Complaint No C22823 [2018] NZREAA 84 (21 May 2018)

Last Updated: 9 January 2019

In the Matter of	Part 4 of the Real Estate Agents Act 2008 Complaint No: C22823
And
In the Matter of	Licensee 1 (XXXXXXXX)
	Licensee 2 (XXXXXXXX)

Decision of Complaints Assessment Committee

Decision to take no further action

21 May 2018

Complaints Assessment Committee: CAC 412

Chairperson: Bernardine Hannan

Deputy Chairperson: David Bennett

Panel Member: Craig Edwards

Complaints Assessment Committee

Decision to take no further action

1. The Complaint

1.1. On 26 October 2017 the Real Estate Agents Authority (the Authority) received a complaint against Licensee 1 and Licensee 2 from the Complainant.

1.2. Licensee 1 is a licensed salesperson and Licensee 2 is a licensed agent under the Real Estate Agents Act 2008 (the Act). At the time of the conduct complained of, both Licensees were employed by the Agency.

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

1.4. The details of the complaint are that the Complainant alleges she was not told about flood issues at the Property prior to purchasing the Property.

1.5. In particular, the Complainant states that she viewed the Property on 4 May 2017 and 6 May

2017. On 4 June 2017 the Complainant submitted an offer on the Property. This offer was countersigned and accepted on 6 June 2017.

1.6. The Complainant says that at the same time she was submitting the offer she asked Licensee

1 about the tenancy agreement the Property was subject to. The Complainant says Licensee 1 told her only the amount of rent paid each week and the date the tenancy agreement ended.

1.7. The Complainant says the offer included a clause allowing her solicitor 24 hours to review the title but was otherwise unconditional. She says her due diligence included looking at the council property file and confirming the Code Compliance Certificate on an extension at the Property. The Complainant says she cannot recall whether Licensee 1 recommended a building report.

1.8. The Complainant says a copy of the tenancy agreement was given to her on 8 June 2017. She says the tenancy agreement included a note saying the garage can flood at times. The Complainant says she was not told about the flood issues prior to making her offer.

1.9. The Complainant raised concerns with Licensee 2 on 23 August 2017. The Complainant says Licensee 2 told her Licensee 1 was not aware of the flooding issues because the property manager only gave Licensee 1 a copy of the tenancy agreement after the Complainant submitted her offer. The Complainant says Licensee 2 provided an unsatisfactory response.

1.10. The Complainant requested a remedy, being:

a) compensation to cover the cost of fixing the flooding issues; and

2. for the licensees to understand the issues she has raised and to acknowledge this is a problem.
   

1.11. The Licensees responded to the complaint against them, denying that they had withheld relevant information from the Complainant or that her complaint was not handled appropriately.

1.12. In particular, Licensee 1 states that when the Property came on the market it was inspected by the Agency team. At this time Licensee 1 does not recall anything being said about water issues under the house and she claims to have not noticed any flooding or water in the downstairs area nor did her previous colleagues (Licensee 1 is no longer employed by the Agency). Licensee 1 claims there was nothing noted on the agency agreement in relation to defects or hazards regarding flooding nor was she aware of any water egress issues.

1.13. By way of background, Licensee 1 states the Complainant called the office with an enquiry on the Property in mid-2017. She claimed to be looking for an investment property in the area and felt the Property could be of interest. Licensee 1 gave her some basic information over the phone regarding the building size, location and on a fixed term tenancy which was in place.

1.14. The Complainant then requested to view the Property which was set up for 4 May 2017.

Upon viewing the Property, which Licensee 1 claims to have been “a pretty extensive viewing”, the Complainant advised Licensee 1 she was looking to purchase an investment property with the view to extend / develop it in the future. The Complainant mentioned she had bought several properties in the past and appeared to be an astute investor. The Complainant had a very thorough viewing of the upstairs of the property initially, then went outside and viewed the exterior while appearing to envisage how she could extend and develop the property.

1.15. After viewing the exterior, Licensee 1 claims she and the Complainant went underneath the house and the Complainant had a thorough inspection underneath. The entire area was clearly in need of work; it was very rough, basic, and unfinished. The Complainant had a good inspection then proceeded to the laundry and the little room beyond that. Licensee 1 claims the Complainant spent considerable time looking around under the house and didn’t raise any concerns with her about her findings.

