Hamilton - Complaint No C02767 [2013] NZREAA 347 (5 December 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: C02767

In the Matter of Mark Hamilton

License Number: 10011497

Decision of Complaints Assessment Committee

Dated this 5th day of December 2013

Complaints Assessment Committee: CAC20003

Chairperson: Marina Neylon Deputy Chairperson: Alison Wallis Panel Member: John Auld

Complaints Assessment Committee

Decision finding unsatisfactory conduct

1. The Complaint

1.1. This is a complaint made by the Complainants against Mark Hamilton (the Licensee). Mr Hamilton is a licensed salesperson engaged by Tommys Real Estate Limited (the Agency) in Wellington.

1.2. The complaint concerns the conduct of the Licensee in regard to the purchase of a property (the

Property) by the Complainants. Specifically the complaint alleges that:

1.2.1. The Licensee described the Property as comprising of four flats, when it was against the

District planning rules to be used as 4 flats.

1.2.2. The Licensee did not disclose to the Complainants that the Property was an earthquake prone building and had been identified by the local authority as requiring upgrading.

1.2.3. The Licensee actively dissuaded the Complainants from obtaining legal advice prior to signing an offer to purchase the Property.

1.2.4. The Licensee did not explain the ramifications of electing not to make their offer conditional upon a LIM report.

1.3 The outcome sought by the Complainants is that the Licensee is investigated for professional misconduct so that no other customers end up in a similar situation.

1.4 The Complainants also seek compensation for the costs incurred as a result of the Licensee’s failure to accurately market the Property and advise them. The costs claimed is $16,050.61 including GST, which has already been spent by the Complainants to reduce the number of units from 4 to 3 and make those units compliant with local authority requirements. Plus the Complainants forecast a further $21,160.00 will be required for remedial work to the Property.

1.5 The Complainants also seek $175,000, that being the difference between the purchase price paid and the true market value taken from a valuation dated June 2010. This valuation was completed, taking into account the actual capacity for return on the Property.

2. Material Facts

2.1. On 9 February 2010 the District Council wrote to, the then owners of the Property, the vendors. The letter notified the vendors that the Property had been identified by the Council as being “potentially earthquake prone.” The vendors were given 6 months to go back to the Council with further information about the strength of the building or a detailed assessment of the structure for the Council to determine whether the building was earthquake prone.

2.2. On 3 May 2010 the vendors listed the Property for sale through the Licensee. The Licensee conceded that he did not go through the listing document with the vendors. The Licensee stated that the listing agreement was completed by the vendors and then faxed to the Company where the Licensee’s personal assistant processed the listing.

2.3. The listing agreement described the Property as “Home and income” with details of the rental for

four flats and a garage. The total income per week from the Property was $1540.

2.4. The listing agreement has an area section headed “Other Disclosures”. The vendors ticked ‘yes’ where required to answer if it was aware of any work completed (to the Property) which may or may not have required permits/local body consents.

2.5. The vendors has also ticked ‘yes’ to the OSH declaration area, stating that potential hazard/s have been identified by them. No further information has been noted on the agreement in relation to these disclosures.

2.6. The Licensee marketed the Property as an investment property. The advertisement supplied in evidence showed the four flats incomes per week and used the phrases “plenty of upside potential in rent” and “excellent future capital growth”.

2.7. The Property was marketed as a tender. At the close of the tender there were two offers received and considered by the vendors. An offer of $1,010,000 was accepted from Mr. H which was subject to finance.

2.8. The Complainants viewed the Property on three separate occasions with the Licensee and after the tender had closed, the Complainants made a backup offer that was conditional upon a building report, and would only come into effect if the offer from Mr. H did not become unconditional.

2.9. A building inspection was undertaken by the Complainants and was satisfactory. The Complainants removed that clause from their offer and the agreement was accepted on 24 June 2010.

2.10. The Complainant’s agreement to purchase the Property became the live agreement and proceeded to settlement on 27 August 2010.

2.11. A second letter from the Council sent to the vendors in early August 2010 stated that the vendors had until 10 September 2010 to provide additional information regarding the strength of the Property or the Council would assume that the vendors agreed that the Property was earthquake prone. The Complainants stated that they were never made aware of this by the Licensee.

2.12. In 2011 the Complainants undertook work to the Property to expand the parking area. The Council became aware of the work and contacted the Complainants by telephone.

