Complaint No C10083 [2016] NZREAA 82 (22 April 2016)

Last Updated: 25 December 2016

Before the Complaints Assessment Committee

Complaint No: C10083

In the matter of

Part 4 of the Real Estate Agents Act 2008

The Licensee: The Licensee (XXXXXXXX)

Decision to take no further action

22 April 2016

Members of Complaints Assessment Committee: CAC 408

Chairperson: Marjorie Noble Deputy Chairperson: Deborah Clapshaw Panel Member: Geoff Warren

Complaints Assessment Committee

Decision to take no further action

1. The Complaint

1.1. On 8 September 2015 the Real Estate Agents Authority (the Authority) received a complaint against the Licensee from the Complainants.

1.2. The Licensee is a licensed salesperson under the Real Estate Agents Act 2008 (the Act) and is working for the Agency.

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

1.4. The details of the complaint are that the Complainants listed the Property for sale with the Agency under an exclusive listing but retained the right to sell it privately, as they were marketing it privately. The Licensee presented an offer for $1.29m from the Purchasers to purchase the Property, which contained an escape clause and a clause making the contract conditional on the acceptance of the contract, as to form and content, by the respective lawyers for the parties. The Complainants state they were assured a number of times by the Licensee that they were not locked into the offer from the Purchasers and continued to work with another private buyer, which resulted in an offer by email from that buyer for $1.26m, including conditions the Complainants found acceptable. When they met with their solicitor to discuss the two offers they learnt that they were locked into the Agreement with the Purchasers. Their solicitor tried to cancel the contract and then activated the escape clause. The Purchasers responded by declaring the contract unconditional and became the successful purchasers.

1.5. In particular, the Complainants advised that;

a) The Licensee was aware when the offer was presented on Saturday, 15 August 2015, that there was interest from another private buyer. After they initialed the Agreement they continued to work with the private buyer.

b) On Sunday, 16 August 2015, they emailed the Licensee to confirm the process for dating

and approving the Agreement. They also questioned the wording of the escape clause and proposed simplified wording namely, “The Vendors reserve the right to accept any other presented offers and in such an event this Agreement becomes null and void, this right waives at 4.00pm on the xxx working day from the date of this agreement.”

c) The Licensee responded explaining the escape clause is standard “so you can indeed bring another offer to the table, if it is acceptable to you both you can then serve notice to cash the original offer out.”

d) On Wednesday, 19 August 2015, the private buyer made an offer by email and their solicitor activated the escape clause on 20 August 2015. On 21 August the Purchasers offered a further $10,000 but this offer was withdrawn later that day. The Complainants consider that such an increase was unfair on the Purchasers. On 24 August the Purchasers declared the contract unconditional and became the successful purchasers.

e) The Complainants raised their concerns with the Agency and received a letter from Mr. X on behalf of the Agency, advising that he found nothing in the Licensee’s conduct to give concern and no evidence the Complainants were coerced into signing the Agreement.

1.6. The Complainants requested a remedy, being:

a) Waiver of the commission of $45,000.

b) Payment of the difference between the two offers of $10,000. c) Payment of the additional legal expenses.

d) Payment of $1,000 compensation for stress. e) Letters of apology to the parties.

1.7. The Licensee responded to the complaint against her.

1.8. In particular, the Licensee outlined the background to the complaint and answered questions put to her by the Investigator stating as follows:

a) She approached the Complainants in early May 2015 to see if they would list the Property with her. They explained they were marketing the Property privately but would list with the Agency exclusively with an exemption for them to continue to market privately. They listed exclusively with the Agency so they would not be approached by another agency. It was not normal practice to do this but the Licensee agreed to the arrangement.

b) The Property was listed for a period of 90 days (with the vendor Trustee signing all the listing documents) and the listing was subsequently extended for a further period until

30 November 2015. During the listing period, the Licensee and the Complainants had many phone and email communications and the Complainants seemed happy with the arrangement.

c) During the listing period the Licensee presented two offers on the Property, the first in late July 2015, which the Complainants countersigned but did not result in a concluded contract. The second offer from the Purchasers was presented on 15 August 2015 at the Property, where the Licensee went over the conditions to ensure the Complainants understood and accepted them. The Licensee explained the solicitors’ approval clause (Clause 20) was for form and content only and read out the escape clause (Clause 26) and explained it “was so [the Complainants] could continue to market the Property until a purchase was declared unconditional, if there was another interested party wanting to buy the Property and draw up an agreement if acceptable to the vendor, they could activate a three day cash out clause to serve notice on the prior agreement. Then the original contract either went unconditional, or withdraw from their contract.”

d) One of the Complainants emailed the Licensee with queries regarding the process on 16

August 2015 and she responded by email on 17 August 2015. This email reiterated the explanation about the escape clause. On the morning of 17 August 2015, the other Complainant had a conversation with the Trustee, with regard to the Sale and Purchase Agreement which had been emailed to him by the Licensee. The signed contract was returned to the Licensee by the Trustee on 17 August 2015 with several changes made to it. The Licensee arranged to have the changes initialed by the Purchasers and then the Complainants. The Licensee learnt on 18 August 2015 that the Complainants wished to cancel the Agreement because they had a private buyer and she explained to them this needed to be done by their solicitor activating the escape clause.

e) The Licensee stated that the Agreement was drafted by the Licensee under instructions from the Purchasers and their lawyer. The Complainants had not made a decision as to who they would use as their lawyer at the time but involved their Trustee, who is a lawyer. The Licensee asked the Complainants on several occasions over the three month listing period about their solicitor. They said they would use the Solicitors but they did not know specifically who they would use in that firm. The solicitors’ approval clause in the Agreement was requested by the Purchasers and was drafted to cover both parties.