1.16. After the viewing, the Complainant stated she was very interested in pursuing the Property, so Licensee 1 claims she sent the Complainant all the information the Agency had on file relating to the building and renovations undertaken by the previous owners. There were some old floor plans available and the Complainant wanted to view these to consider how she could develop the property further herself.

1.17. Licensee 1 claims the Complainant stated that she was very interested in the Property and was considering putting in an offer. This offer would be low in price (well below asking price) but unconditional to make it more attractive to the vendor. Licensee 1 claims she advised the Complainant of the risks involved and suggested obtaining a building and LIM report.

1.18. On the 6 May the Complainant had a second viewing of the Property, again very thorough, and viewed the downstairs / under house area for the second time with no concerns being raised. Licensee 1 also directed the Complainant to another property on the market that may have been of interest to the Complainant. The Complainant also viewed this property.

1.19. Licensee 1 claims to have followed up with the Complainant several times after these viewings and was advised the Complainant wasn’t interested in either property anymore.

1.20. Licensee 1 claims she then received a call from the Complainant in early June to discuss the Property again. The Property was still on the market and the Complainant decided she would like to proceed with an offer and asked Licensee 1 to come to her house to complete the paperwork and present an offer to the vendor. Licensee 1 claims she again suggested to the Complainant that she obtain a building report, but the Complainant decided to proceed without this clause.

1.21. Licensee 1 would like the Committee to be aware that the Complainant had been conducting her own due diligence and was presenting an offer well below the asking price but claimed she wanted it to be unconditional to be more attractive. Licensee 1 reiterates that she mentioned the risks involved to the Complainant, but the Complainant declined a building report.

1.22. The vendors reluctantly accepted the Complainant’s offer (after some negotiating) as it was well below their expected price.

1.23. As the tenant was in a fixed term tenancy, the Complainant asked Licensee 1 to send her the tenancy agreement as she wanted to take over the management of the tenancy from the Agency who had been in charge of the property management. Licensee 1 claims she had called one of her managers and explained the situation asking if she could send the Complainant the tenancy agreement directly, so she could take over. The Manager told Licensee 1 that this would be fine and emailed Licensee 1 the tenancy agreement which was forwarded directly onto the complainant.

1.24. Licensee 1 claims to have no idea there were any issues with water coming into the under- house area, while acknowledging it had been noted on the bottom of the tenancy agreement by the property manager, and that this was never brought to her attention or passed onto any of the sales team.

1.25. Licensee 1 also submits there were no obvious signs of water infiltration and the Complainant viewed the downstairs area in detail several times and also declined to have a building report which may have revealed this concern

1.26. Licensee 1 also states that shortly after the sale she left the employment of the Agency.

Licensee 1 is now employed by a different agency as a licensed salesperson.

1.27. Licensee 2 claims that the vendor did not disclose that there could be dampness issues in the basement to Licensee 1 or the Agency. At no time was any information provided specifically to Licensee 1 or 2 about any issues with the basement prior to the sale and purchase agreement being entered into by the Complainant.

1.28. It was the Complainant who brought the matter to Licensee 1’s attention. That was after the

agreement had been signed.

1.29. Licensee 2 states that he did not say that the information was not shared “to protect the interests of the client”. What Licensee 2 claims to have said was “had the salesperson known of the issue with the dampness (which was not the position) it would not have been described as flooding as he never understood it be “flooding issue””. It was incorrectly described in that manner in the tenancy agreement.

2. What we decided

2.1. On 4 December 2017 the Complaints Assessment Committee (the Committee) considered the complaint and decided to inquire into it.

2.2. On 3 May 2018 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 2012.

3. Our reasons for the decision

3.1. The Committee concluded:

The Committee is not persuaded the Licensees have misled the Complainant or withheld information that should by law or in fairness be provided to her.

Licensee 1

3.2. The Committee has carefully considered all the evidence put before it and the relevant law.

3.3. The Committee notes that Licensee 1 was not the listing agent for the Property. When the Property first came on the market, Licensee 1 was part of the Agency team that visited the Property. The Committee accepts Licensee 1’s evidence that neither she nor the Agency were advised or provided with any information that indicated there were any defects or haza rds associated with the Property including flooding. This view is supported by the listing agreement which does not disclose any such defect.

