that a musty smell still existed. The settlement date was extended, to enable the Complainant to carry out a further inspection. On the day that Mr. R did a second inspection, Barclay Sievwright spoke to Mr. R and suggested that if he or the Complainant was still concerned, they should cut a hole in the flooring to check whether there were any issues. Apparently, Mr. R did so, but found no issues. Barclay Sievwright fixed the hole in the floor at his own expense.

2.20 The Complainant moved into the Property on 16 January 2010. Further inspections were done by new property inspectors, on 29 January 2010 and 4 February 2010, which involved lifting some of the flooring. The January inspection was limited to a section of the floor that had been removed in part to a wardrobe in the bedroom. The inspector reported that timbers were in contact with the ground and that timber decay was readily apparent. The ground was moist immediately below the surface line, which the inspector suggested was the cause of the musty smell. The inspector discovered some new timber in the underfloor area, which the Committee considers in all likelihood is the tanalised timber put in in October or November 2007.

2.21 The inspector reported that, in his view, floor framing had deteriorated substantially, particularly in the bedroom of the northern face adjacent to the front door entry.

2.22 In February 2010, the inspector prepared a “floor defects report”. The inspector concluded that the floor support framing and structure to the building had significant decay and damage to perimeter wall lines, particularly to the north and eastern faces. He predicted there was likely to be decay and deterioration to western and southern elevations as well. Significant remedial work was recommended. He identified that some under floor work had been done, using non- tanalised timber.

2.23 On 8 July 2011, the Complainant sold the Property for $237,000. Her complaint was received by the Authority on 17 July 2012.

3. Relevant Provisions

3.1 The Committee believes the following provisions are relevant:

3.2 Pursuant to section 72 of the Act unsatisfactory conduct is defined as:

Section 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 136

Disclosure of other benefits that licensee stands to gain from transaction

(1) A licensee who carries out real estate agency work in respect of a transaction must disclose in writing to every prospective party to the transaction whether or not the licensee, or any person related to the licensee, may benefit financially from the transaction.

(2) Subsection (1) does not apply to any matter disclosed under section 128 or 134.

(3) The licensee must make the disclosure required by subsection (1) before or at the time that the licensee provides the prospective party with any contractual documents that relate to the transaction.

(4) For the purposes of this section, an agent does not benefit financially from a transaction merely because of any commission payable to the agent under an agency agreement in respect of the transaction.

(5) A contract entered into in contravention of this section may not be cancelled merely because of that contravention.

3.4 Pursuant to the Real Estate Agents Act (Professional Conduct and Client Care Rules) 2009 (“the

Rules”):

Rule 9.5 An appraisal of land or a business must be provided in writing to a client by a licensee; must realistically reflect current market conditions; and must be supported by comparable information on sales of similar land in similar locations or businesses.

Rule 9.15 Unless authorised by a client, through an agency agreement, a licensee must not offer or market any land or business, including by putting details on any website or by placing a sign on the property.

4. Discussion

4.1 The Family Trust and its beneficiaries (Lane, Clayton, and Barclay) may benefit financially from the sale of the Family Trust’s Property: see section 136 (1) of the Act.

4.2 They were all employed by the Agency at the time. The Agency was therefore obliged, under section 136 of the Act, to disclose in writing to the Complainant (and other prospective parties) that they might benefit financially from the transaction.

4.3 The Agency did not do so. That is a breach of section 136 of the Act: see particularly the decision of the Real Estate Agents Disciplinary Tribunal (the Tribunal): Ms N v Real Estate Agents Authority and Mr X [2013] NZREADT 22, where the Tribunal at paragraph [11] provided guidance to the profession as to what should be obtained in a disclosure document under section 136, there being no forms in the Act or Rules. See also the Tribunal’s decision REAA v Clark and Clark [2013] NZREADT 62, where the Tribunal emphasised that oral disclosure was never sufficient.

