Keenan - Complaint No C04666 [2015] NZREAA 48 (8 January 2015)

Last Updated: 14 October 2015

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

And

In the Matter of Complaint No: C04666

In the Matter of Mark Keenan

License Number: 10001584

Malcolm Forsyth

License Number: 10017448

Decision of Complaints Assessment Committee

Dated this 8th day of January 2015

Complaints Assessment Committee: CAC301

Chairperson: Deirdre McNabb Deputy Chairperson: Patrick Waite Panel Member: Rex Hadley

Complaints Assessment Committee

Decision finding unsatisfactory conduct

1. The Complaint

1.1 The Real Estate Agents Authority (the Authority) received a complaint from the Complainant in regard to Mr. Mark Keenan (Licensee One) and Mr. Malcolm Forsyth (Licensee Two). Mr. Keenan holds a salespersons license and Mr. Forsyth holds an agents license, they are both licensed under the Real Estate Agents Act 2008 (the Act). Both work for Rotorua Realty Services Limited, T/A LJ Hooker Rotorua (the Agency). Mr. Forsyth is the supervising agent of Mr. Keenan.

1.2 The complaint is about the conduct of Licensee One in relation to the purchase of a property (the Property) by the Complainant and her partner. Licensee One was the vendor and the listing and selling agent.

1.3 The Complainant and her partner, Mr. S, purchased the Property, which had been listed through the Agency by Licensee One, in October 2013. Some three weeks after they had moved into the Property they found evidence of long-term leaking and rotten floorboards in the bathroom. The Complainant alleges Licensee One knew about the leaks and did not disclose this before the Complainant purchased the Property.

1.4 Licensee Two has been included in the complaint as the Complainant was not satisfied with his response to a complaint that she had made to the Agency in regard to Licensee One.

1.5 The Authority referred the complaint to the Complaints Assessment Committee (the Committee).

Pursuant to section 79(1) of the Act, the Committee considered the complaint on 10 April 2014 and made a decision to inquire into it.

1.6 The Committee invited the Licensees to provide a response to the complaint. A response was received from Licensee One dated 5 May 2014 and from Licensee Two dated 28 April 2014. The Complainant was invited to provide further comment in relation to the Licensees’ response, which was received on 11 May 2014. Further comments were received from the Licensees and the Complainant to questions raised by the Authority’s investigator.

1.7 Having satisfied itself that it had completed its inquiry into the complaint, the matter was considered by the Committee on 16 September 2014.

1.8 The hearing was conducted on the papers pursuant to section 90(2) of the Act and the

Committee made its determination on the basis of the written material before it.

2. Material Facts

2.1 Licensee One purchased the Property in March 2013, renovated it and then sold it to the

Complainant in October 2013.

2.2 The Complainant and her partner obtained a builder’s report as a condition of lending. They allege that Licensee Two discouraged them from getting a builder’s report. The building inspection was undertaken on 14 September 2013 and found mould in the bathroom floor. The mould was believed to have come from a leak which had been fixed. There was also mention of some sag in the floor of the kitchen.

2.3 Some three weeks after moving into the Property the Complainant found evidence of a long- standing leak and rotten floorboards in the bathroom. Whilst neither of the Licensees had mentioned that the house had dux quest piping, the builder had identified that issue and mentioned to the Complainant that it was problematic.

2.4 The Complainant lodged a claim with her insurance company who inspected the house. The person who did the assessment stated in his report that he observed gradual damage to the bathroom floor from a long-standing leak. The floor in the bathroom had previously been repaired with custom board, which is not suitable for bathrooms. Prior to the sale Licensee One had installed a new vanity and had laid new vinyl to the bathroom floor.

2.5 The Complainant and her partner made a complaint to the Agency. Licensee One refuted the claims and no resolution was found through the in-house complaints process. As a result the Complainant added Licensee Two to the complaint.

3. Relevant Provisions

3.1 The Committee examined the information supplied by the Complainant in her written complaint to determine whether s72 or s73 of the Real Estate Agents Act 2008 (the Act) applied i.e. was there evidence which would indicate that the Licensees could be considered guilty of unsatisfactory conduct (s72) or misconduct (s73).

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 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 willful 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 Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012

The Real Estate Agents Act (Professional Conduct and Care) Rules (the Rules) set out the standard of conduct and client care that agents, branch managers and salespersons (licensees) are required to meet when carrying out real estate work and dealing with clients. Whilst these rules are not meant to be an exhaustive list, they set minimum standards that licensees must observe and a reference point for discipline.

In relation to this complaint the following rules may apply:

Rule 5 Standards of professional competence

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

Rule 6 Standards of professional conduct

Rule 6.2 A licensee must act in good faith and deal fairly with all parties engaged in a transaction.

Rule 6.3 A licensee must not engage in any conduct likely to bring the industry into disrepute.

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.