2.13. The Council then notified the Complainants by letter dated 15 April 2011 that the work required resource consent or must be removed immediately. In paragraph three, the letter goes on to advise the Complainants that the Property was in breach of rule 5-3-7 of the District Plan. The Council stated that a four flat development also required resource consent and that the Complainants would need to apply for a retrospective consent or reduce the number of flats to less than three. The Council required the Complainants to address the issues raised within 21 days.

2.14. The Complainants incurred fees and costs relating to the Council requirements totaling $26,622.54 as at 6 May 2013.

2.15. The Complainants contacted the Authority on 27 June 2013 to make their complaint against the

Licensee.

3. Relevant Provisions

3.1 The Real Estate Agents Act 2008

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.

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 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.

3.2 The Real Estate Agents Act (Professional Conduct and Client Care) Rules 2009.

These Rules have recently been updated but were the Rules that applied at the time of the conduct.

5.1 A licensee must exercise skill, care, competence and diligence at all times when carrying out real estate agency work.

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

9.2 A licensee must not engage in any conduct that would put a client, prospective client or customer under undue or unfair pressure.

9.9 When inviting signature of an agency agreement or a sale and purchase agreement, or other contractual document, a licensee must ensure that a prospective client, client and/or customer is aware that he or she can and may need to, seek legal, technical, or other advice and information, and allow the prospective client, client and/or customer a reasonable opportunity to do so.

4. Discussion

4.1. The complaint deals with several points that are potentially a breach of rule 5.1 (skill and care). The first point that the Committee considered was the lack of skill and care by the Licensee during the completion of the listing agreement.

4.2. The Licensee admits that he did not go through the agreement with the vendors prior to it being executed on 3 May 2010. The Committee finds that this omission is a key factor in this complaint.

4.3. Had the Licensee taken the time to go over the listing agreement in more detail with his client, he may have at least unearthed the reasons why the vendors had indicated ‘yes’ to works that may have required consent and ‘yes’ to matters that may have constituted a hazard.

4.4. Further, the Licensee did not know that the Property was operating outside the rules of the District Plan. The Licensee has stated that he relied on the physical layout of the Property, the evidence of the four existing tenancy agreements and chattel lists and the RPNZ website which refers to the Property as 4 units.

4.5. The Committee has seen numerous recent examples of licensees who have relied on second-tier information when making positive representations about ‘home and income’ properties to their customers. The problems with making such statements have been clearly documented in findings of Complaints Assessment Committees and the Disciplinary Tribunal. However, at the time of this conduct these issues were not as well known within the industry as they are today.

4.6. The Licensee stated that he also believed that the Property had an existing use right for the flats due to the length of time the flats had been in existence. The Committee does not propose to consider whether or not this would have been a successful argument for the Complainants to mount with the Council. What we do say is that the Complainants had a right to know that the Property may have been in breach of the planning rules and it was up to the Licensee to adequately research the planning rules before making the representations he did about the Property.

4.7. The income, potential income and capital growth were largely based on the number of flats in the Property. The Committee finds the conduct of the Licensee in this instance was in breach of rule 5.1 in that he failed to exercise skill, care, competence and diligence when listing the Property. Such a breach is below the standard expected of a reasonably competent licensee.

4.8. The Complainants appear to have suffered a considerable loss due to the misrepresentations of the Licensee. The Committee is mindful that, despite this finding, we are unable to make orders for general compensation to the Complainants and, in that case, the Complainants may wish to consider a civil remedy to achieve their desired outcome.

4.9. Next, the Committee turned its attention to the allegations that the Licensee failed to explain the sale and purchase agreement to the Complainants or allow them to take legal advice. The Complainants stated in their initial complaint that the Licensee dissuaded them from gaining legal advice prior to executing their agreement. This has been amended to the allegation that the Licensee should have recommended legal advice.

4.10. The Committee finds that there is insufficient evidence to show that the Licensee actively tried to dissuade the Complainants from taking legal advice. We are satisfied that the Licensee did not recommend that the Complainants sought advice. The Licensee appears to have believed that the Complainants were experienced investors who had ample time to take legal counsel and would do so of their own accord.

4.11. The Committee agrees that the Complainants did have time to take advice had they wished to do so. The Committee also noted that the Complainants have signed an acknowledgement that they have been provided with the Authority’s guide to sale and purchase agreements. That guide is very clear that a person considering a purchase should take legal advice. Rule 9.9 states that a licensee must ensure that a customer is aware that they can seek advice. The Committee is satisfied that the Complainants were aware that they could seek such advice but chose not to do so for their own

reasons. The Committee will take no further action in regard to this part of the complaint.