4.4 Lane and Clayton were the selling agents. In the Committee’s view, they carried out real estate agency work in respect of the transaction. They had a similar obligation to disclose that they, and their father, might benefit financially from the transaction. They did not do so. That is a breach of section 136 of the Act.

4.5 Barclay had his email address on advertisements for the Property. The Committee takes the view that he was also involved in carrying out real estate agency work in respect of the transaction. He was obliged to disclose. He did not do so. That is a breach of section 136 of the Act.

4.6 Matthew Shepherd was the selling agent, and an employee of the Agency. There is no evidence that the potential beneficiaries were his partners; they were not employed by him; they were not a branch manager or salesperson engaged by him; and so he had no obligation under section

136 (1) of the Act to disclose that Lane, Barclay and Clayton might benefit financially from the transaction.

4.7 There is no evidence that Licensee Three was a partner of the three potential beneficiaries under a partnership agreement. Licensee Three did not employ them. They were not branch managers or sales persons “engaged” by him. He had no obligation to disclose under section

136 (1).

4.8 We turn now to the second aspect of the complaint, which is that the Family Trust and Mr.

Shepherd knew about the condition of the Property, but concealed it. All four Licensees deny any knowledge of the structural issues identified by the Complainant after she had bought the house. Though a musty smell and dampness in a wardrobe was noticed by tenants, they never told the landlord.

4.9 In October or November 2007, some underfloor work was done by a builder in one area of the house. The Complainant is unable to establish that underfloor work done at some stage to the Property, using timber that was not tanalised, was work that was done by or on behalf of the Family Trust, or that the Family Trust knew about it.

4.10 The Complainant bears the onus of establishing a complaint, on the balance of probabilities: Hodgson v CAC & Arnold [2011] NZREADT 03. The Committee considers that the Complainant has failed to establish that any of the licensees knew about structural defects to the house. You cannot conceal what you don’t know about. This aspect of the complaint is dismissed.

4.11 The Complainant asserts that the Agency must be responsible for arranging and promoting the work of a building inspector whose work was defective, particularly in light of the fact that he was the father of two of the sales people. The Committee rejects that complaint.

4.12 First of all, we accept the evidence that the Complainant was provided with the names of two inspectors, and she chose Mr. R, whom she knew.

4.13 Second, we note the building report by Mr. R was, in any event, a highly limited building report.

It is not for the Committee to assess whether or not Mr. R’s report was defective, since we are

here to consider the conduct by the Licensees. But we take into account the fact that it was a

qualified report; and that the special building condition in the sale and purchase agreement meant that if the Complainant was in any way unhappy with that report, she had the ability to walk away from the contract.

4.14 Finally, while it might be prudent in circumstances such as this for an Agency recommending a building inspector who is related to licensees to disclose that to prospective clients, we do not consider that a failure to do so (especially when two different names were provided to the Complainant) constitutes “unsatisfactory conduct” under the provisions of the Act.

4.15 The final aspect of the complaint relates to the Complainant’s dealings with Licensee Three. The Complainant says that she wrote emails and letters and called the Agency, but was “fobbed off” by a number of people. When she was finally given a one-page document about the Agency’s dispute resolution procedure, she says the Agency then did not follow it. When the Agency was given the opportunity to correct a number of problems, she asserts that it was uncooperative, evasive and rude.

4.16 Licensee Three states that emails forwarded by or on behalf the Complainant in December 2009 and January 2010 did not allege any specific failing. At that stage, further inspections had not been carried out on the house. In her 28 January 2010 email, the Complainants advised she had contacted lawyers and would contact them again “before any formal response was made”. Ms. J from the Agency is unable to recall any communication from the Complainant in December

2009, apart from email correspondence. Phone calls during that period, she says, were unlikely to have received a detailed response if they were of a non-specific nature. Ms. J replied on 12

January 2010 to the written request for a copy of the sale and purchase agreement; and enclosed a complaints procedure for suggesting the Complainant deal with the specific issues that have been raised at the time.