4. Discussion

Issue One: Licensee One did not disclose a leak in the bathroom

4.1 The Complainant states that a month after settlement she was under the house and discovered water dripping from the bathroom onto the ground. She was advised that the level of damage indicated that the leak had existed for three months to a year and that whoever had installed the vanity unit and vinyl flooring would have noticed it. She also states that new custom board had been placed over damaged areas underneath the house that could possibly have made finding the damage during inspections difficult.

4.2 The Complainant has provided a copy of the formal complaint she had made in November 2013 to the Agency. In it she states “(m)y personal conclusion is Mark has come across this whilst renovating and has patched up areas without fixing the root cause.” He has then chosen not to disclose this to prospective purchasers.

4.3 The Complainant provided a copy of the Loss Adjuster’s report which states that a dux quest pipe under the bath but above the particle board was slowly leaking from an elbow join and would have had to be leaking for a particular length of time as observed from the mould on the affected areas. The Insurance Loss Adjustor observed in his report:

• “Water has been dripping down onto the floor for a long time – approx. three months to no more than one year. The particle board has completely disintegrated directly below the leak and is badly swollen and moldy in the bathroom and also the adjacent bedroom;”

• “There is a patch of custom wood cut into the floor (this is not meant to be used as flooring)

which looks as though it was put there on the cheap to mask affected areas;” and

• “There is gradual damage that has been leaking for a long time. As the insured has only been in the house for one month this damage would have already been present, but hidden...”

4.4 The Insurance Company declined her claim for the above reasons.

4.5 The Complainant states that the builder’s report identified:

• “Obvious signs of entry into the bathroom wall through the end room wall;”

• “When under the house he had pulled back some of the insulation and saw white mold marks on the joist but coupled with the new custom board that was underneath as well as the obvious entry marks on the wall assumed a leak would have been fixed;” and

• “A sag in the floor in front of the pantry area.” (Licensee Two in response to a query from the Complainant advised that Licensee One had told him that his builder had identified a leak in that area but the floor was sound to put the pantry in and lay the vinyl.)

4.6 The Complainant asked Licensee Two whether, in light of the above, “is there anything else I should know about the house or it(s) structural integrity” and he replied “No.”

4.7 In support of her complaint the Complainant has supplied a number of photos, which clearly show significant damage around the bathroom floor area from water leakages.

4.8 Licensee One in his response has stated:

• He was not aware of the leaks in the bathroom at the time of sale;

• He was not aware that there was dux quest piping or any associated issues with such piping at any stage;

• He was not aware of any floor repairs of any kind;

• The purchasers were advised that a new kitchen had been installed, a vanity had been installed, the laundry had been renovated, new vinyl and carpet had been laid, the Property had been painted externally, internal woodwork had been varnished/polished and new curtains/drapes had been fitted throughout the Property. The only pipes that would have been replaced would have been by the plumber when the kitchen was installed.

4.9 In response to questions raised by the investigator in regard to work that was undertaken on the bathroom, Licensee One advised:

• Mr. P was the only tradesperson who did work on the bathroom;

• He (Licensee One) painted the bathroom and installed the vanity;

• The sale and purchase agreement was a standard auction agreement prepared by his solicitor.

Whilst he would have put the purchasers’ personal details on the agreement, he had called Licensee Two during the first meeting with the purchasers and withdrew from any further involvement at that time. Licensee Two had then taken over discussions with the purchasers;

• Licensee One had not had a building inspection undertaken when he purchased the Property.

4.10 Mr. P, the carpet and vinyl layer, in an email to Licensee One has stated that he did not see any moisture or any wet surfaces showing in the bathroom when he laid the vinyl. If he had he would have brought it to Licensee One’s attention. The Authority’s investigator talked with Mr. P on 18

August 2014. He confirmed that the only work carried out in the bathroom was laying the vinyl, which he had laid over chipboard. He thought that there was no vanity unit in the bathroom when he laid the vinyl. He also mentioned that the owner (Licensee One) was present the entire time he was laying the vinyl and, if he had seen a leak, he would have told the owner.

4.11 The Complainant alleges that at no stage did Licensee Two recommend or suggest that she and her

partner get a builder’s report or a LIM. The Complainant had obtained a file from the Council and obtained a builder’s report, which was a requirement for their housing loan.

4.12 Licensee One had gone to their house after they had viewed the Property twice and discussed the clauses they would need for the contract. He had asked if he could call Licensee Two who she alleges, discouraged a builder’s inspection (“if you do that it will slow down the process of going unconditional”) and that the auction was rapidly approaching. However it was agreed that a builder would inspect the Property in the next couple of days.

4.13 From this point on Licensee Two was more involved than Licensee One.

4.14 Licensee Two in his response has a different recollection of the discussion around obtaining a builder’s report. He advises that during discussions about what the purchasers wished to have in their written contract, he asked them if they would like to request a builder’s report and they said they would not. He recommended a builder’s report and, after discussion, it was inserted into the agreement.

