Middleditch - Complaint No C06659 [2015] NZREAA 211 (3 August 2015)

Last Updated: 28 March 2016

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

And

In the Matter of Complaint No: C06659

In the Matter of Paul Middleditch

License Number: 10008995

Decision of Complaints Assessment Committee

Finding of unsatisfactory conduct asking for submissions on orders

Dated this 3rd day of August 2015

Complaints Assessment Committee: CAC 402

Chairperson: Marjorie Noble Deputy Chairperson: Deborah Clapshaw Panel Member: Jane Ross

Complaints Assessment Committee

Decision finding unsatisfactory conduct asking for submissions on orders

1. The Complaint

1.1. On 26 November 2014 the Real Estate Agents Authority (the Authority) received a complaint against Paul Middleditch (the Licensee) from the Complainants.

1.2. The Licensee is a licensed salesperson under the Real Estate Agents Act 2008 (the Act) and at the time of conduct was engaged by Four Seasons Realty Ltd t/a Harcourts Hornby (the Agency).

1.3. The complaint relates to a property (the Property).

1.4. The details of the complaint are that at the time of purchase of the Property the Licensee failed to disclose a number of issues to the Complainants and also gave incorrect information in regard to the Property.

1.5. In particular, the Complainants advised that:

(a) One of the EQC claims on the Property had been made outside the standard 90 day period allowed by EQC so was likely to be declined. The Licensee told the Complainants the claim was valid and waiting on scope of works. The Complainants subsequently found the claim had been declined.

(b) The Licensee did not tell them the solar energy system on one of the houses did not have Council consent.

(c) The Licensee did not tell them about code compliance issues on two buildings.

(d) The Licensee did not tell them about damage to the buildings from a previous flood.

(e) The Licensee did not tell them a neighbor was running a non-consented event centre and that there were legal battles over this.

(f) They asked the Licensee specific questions about the sewage system and the Licensee did not tell them the sewage was discharging illegally.

(g) The Licensee did not tell them the storm water drains were not legal.

1.6. The Complainants requested a remedy, being:

• For the issues with the Property to be rectified.

• Or to be awarded funds to be able to repair the Property and bring it up to standard.

1.7. The Licensee responded to the complaint against him. In particular, the Licensee commented that:

(a) The Complainants had a buyers’ agent, Ms. B, to advise them in relation to the purchase.

(b) He did not make representations in relation to the EQC claim as alleged by the

Complainants.

(c) The information provided by him to the Complainants was factually correct and not misleading.

(d) Pursuant to rule 10.7, a licensee is not required to discover hidden or underlying defects in land.

(e) The Complainants undertook their own exhaustive investigations into the Property,

including visits and conversations directly with the vendors and their buyers’ agent, to which the Licensee was not party.

(f) He did not know of representations made by the vendors and cannot be responsible for them.

(g) All prospective buyers including the Complainants were advised to seek legal advice

and the Complainants did.

2. What we decided

2.1. On 15 December 2014 the Complaints Assessment Committee (the Committee) considered the complaint and decided to inquire into it under section 78(a) of the Real Estate Agents Act

2008 (the Act).

2.2. On 9 July 2015 the Committee held a hearing on the papers and considered all the information that had been gathered during the inquiry.

2.3. The Committee found the Licensee has engaged in unsatisfactory conduct under section

89(2)(b) of the Act.

3. Our reasons for the decision

The Committee found, pursuant to section 72 of the Act, that the Licensee’s actions would reasonably be regarded by agents of good standing as being unacceptable. The Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012, rule 5.1 (skill, care, competence), rule 6.4 (must not mislead), and rule 10.7 (disclose known defects) were also considered.

3.1. The Committee concluded:

(a) In respect of the historical flooding the Committee considers no further action is required.

(b) In respect of the events centre no further action is required.

(c) In respect of the solar water heating system no further action is required.

(d) In respect of the EQC claim the Committee considers the Licensee’s conduct unsatisfactory.

(e) In respect of the storm water drains the Committee considers the Licensee’s conduct unsatisfactory.

(f) In respect of the code compliance issues the Committee considers the Licensee’s conduct unsatisfactory.

(g) In respect of the septic tanks the Committee considers the Licensee’s conduct unsatisfactory.

Reason One: [Historical flooding]

3.2. The Licensee was not informed by the vendors of the Property of the flooding event that had occurred some years previously, when a neighbour’s actions had contributed to subsidence of the hill above the dwellings. There was no easily seen evidence of any flooding on the Property and no record of flooding on the LIM report. The Committee does not consider the Licensee could have been reasonably expected to know of, or discover evidence of, historical

flooding damage at the Property.

Reason Two: [Events centre]

3.3. The Licensee was not informed by the vendors of the Property of the non-consented events centre, which had caused the vendors problems at previous times, and no information in this regard was noted on the LIM report. A marquee, which was visible in the distance when the Complainants viewed the Property, was not part of the events centre and was subsequently removed. The Licensee could not be expected to pass on information of an activity of which he had no awareness.