4.17 Licensee Three says that he spoke to the Complainant prior to receipt of her 28 January 2010 email, and offered to meet with her, but she declined and said she would call after she had got things sorted.

4.18 Licensee Three and Mr. Shepherd visited the Complainant’s solicitor in January 2010, and were advised that he had been contacted by the Complainant about concerns over the purchase of the Property. Her solicitor did not provide any detail about a complaint, and was not sure whether a formal complaint would be made or not.

4.19 The Committee is unable to identify any conduct by the Agency or its Licensees, either before or after settlement, which it would classify as “unsatisfactory”. This aspect of the complaint is also dismissed.

4.20 We note that there is no agency agreement; and that no appraisal has been carried out. Section

126 of the Act provides that an agent is not entitled to commission or expenses in connection with real estate agency work carried out by the agent unless a written agency agreement has been signed by the client and the agent, and a copy has been provided to the client. No issue arises regarding commission in this case. But there is a real question as to whether or not the Professional Conduct and Client Care Rules for some reason do not apply in the circumstances.

4.21 Section 4 of the Act provides that real estate agency work or agency work means any work done or services provided, in trade, on behalf of another person for the purpose of bringing about a transaction. There can be no doubt that Edinburgh Realty Ltd, and its Licensees, were carrying out work, in trade, on behalf of the Family Trust, their client.

4.22 Rule 9.5 provides that an appraisal of land or business must be provided in writing to a client by

a licensee; must realistically reflect current market conditions; and must be supported by comparable information on sales of similar land in similar locations or businesses.

4.23 Rule 9.15 provides that unless authorised by a client, through an agency agreement, a licensee must not for market any land or business, including by putting details on any website or by placing a sign on the property.

4.24 These rules are mandatory. Licensees cannot contract out of the provisions of the Act, or the

Professional Conduct Rules.

4.25 In the Committee’s view, it is not open to Edinburgh Realty Ltd, by its company rules, to avoid its obligations under the Professional Conduct Rules.

4.26 It follows that Edinburgh Realty Ltd, and each of the Licensees (excluding Licensee One and Two, and Licensee Three) are in breach of rule 9.15. In addition, Edinburgh is in breach of rule 9.5.

4.27 The Committee finds the following Licensees guilty of the following breaches of the Rules and the Act:

4.27.1 Edinburgh Realty Ltd: a breach of rule 9.5 and rule 9.15; a breach of section 136 of the Act; and therefore “unsatisfactory conduct” pursuant to section 72 (b) of the Act. The Committee considers the conduct is also a breach of section 72 (a) and (d) of the Act.

4.27.2 Barclay Sievwright: a breach of rule 9.15 of the Professional Conduct Rules; a breach of section 136 of the Act; and therefore “unsatisfactory conduct” pursuant to section 72 (b) of the Act. The Committee considers the conduct is also a breach of section 72 (a) and (d) of the Act.

4.27.3 Lane and Clayton Sievwright: a breach of rule 9.15; a breach of section 136 of the Act; and therefore “unsatisfactory conduct” pursuant to section 72 (b) of the Act. The Committee considers the conduct is also a breach of section 72 (a) and (d) of the Act.

4.27.4 Matthew Shepherd: a breach of rule 9.15; a breach of section 136 of the Act; and therefore “unsatisfactory conduct” pursuant to section 72 (b) of the Act. The Committee considers the conduct is also a breach of section 72 (a) and (d) of the Act.

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 against Licensee One and Two; and Licensee Three.

5.3 The Committee has determined under section 89(2)(b) of the Act that is has been proved, on the balance of probabilities, that Edinburgh Realty Ltd, Barclay Sievwright, Lane Sievwright, Clayton Sievwright and Matthew Shepherd have engaged in unsatisfactory conduct.

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.

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 one 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 agency and the licensees 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 Agency and the Licensees 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 Agency and the Licensees, 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: 18 October 2013