4.15 The Authority’s investigator has been unable to contact the previous owners to establish whether they knew anything about leakages or the replacement chipboard in the bathroom.

Issue Two: The Agency’s handling of the complaint

4.16 The Complainant has joined Licensee Two to the complaint due to her dissatisfaction with the Agency’s in-house complaint’s procedure. She is dissatisfied with the response she received from the Agency. She was “extremely annoyed” that the reply “basically refuted everything and offered no resolution.” She was unimpressed that the Agency took a long time to get back to her and a day longer than they should have according to their 10 working day promise.

4.17 The Complainant provided the Committee with a copy of her written detailed complaint, which she emailed to the Agency on 17 November 2013. This clearly documented with photo evidence, the water damage issues that had been uncovered along with a description of what repair work was required.

4.18 In her complaint to the Agency she stated “I have been told by two separate professionals that there is no way Mark would not have been informed of the leak and subsequent damage as it would have been evident from laying the vinyl and installing the vanity. There has been an attempt to cover up various areas with cheap custom board not supposed to be used for flooring.”

4.19 The Complainant raised in her complaint a number of issues such as the verbal agreement by Licensee One to provide tiles for the bay window in the kitchen, curtain railings and the vanity not being installed properly. Licensee Two emailed the Complainant and advised of matters that Licensee One would attend to. He also acknowledged in his letter dated 27 November 2013 that there were a number of items that had not been remedied and he had spoken to Licensee One about that: “He indicated to me that his intention had been to complete prior to settlement however time had got away from him and that he would complete at a time that was acceptable to the Complainant.”

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 reviewed all information and documentation provided by the parties. There are clearly two very opposing views. The Complainant is certain that Licensee One knew about the leak, tried to patch it up and sold the Property without disclosing it. Licensee One, however, has advised the Committee that he knew nothing about the leak at the time of sale, nor was he aware of any repair to the bathroom floor.

5.3 Whilst the Licensees have denied any knowledge of the water damage, the Committee has concluded that, having viewed the photos from Insurance of the water damage, the leaks have clearly been in existence for some considerable time. The question the Committee considered was whether the Licensees, particularly Licensee One, were aware of this when the Property was sold. The Committee took the view that the vendor, as a real estate salesperson, having discovered a sag in the kitchen floor which was identified by his builder as being caused by a leak, would have been alerted to the possibility of there being an issue with the water pipes in the house. There were clearly issues with pipes leaking as evidenced by the photos, which show damage to the floor in the bathroom and adjacent bedroom. In addition a photo of the bedroom wall taken by the Loss Adjuster shows clearly that access had been made at some stage through the wall to the bathroom, presumably to repair water pipes.

5.4 The Committee considers that real estate salespeople should be alert to issues with dux quest water pipes particularly for houses built during the late 1970s and 1980s when the first polybutylene plumbing was introduced. The issue is compounded by the introduction of chipboard flooring at around the same time. There have been articles written in real estate magazines about the problems associated with these products and building inspections will generally highlight this issue. The Committee considers that the Licensees should have been aware of this leaking issue particularly Licensee One who had undertaken work on the house.

5.5 In relation to Licensee Two the Committee concluded that he, as supervisor of Licensee One, failed to provide adequate assurance that full disclosure was made by the vendor (Licensee One) for the Property being sold. The Committee took the view that the Complainant’s question as to whether there was anything else that she should know about the house or its structural integrity should have provoked Licensee Two to undertake some level of enquiry before responding “No” as alleged by the Complainant. Whilst acknowledging that he had formally responded to the complaint, the Committee considers that Licensee Two did not adequately investigate the complaint. There is no evidence provided to suggest that he either inspected the damage or validated evidence such as the photos and the insurance report. Instead it seems he relied on the assurances provided to him by Licensee One.

5.6 Whilst there is inadequate evidence to support the Complainant’s claim that Licensee One covered up damage caused by leaking pipes, the Committee has concluded that there is sufficient evidence to support the allegation that he failed to disclose to the Complainant information that should have been disclosed, namely that there had been leakages, as evidenced by the sag in the kitchen floor, and that there was the possibility of further leakages which was borne out by the photos evidencing damage to the bathroom floor.

5.7 Accordingly the Committee determined under section 89(2)(b) of the Act that is has been proved, on the balance of probabilities, that Licensee One, Mr. Mark Keenan, has engaged in unsatisfactory conduct.

5.8 In regard to Licensee Two, the Committee concluded that his supervision of Mr. Keenan was inadequate as was his response to the complaint lodged by the Complainant. Accordingly the Committee has determined under section 89(2)(b) of the Act that is has been proved, on the

balance of probabilities, that Licensee Two, Mr. Malcolm Forsyth, has 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:

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.

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

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 it’s 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 ww w.justice . go v t.nz/ tribunals .

Signed

Patrick Waite

Deputy Chairperson

Complaints Assessment Committee

Real Estate Agents Authority

Date: 8 January 2015