4.12. The Committee considered the allegation that the Licensee did not explain to the Complainants the ramifications of electing not to make their offer conditional upon approval of the LIM report. There is a simple yes/no choice on the front page of the agreement which refers to clause 9.2 in the general terms. That clause allows the purchaser 15 working days to approve the LIM report or give notice to the vendor explaining why the report is not approved. A LIM report may have shed light on the lack of resource consent for the flats. The Complainants stated that they just initialed next to

‘no’ without understanding what this meant. The Complainants allege that the Licensee took

advantage of their lack of understanding.

4.13. The Licensee believes this accusation is ludicrous and that to suggest he took advantage of the Complainants is offensive. The Committee notes that the Licensee has not alleged that he did explain the ramifications of saying ‘no’ to the LIM to the Complainants. Rather, the Licensee argues that the experience and knowledge of the Complainants with their portfolio of properties suggested that the Complainants did know what they were signing. The Licensee infers that it was the Complainants responsibility to know and understand the ramifications of such a decision.

4.14. The Committee disagrees and finds that the Licensee has not acted fairly to the Complainants and is therefore in breach of rule 6.2.

4.15. In regards to the allegation that the Licensee put the Complainants under undue pressure, the Committee considered this allegation to be unproven. The Complainants were in competition for the Property. They had viewed it on three separate occasions and they made their offer after the tender period when there was less time pressure.

4.16. Finally, the Committee considered the allegation that the Licensee failed to disclose the fact that the Property had been identified as being earthquake prone by the District Council. The Committee finds that the Licensee was unaware of the correspondence between the Council and the vendors. We believe that the only way the Licensee could have become aware of that issue was to be told by the vendors. We also suspect that the potential costs of upgrading the Property were probably a key driver in the timing of the sale of the Property.

4.17. The Committee believes that the Licensee may have found out about this issue if he had taken a more proactive role during the listing process. If the Licensee had queried the ‘yes’ declarations from the vendors, he may have been given further information on the Council requirements. The Licensee did not make further enquiries and we are satisfied that the vendors alone knew of the potential expenditure required for the Property. A licensee is required to disclose known defects in the Property but we find that the issue of earthquake strengthening was a hidden defect in these circumstances.

4.18. The Committee gave serious consideration to the claim by the Complainants that the Licensee’s conduct amounted to misconduct. Misconduct is defined under the Act as disgraceful conduct, or seriously incompetent or negligent conduct; or wilful or reckless contravention of the Act or the rules. The Licensee has denied the charges and maintains that the Complainants are at fault. The Licensee further points to his award winning 12 year career and good reputation.

4.19. The Committee agrees with a comment made by the Complainant’s solicitors that this is a “significant and costly lapse of professional judgement” on the part of the Licensee but it falls short of the threshold for misconduct.

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 finds that the Licensee has breached Rule 5.1, in that he failed to use skill, care, competence and diligence in his dealings with the Complainants.

5.3. The Committee also finds the Licensee has breached Rule 6.2 in that he did not provide adequate advice or guidance in the preparation of the sale and purchase agreement.

5.4. The Committee has determined under section 89(2)(b) of the Act that is has been proved, on the balance of probabilities, that Mark Hamilton has engaged in unsatisfactory conduct under section

72 (a).

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 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 Licensees under either the Real Estate Agents Act 1976 or the Act, if any such decision exists, and provide it to the Committee, the Licensee and the Complainant.

6.3. 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 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 Complaints Assessment Committee may appeal by way of written notice to the Real Estate Agents Disciplinary Tribunal (the Tribunal) against a determination of the Committee and must do so within 20 working days from the date of the determination.

8.2. The Committee has yet to finally determine this complaint because the parties are being given an opportunity to make submissions on orders before the Committee determines what orders should be made, if any.

8.3. The Committee considers that the 20 working day appeal period does not commence until it has finally determined this complaint by deciding what orders should be made, if any.

8.4. Appeal is by way of written notice to the Tribunal. Further information on filing an appeal is available by referring to the Guide to Filing an Appeal at www.justice.govt.nz/tribunals.

Signed

Marina Neylon

Chairperson

Complaints Assessment Committee

Real Estate Agents Authority

Date: 05 December 2013