There were two clauses drafted by the Complainants for an earlier agreement which were also inserted (Clauses 19 and 20).

2. What we decided

2.1. On 16 October 2015 the Complaints Assessment Committee (the Committee) considered the complaint and decided to inquire into it under section 79(2)(e) of the Act.

2.2. On 30 March 2016 the Committee held a hearing on the papers and considered all the information gathered during the inquiry.

2.3. The Committee has decided to take no further action on the complaint.

2.4. This decision was made under section 89(2)(c) of the Act. The decision was also made with reference to the Real Estate Agents Act (Professional Conduct and Client Care) Rules 5.1 (care and skill), 6.2 (act in good faith and deal fairly), 9.1 (act in best interests and in accordance with instructions),9.2 (undue pressure),9.7 (legal advice), and 9.8 (understanding) and section

72 of the Real Estate Agents Act 2008.

3. Our reasons for the decision

The Committee concluded:

3.1. The Licensee did advise the Complainants of the effect of the escape clause before they initialed the Agreement.

3.2. There is no evidence to suggest the Licensee did not advise the Complainants they should seek legal advice on the Agreement.

3.3. The Licensee did not exert unfair pressure on the Complainants when she obtained their signatures on the Agreement.

3.4. The Complainants’ Trustee reviewed the Agreement and made changes to it prior to completion thereof.

3.5. The Complainants were not under pressure to initial the changes made by the Trustee to the

Agreement, which resulted in the completion of the contract.

3.6. The Licensee did fulfil her obligations to act in good faith and deal fairly with the

Complainants.

Advice on effects of escape clause

3.7. The Licensee presented the offer and went through the Agreement with the Complainants on

15 August 2015. The Complainants do not dispute there was discussion about Clause 26, the escape clause. In their evidence the Complainants confirm that they read the clause but that they did not understand its true effect. They recall the discussion on presentation of the offer as being to the effect they had three ways of escaping the Agreement; firstly they were not bound until their Trustee signed, secondly as a result of the solicitors’ approval clause, and

thirdly by means of the escape clause. On this basis they say they initialed the Agreement on

15 August. On 16 August in an email to the Licensee, the Complainant raised the question of the process to finalise the Agreement and proposed more succinct wording for the escape clause. The Licensee responded on 18 August confirming the further steps required and reiterating her previous advice regarding Clause 26. The Agreement was completed the following day after the Trustee had made amendments and signed it, and the Purchasers and then the Complainants had initialed the changes.

3.8. The Complainants state that they did not understand the effect of Clause 26 but they did not insist on the revised wording proposed by them at a time when the Agreement was not yet complete (as it still required the Trustee’s signature). The Licensee reiterated her explanation about Clause 26 in her email response to the Complainants before it was signed by the Trustee. On 17 August 2015, the Complainants initialed the amendments to the Agreement without requesting a change to the escape clause.

3.9. The evidence shows the Complainants did continue to work with the private buyer after the

Agreement was completed on 17 August 2015, and they went to see their solicitor on 19

August to discuss the verbal offer they say they had received from the private buyer and the concluded Agreement, and it was then they learnt they were locked into the Agreement subject to exercising the escape clause. This evidence is consistent with their belief that they were not locked into the Agreement. On 19 August their solicitor attempted to cancel the Agreement under the solicitor’s approval clause which was not accepted by the Purchasers’ solicitors. The option to activate the escape clause was not available to the Complainants as they did not have a written offer from the private buyer; although the evidence suggests their solicitor did purport to exercise the escape clause which resulted in the Purchasers declaring the contract unconditional through their lawyers on 24 August 2015.

3.10. The Committee notes that had the Complainants sought legal advice from their conveyancing lawyer prior to signing the Agreement on 15 August and initialing it on 17 August they may not have completed the contract. However, it appears they chose not to do so until after the contract was complete.

No evidence to suggest the Licensee did not recommend the Complainants seek legal advice on the Agreement

3.11. The Complainants do not allege they were not recommended or given an opportunity to seek legal advice on the Agreement before signing it. They say they should have been told not to sign the Agreement until they had received legal advice. The Agreement contains the standard clause that “It is recommended both parties seek professional advice before signing.” This page on the Agreement is initialed by the Complainants. The Licensee was not obliged to insist the Complainants seek legal advice nor to ensure that they did so. The Committee notes the Licensee’s evidence that she did believe they were going to seek legal advice on the Monday morning before the Trustee signed the Agreement and that they had obtained legal advice from their Trustee.