3.4. It is also clear on the evidence before the Committee that the basement area would by nature be prone to dampness and any prudent inspection would show it to be far from watertight.

3.5. The Committee accepts that Licensee 1 introduced the Complainant to the property and provided all the information she held associated with the Property. Licensee 1 did provide the Complainant with details relating to the ongoing tenancy and information relating to the condition of the Property. Licensee 1 was aware that the Complainant was looking at the Property as an investment and wanted to continue with it as a rental.

3.6. The Committee also accepts the Complainant visited the Property a number of times and accepts Licensee 1’s evidence that the Complainant was advised to obtain a building inspection but that she declined this suggestion making an unconditional but low offer for the Property.

3.7. The Committee also accepts Licensee 1’s evidence that she was never put on notice of any issues relating to flooding at the Property and that no information was recorded in any documentation other than the tenancy agreement of any flooding concern.

3.8. Therefore, the questions before the Committee are:

1. should the Complainant have been given a copy of the tenancy agreement prior to her submitting an offer on the Property?, and
   
2. does the alleged propensity to flooding amount to a hidden or underlying defect in land that any reasonably competent licensee would be aware of?
   

Should the Complainant have been given a copy of the tenancy agreement prior to submitting an offer?

3.9. Under rule 6.4 a Licensee must not withhold information that should by law or in fairness be provided to a customer or client. The Committee is not persuaded the Licensee has breached this provision.

3.10. The Complainant was told of the fixed term tenancy, its terms and conditions before submitting her offer to purchase the property. There is no evidence the Complainant requested a copy of the tenancy agreement or that Licensee 1 was in possession of this agreement before the offer was submitted and deliberately withheld it.

3.11. There is no evidence before the Tribunal that Licensee 1 attempted to mislead the Complainant as to the terms of the tenancy agreement or that she attempted to withhold the written agreement from the Complainant.

3.12. It is more likely on the evidence before the Committee that the Complainant simply felt no need to view the document before submitting her offer and never turned her mind to requesting a copy of it. Further the information provided to the Complainant as to the terms and conditions of the fixed term tenancy is not alleged to be inaccurate or misleading, simply that the note as to prudent storage of the tenant’s goods was not brought specifically to the Complainant’s attention.

3.13. Whereas the Committee accepts that rule 6.4 requires a Licensee to bring a prospective purchaser’s attention to any tenancy agreement over a property, it not persuaded that the same rule requires a Licensee to provide a copy of the tenancy agreement to every prospective purchaser if that document is not requested nor contains any unusual terms, as in this case.

Does the alleged propensity to flooding amount to a hidden or underlying defect in land?

3.14. The Committee has also considered the effect of rule 10.7. Under this Rule a licensee is not required to discover hidden or underlying defects in land but must disclose known defects to a customer. As stated above the Committee is persuaded Licensee 1 was not made aware of any flooding issues underneath the dwelling. Therefore, the Committee must consider whether the “flooding” referred to could amount to a hidden or underlying defect in land.

3.15. Again, the Committee has carefully considered the evidence put before it. There is no real evidence before the Committee that the land is in fact subject to “flooding”. The area referred to is clearly outside the building envelope and outside an area that a purchaser could reasonably consider to be watertight.

3.16. The Committee accepts Licensee 1’s evidence that basement area is a rough unformed area below the dwelling. This view is supported by the photographs provided. There is no evidence before the Committee that any reasonable person viewing this area would expect it to be water tight.

3.17. There is of course a distinction between not being water tight and being subject to “flooding” as opposed to dampness. All the evidence before the Committee points to the basement being subject to dampness rather than flooding. The Committee accepts the parties’ evidence that the Complainant extensively viewed the entire property before submitting her offer. By her own evidence the Complainant did not witness any “flooding” but did witness some water egress on the day of the pre-settlement inspection, Wednesday 9 August 2017. There was very heavy rain that day, as there had been for several weeks previously. The Committee accepts that on that day water was seen to be seeping through the underground block wall abutting the land in front of the house and trickling along the drainage channels.

3.18. The Committee is not persuaded such water egress can amount to a “flood” given the

location under the dwelling and the ability for this water to drain away. Even if semantics

could allow this flow to be called a flood the Committee is not persuaded this propensity to

“flooding” could amount to a “hidden defect”.