Reason Three: [Solar Water heating]

3.4. The solar water heating system on the roof of the dwelling known as the flat was not included in the sale and purchase agreement as a chattel. The Complainants asked for information on the system prior to purchasing and were forwarded written replies from two of the vendors by the Licensee on 18 March 2013. The vendors made it clear the solar system on the roof had been installed by the husband of one of the vendors many years ago, it was very old, was not working, and would need to be replaced if the Complainants wanted to use it. It was also made clear at the time that an associated pot belly stove was now non- compliant. The Complainants were concerned that the electric hot water cylinder was also on the roof on its side under a frame. They believe the cylinder was illegal and unsafe but no evidence is supplied to the Committee to support this. Regardless, the Committee does not consider the Licensee could be reasonably expected to know of, or discover, a defect in the hot water system without any advice from a professional or the vendors as to possible issues.

Reason Four: [EQC claim]

3.5. For EQC claims relating to damage from earthquakes, claimants were advised that claims must be lodged within 90 days of the event that caused the damage. The vendor of the Property who occupied the dwelling known as the flat was not in residence at the time of the quakes and had a tenant in the flat. The tenant was asked if there had been earthquake damage but said there had not. It was not until that vendor moved back to the flat at the time the Property was listed for sale with the Licensee that the damage was discovered, being minor cracking on an internal partition wall that had gone unnoticed. The vendor asked the Licensee for advice and he suggested lodging a late claim with EQC. The vendor did that by phone but was never assured the claim would be accepted, although a claim number was issued for it. The Licensee was very aware the claim may not succeed and states he advised all buyers, including the Complainants, accordingly. The next step would have been for an assessor to inspect the damage and, if approved, to raise a scope of works for repairs.

3.6. The Complainants were aware an out of time claim could not be counted on to succeed and the Complainants’ work-in agent, Ms. B, noted in her transaction report, “I very much doubt if EQC will accept this claim as it is years past the deadline. Purchasers aware of this”. Although both the Complainants and Ms. B doubted the claim would be successful, they state the Licensee told them on several occasions the claim was “fine”. The Licensee disputes having said this or doing anything to give that impression but the Committee prefers the evidence of the Complainants in this respect. Although it seems clear to the Committee that the Complainants were very aware the late claim to EQC was not guaranteed prior to purchasing the Property, they later appear to rely on the claim’s validity and state they may not have purchased the Property had they known the claim would be declined.

3.7. The issue of insurance in general for the Property was very complicated due to the ownership structure and the three dwellings on the site, and the Complainants, the vendors, the Licensee, and the Agency, were continuously involved in various aspects over the year subsequent to the sale in trying to sort out the issues and resolve the EQC claim. The Committee does not consider the Licensee was deliberately misleading in regard to the late claim but ultimately did mislead the Complainants by giving them false optimism as to the potential outcome of the claim. The late EQC claim was not listed in the original auction pack as it was not lodged until after the Property was listed. Although the claim number was noted in the auction sale and purchase documents it was not made clear in writing that it had not yet been, and may not be, accepted. The Committee considers the Licensee should have ensured all interested parties were given this information in writing prior to the auction, with the auctioneer also stating the fact prior to the auction commencing so as to avoid any doubt.

Reason Five: [Storm water]

3.8. The Licensee noted two non-compliant down pipes on the listing form for the Property. It is unclear to the Committee whether these were on the sleepout, as noted in Council records, or the cottage, as noted by the Complainant, or both; but in any event this non-compliant item should have been advised to prospective buyers by the Licensee prior to the auction. The Committee also considers that the non-compliant down pipes should have been an alert to the Licensee to investigate compliance issues more thoroughly and ask further questions of the vendors to ensure no other items had been missed. The vendors admit, when reminded, that they knew the sleepout did not have a Code Compliance Certificate due to the lack of storm water drainage and smoke alarms. Had the Licensee been more thorough at the time of listing, prospective purchasers would have been informed from the start as to the issues with the sleepout and able to make decisions accordingly. The Licensee has withheld information relating to a defect in the Property.

Reason Six: [Code compliance]

3.9. It is clear from the LIM report for the Property, page 2, Building Consents, that the sleepout and another structure classed as “industrial workshop addition” did not have a Code Compliance Certificate. The Licensee states the Complainants had their own buyers’ agent to explain information to them and that she was responsible for passing the LIM report to them and explaining any issues to them.

3.10. The Committee would like to clarify that Ms. B worked with the Complainants to assist with their purchase but was not a “buyers’ agent” as she was not paid by the Complainants but by the Agency, with whom she shared the commission paid by the vendors of the Property on a “work-in” arrangement. Ms. B did not have direct contact with the vendors and relied on the Licensee to supply information in regard to the Property.

3.11. The LIM was passed to Ms. B who then passed it to the Complainants. Neither the Licensee nor Ms. B alerted the Complainants to the code compliance issues which were also not picked up by the Complainants’ solicitor. The Licensee relied on Ms. B in this instance to alert the Complainants to any issues with the LIM, but did not have any information in the auction pack or at the auction itself to inform any other prospective purchasers of the compliance issues. As stated, “It is not enough for a licensee to simply pass information on to a purchaser; they must have first read and understood the information and then bring the salient points to the attention of the purchaser ([2013] NZREADT 102).” The Licensee did not do this.