No undue pressure at the time of signing the SPA

3.12. There is no evidence from the Complainants to suggest the Licensee exerted undue pressure on the Complainants when she presented the offer and it was signed by them on Saturday, 15

August 2015. At this time the Complainants could have chosen to seek advice before signing;

they did not. The Licensee was aware the Agreement needed to be signed by the

independent Trustee and sent it on by email to him that day for signing. There is no evidence she indicated the matter was urgent. The evidence shows the Complainant did speak with the Trustee before the Agreement was amended by him but it appears no other advice was sought. The Trustee has stated that he did not know the Property was being marketed privately as well as by the Agency and that he was not engaged to provide legal advice but to act as signatory for the owners.

3.13. He did review the contract, however, and made changes to Clause 18 to protect the Complainants from liability with respect to the crops, which he discussed by telephone with the Complainant before signing. He states he was not aware until after the Agreement was completed that there was private interest in the Property, as he does not recall this being mentioned to him by the Complainant during their telephone conversation nor was Clause 26 being discussed. The Committee accepts this evidence but notes that he did sign the agency agreement which specifically excludes “any purchaser from the vendors trade me site contacting them privately” on the front page. As a result of the amendments which needed to be initialed by the Complainants, there was a further opportunity for them to refuse to initial the Agreement before seeking legal advice. They did not and they do not allege there was pressure on them from the Licensee at this time.

The Trustee reviewed the SPA and made changes to it prior to signing

3.14. The Committee considers the Licensee had fulfilled her obligations to the Complainants at the time they signed the Agreement by having recommended professional advice be sought (there being no suggestion on the evidence otherwise) and by not exerting pressure on them to sign. She was not required to ensure they sought legal advice. Her evidence is that she believes they had, as the Trustee was previously their conveyancing lawyer and made changes to the Agreement to protect them against legal liability. In addition, she was advised by the Complainant that he was seeing his lawyer on Monday, 17 August. The Committee notes this but does not consider it to be relevant to the key question whether the Licensee met her obligations to protect the Complainants’ best interests, by explaining the effect of the Agreement, and in particular Clause 26, recommending professional advice, and not putting them under undue pressure to sign it.

The Complainants were not under pressure to initial the changes to the Agreement

3.15. There is no evidence from the Complainants that they were under pressure from the Licensee to initial the changes made to the Agreement by the Trustee which allowed the contract to be completed.

The Licensee did fulfil her obligations to act in good faith and deal fairly with the

Complainants

3.16. The Licensee does not deny she knew there was private interest in the Property and Clause

26 was included in the Agreement to cover the situation where a private written offer was received. She explained the effect of this clause to the Complainants on a number of occasions. The branch manager of the Agency has confirmed that the Licensee’s explanation of the escape clause was succinct and accurate. The essence of the Complainants’ complaint is that they did not understand the true effect of the clause, in which case it would have been prudent for them to have obtained legal advice on it, which they did not prior to signing the Agreement. The Committee does not consider there was any shortcoming in the Licensee’s conduct. It was for the Complainants to insist on the revised wording of Clause 26 or to seek

legal advice before signing if they were unclear about the effect of the Clause.

Your right to appeal

3.17. If you are affected by this decision of the Committee, you may appeal in writing to the Real Estate Agents Disciplinary Tribunal (the Tribunal) within 20 working days after the date of this decision (no later than 23 May 2016 (Section 111).

3.18. For further information on filing an appeal, read Guide to Filing an Appeal at Ministry of

Justice-Tribunals (www.justice.govt.nz/tribunals).

4. Publication

4.1. At the Committee’s discretion, the decision will be published without the names or identifying details of the Complainants (including the address of the Property), the Licensee, and any third parties.

4.2. The Authority will publish the Committee’s decision after the period for filing an appeal has ended, unless the Tribunal receives an application for an order preventing publication. The Authority will not publish the Committee’s decision until the Tribunal has made a decision on the application.

4.3. Publishing the Committee’s decision supports the purpose of the Act by ensuring that the disciplinary process remains transparent, independent and effective. The Committee also considers that publishing this decision helps to set industry standards and that is in the public interest.

Signed

Deborah Clapshaw

Date: 22 April 2016

Appendix 1: Relevant provisions

The Real Estate Agents Act 2008 provides:

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.

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:

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

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

9.1 A licensee must act in the best interests of a client and act in accordance with the client’s

instructions unless to do so would be contrary to law.

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

9.7 Before a prospective client, client, or customer signs an agency agreement, a sale and purchase agreement, or other contractual document, a licensee must—

(a) recommend that the person seek legal advice; and

(b) ensure that the person is aware that he or she can, and may need to, seek technical or other advice and information; and

(c) allow that person a reasonable opportunity to obtain the advice referred to in paragraphs (a) and (b).

9.8 A licensee must not take advantage of a prospective client’s, clients, or customer’s inability

to understand relevant documents where such inability is reasonably apparent.