3.19. This view is supported by Licensee 1’s evidence that she didn’t notice any flooding or water in the downstairs area during her viewings, the previous tenant’s evidence claims to have no knowledge of any flooding other than the clause included in the tenancy agreement and the evidence of the property’s tenancy managers who had prepared the residential tenancy agreement for the property and included the term regarding storage.

3.20. Property Tenancy Manager 1(PT Manager 1) confirmed to the Committee that as part of the tenancy agreement, comment was made with regards to the condition of the basement and that it could flood at times and that perishables should be stored on pallets. PT Manager 1 stated that she was unaware of any flooding having occurred and that this comment was to highlight to tenants the issue of dampness underneath the dwelling. PT Manager 1 claims the clause inserted into the tenancy agreement was her interpretation only, as the area underneath the house was obviously open to the elements. The clause was intended to make this explicit to tenants rather than as any notification of a hidden defect.

3.21. Property Tenancy Manager 2 (PT Manager 2) supports PT Manager 1’s evidence claiming that the words were used in an attempt to ensure the tenants kept their personal items off the floor where they may get damp and then allege liability of the owners, rather than because the vendors had advised her that the basement could flood.

3.22. PT Manager 1 reiterated that during the period she managed the Property she was never told nor made aware that the area had in fact flooded.

3.23. The Committee is not persuaded that the area is subject to a hidden defect. In fact, the opposite appears true. The area is clearly subject to an obvious defect, dampness. This is not a defect that rule 10.7 requires a Licensee to further disclose. There is no evidence before the Committee that the area is subject to a hidden risk of “flood” other than a term included in a Residential Tenancy agreement intended to absolve a landlord of any liability should a tenant’s goods be affected by water after being stored under the dwelling.

3.24. This finding is also supported by Licensee 2’s submission. The Committee accepts that the dampness admitted to is not a hidden defect but rather something to be expected given the age of the property and the apparent condition of the area. Further the Committee accepts the basement area was never represented to prospective purchasers as a garage or weather tight area, rather represented as an area under the dwelling that could be used as a workshop or storage area only at a tenants or other residents risk.

Licensee 2

3.25. The Committee has taken the Complainant’s allegation against Licensee 2 as being a complaint against Licensee 2’s handling of her concerns. The Complainant alleges that Licensee 2 “provided an unsatisfactory response”. The Complainant has provided little if any additional evidence to support this allegation.

3.26. Under Rule 12 an agent must develop and maintain written in-house procedures for dealing with complaints and dispute resolution among other requirements. The Committee expects Licensees to act professionally and in good faith when complaints are raised. Having said that, in this instance there is no evidence Licensee 2 has breached his obligation in this regard, including no evidence Licensee 2 deliberately misled the Complainant as to the information held by Licensee 1 at the time of the sale.

3.27. This part of the Complainant is also not proved.

4. What happens next

Your right to appeal

4.1. 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 19 June 2018) (Section 111).

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

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

Publication

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

4.4. 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.

4.5. 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

Bernardine Hannan

Chairperson

For Complaints Assessment Committee 412

Real Estate Agents Authority

Date: 21 May 2018

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 1 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.

(2) 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:

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.

Rule 12.1 An agent must develop and maintain written in-house procedures for dealing with complaints and dispute resolution. A copy of these procedures must be available to clients and consumers.

Rule 12.2 A licensee must ensure that prospective clients and customers are aware of these procedures before they enter into any contractual agreements.

Rule 12.3 A licensee must also ensure that prospective clients, clients, and customers are aware that they may access the Authority’s complaints process without first using the in-house procedures; and that any use of the in-house procedures does not preclude their making a complaint to the Authority.

Rule 12.4 A licensee employed or engaged by an agent must advise the agent within 10 working days of becoming aware of—

(a) any complaint made to the Authority against them, the decision of the Complaints Assessment Committee made in respect of that complaint, and any order made by the Committee in respect of that complaint; and

(b) if the matter proceeds to the Tribunal, the decision of the Tribunal in respect of the matter, and any order made by the Tribunal in respect of the matter.

Rule 12.5 If a licensee was employed or engaged by a different agent at the time of the conduct relevant to the complaint referred to in rule 12.4, the licensee must also provide the information referred to in rule 12.4(a) and (b) to that agent within 10 working days of becoming aware of the complaint.