3.12. The issue as to which structure was the industrial workshop addition appears to be complicated with neither the vendors nor the City Council able to establish which building it referred to – possibly a structure which has been demolished post-earthquake. The Complainants state had they known buildings on the Property did not have code compliance, their insurance would have been compromised and they potentially may not have purchased the Property. The Committee notes the Complainants sent a copy of the building consents page from the LIM to their insurers during the 10 days post auction allowed to obtain insurance. Regardless of whether or not the Complainants themselves were aware of the non-compliance issues at that time, the document was received and ultimately full insurance cover granted.

3.13. Although the Licensee placed some reliance on information being advised by the vendors and discovered by the purchasers, it was his responsibility under rule 10.7, as a competent licensee alerted to possible defects, to obtain confirmation, evidence, or expert advice that the land in question was not subject to defect, or to ensure that any prospective purchaser was informed of any potential risk so enabling them to seek expert advice.

Reason Seven: [Septic tanks]

3.14. Although the Property is close to the city, it is a lifestyle block and self-sufficient in regard to sewer and storm water drainage. The Licensee was obviously aware the Property was serviced by septic tanks and although the Committee would not expect the Licensee to be an expert on septic tanks and their details, standard practice would have been to obtain instruction at listing time from the vendors - preferably in writing – detailing at least the location of the tanks, their approximate age, their size, the pump system details, when last serviced, and where the run-off was discharged to. This information should have been included with the auction pack as any prospective buyer would require those details as evidenced by the request from the Complainants prior to the auction.

3.15. The Licensee did ring the regional council, who had no record of the tanks due to their age, but the Licensee did not have the detail required by the Complainants so requested it from the vendors and passed their email reply back to the Complainants, relying on a “conduit” principle as to representation.

3.16. As with the compliance issues, the Licensee had a duty to read and understand the information he relayed and had he done so, it would be expected he would have been alerted to potential issues. The vendors made it clear there were two tanks servicing the Property, with run-off from one being discharged up the hill at the tree line. In itself this would not necessarily be a problem as the system was old and may well have complied at the time it was installed. The second tank however, was detailed as having run-off to a drain at the road.

3.17. Clearly the Property was not serviced by a sewer line and therefore that road drain must have been a storm water drain which would be illegal, as subsequently transpired. The Licensee had a responsibility to clarify this issue, or to seek expert advice if this was an area he did not feel competent in, and to alert the vendors and the Complainants to the potential problem. The Licensee failed to do so.

4. Request for submissions on orders

4.1. 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. Refer to the Appendix of this decision.

4.2. The Complainant is to file submissions (if any) on what orders should be made within ten working days from the date of this decision. These submissions, if any, will then be provided to the Licensee, with a timeframe for filing final submissions.

4.3. The Committee requires the CAC Administrator to obtain a record of any previous disciplinary decision in respect of the Licensee and, if any such decision exists, provide it to the Committee.

5. What happens next

5.1. The Committee will consider all submissions and issue a decision on orders.

Your right to appeal

5.2. 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.

Publication

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

Signed

Jane Ross

Panel Member

For Complaints Assessment Committee 402

Real Estate Agents Authority

Date: 3 August 2015

Appendix 1: Relevant provisions

The Real Estate Agents Act 2008 provides:

Section 89 Power of Committee to determine complaint or allegation

(1) A Committee may make one or more of the determinations described in subsection (2) after both inquiring into a complaint or allegation and conducting a hearing with regard to that complaint or allegation.

(2) The determinations that the Committee may make are as follows:

(a) a determination that the complaint or allegation be considered by the

Disciplinary Tribunal:

(b) a determination that it has been proved, on the balance of probabilities, that the licensee has engaged in unsatisfactory conduct:

(c) a determination that the Committee take no further action with regard to the complaint or allegation or any issue involved in the complaint or allegation.

(3) Nothing in this section limits the power of the Committee to make, at any time, a decision under section 80 with regard to a complaint.

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.

Section 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.

Section 111 Appeal to Tribunal against determination by Committee

(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 the notice given under section 81 or 94.

(2) The appeal is by way of written notice to the Tribunal of the appellant's intention to appeal, accompanied by—

(a) a copy of the notice given to the person under section 81 or 94; and

(b) any other information that the appellant wishes the Tribunal to consider in relation to the appeal.

(3) The appeal is by way of rehearing.

(4) After considering the appeal, the Tribunal may confirm, reverse, or modify the determination of the Committee.

(5) If the Tribunal reverses or modifies a determination of the Committee, it may exercise any of the powers that the Committee could have exercised.

The relevant provisions from the Real Estate Agents Act (Professional Conduct and Client Care) Rules

2012 are:

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

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

Rule 10.7 A licensee is not required to discover hidden or underlying defects in land but must disclose known defects to a customer. Where it would appear likely to a reasonably competent licensee that land may be subject to hidden or underlying defects, a licensee must either—

(a) obtain confirmation from the client, supported by evidence or expert advice, 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.