Complaint No C32980 [2020] NZREAA 24 (15 May 2020)

Last Updated: 20 August 2020

Before the Complaints Assessment Committee

Complaint No: C32980

In the matter of

Part 4 of the Real Estate Agents Act 2008

and

Licensee 1: Licensee 1 (XXXXXXXX)

Licensee 2: Licensee 2 (XXXXXXXX)

Decision to take no further action

15 May 2020

Members of Complaints Assessment Committee: CAC1905

Chairperson: Maria McElwee Deputy Chairperson: Amanda Elliott Panel Member: Stephen Fagan

Complaints Assessment Committee

Decision to take no further action

1. The Complaint

1.1. On 30 September 2019 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 Agent under the Real Estate Agents Act 2008 (the Act) and Licensee 2 is a Licensed Salesperson under the Act.

1.3. At relevant times Licensee 1 and Licensee 2 were engaged by the Agency.

1.4. The complaint relates to the purchase of a residential property (the Property).

1.5. The details of the complaint are that:

1. Licensee 2 lied about drainage work having been done at the Property and, said that water drained well from the Property.
   
2. Licensee 1 said the Agency would help the Complainant and make a goodwill payment, but later said the Agency would not offer compensation.
   

1.6. In particular, the Complainant advised that:

a) On 7 April 2019 the Complainant and his parents attended an open home at the Property.

b) At the open home he and Licensee 2 discussed the uneven floor.

c) He also noticed at the open home that the ground outside was a bit boggy and says that Licensee 2 told the Complainant and his parents “that extensive drainage work had been done and the Property drains well”.

d) After the open home Licensee 2 sent the Complainant by email:

(i) an “Isolated Area Report” dated 29 March 2019 commissioned by the vendors (the Vendors) of the Property from Company A (the Company A Report) relating to the sub floor of the Property.

(ii) a Company B “Presale Report” dated 20 November 2017 addressed to previous owners of the Property.

(the Reports); and

(iii) a Land Information Memorandum (LIM) for the Property dated 24 November 2017 addressed to previous owners of the Property.

e) Subsequently, he entered into an Agreement for Sale and Purchase (the ASP) for the

Property with settlement to take place on 14 June 2019.

6. Three weeks after he purchased the Property the back garden flooded after rain and, there were two to three inches of water under the house.
   

g) He sent an email to Licensee 2 to advise that there was water under the house and asked

her what she meant when she said, “drainage work had been done”.

h) He also sought advice from a drain layer who advised that substantial drainage work was required at the Property costing in the vicinity of $13,000.00.

i) In email exchanges between the Complainant and Licensee 2, Licensee 2 told the Complainant that she had no knowledge of any prior drainage work having been done at the Property.

j) When Licensee 2 denied having given him advice about drainage at the Property he contacted a director of the agency (the Director of the Agency).

k) The Director of the Agency and Licensee 1 told him “they would do whatever it takes to help him”.

l) Later both Licensee 1 and the Director of the Agency did not admit fault or take ownership of Licensee 2’s comments and denied any money was payable.

1.7. The Complainant requested a remedy, being:

a) that the Agency makes a formal apology for misrepresentation

b) that the Agency pay a contribution toward the drainage work on the Property.

1.8. Licensee 1 and Licensee 2 responded to this complaint by written submissions presented by Licensee A, the director of Agency A. The relationship between Licensee A and the Licensees was not explained.

1.9. In particular, Licensee A advised:

a) Licensee 2 strictly denies that she lied about drainage work having been done at the

Property.

b) The Agency has no documentation relating to any drainage issues associated with this

Property and all historic reports held were provided to the Complainant.

c) Nobody from the Agency’s sales or listing team past or present, potential other buyers or previous owners had identified any drainage issues, nor was any listing reference made to recent drainage work.

d) There was no evidence of drainage issues in either the LIM report or the Building Consent obtained for the double carport in 2002.

e) A historic presale inspection report dated 20 November 2017 advised there was natural run off from the hills and a drain had been installed along the side boundary. The same report noted no dampness or water pooling in the sub floor.

f) The Company A Report suggested that “all efforts should be made to capture and channel storm water. Installing a strip drain along the top side of the home could easily be done at minimal expense.”

g) A written statement from the Vendors advised that they knew of no drainage issues; they did not experience any flooding outside or under the house; contractors had worked under the house for them and had not noticed any issues; nor had they had any discussions with Licensee 2 regarding drainage.

h) A previous salesperson of the Property from 2017 knew of no issues and confirmed that a builder’s report at the time had noted a dry subfloor.

i) Licensee 2 said this was the second time she had sold this Property. She expressly denied making the false claim as she said she has no knowledge of any drainage work. She considered that by giving the Complainant the Reports and the LIM prior to entering into the ASP, he was aware of any issues that could concern him.

j) For all of the above reasons Licensee 2 and the Agency had no reason to suspect drainage issues or make comments regarding drainage and subsequently believe it was a hidden defect.

k) Licensee 1 strictly denies that he gave or reneged on any commitments relating to financial assistance to remedy the drainage issues.

l) Licensee 1 investigated the matter after meeting and telling the Complainant he would investigate. This investigation included reading the Reports and the LIM, ‘interrogating’ Licensee 2 and communicating with the Vendors. As a result, he accepted that Licensee 2 had no knowledge of any drainage issues and did not make the comments claimed.

m) Licensee 1 said the issues with the drainage were unknown and could be considered a “hidden defect”. The Agency had determined it was not at fault and therefore would not be making a financial contribution.

2. What we decided

2.1. On 15 November 2019 Complaints Assessment Committee 520 considered the complaint and decided to inquire into it under section 79(2)(e) of the Act.

2.2. On 6 December 2019, the complaint was transferred to Complaints Assessment Committee

1905 (the Committee) who also considered the complaint and decided to enquire into it under section 79(2)(e) of the Act.

2.3. On 26 February 2020, the Committee held a hearing on the papers and considered all the information gathered during the inquiry.

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

2.5. 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 (the Rules). (Rule 5.1; exercise skill care and competence. Rule 6.2; act in good faith, Rule 6.4 not provide false information or mislead, Rule 10.7 disclosure of defects)

3. Our reasons for the decision

The Committee concluded:

3.1. It was not proven that Licensee 2 lied about drainage work having been done at the Property or said that water drained well from the Property.

3.2. It was not proven that Licensee 1 told the Complainant the Agency would make a goodwill payment and later reneged on that promise.

Misrepresentation

3.3. Did Licensee 2 misrepresent that drainage work had been done at the Property and that it drained well?

3.4. Rule 5.1 requires a licensee to exercise skill, care competence and diligence at all times when carrying out real estate agency work.

3.5. Rule 6.2 requires a licensee to act in good faith and deal fairly with all parties engaged in a transaction.

3.6. Rule 6.4 provides that a licensee must not mislead a customer or client, provide false information, or withhold information.

3.7. The Complainant contends that Licensee 2 made statements regarding drainage that were not true and, if Licensee 2 had not made those comments, he would have done further research regarding the drainage at the Property because of the comments made in the Reports.

3.8. The Complainant says he now needs to spend $13,000.00 to have the drainage remedied, as no drainage work has been done at the Property.

3.9. The onus is on the Complainant to prove on the balance of probabilities his assertion that Licensee 2 told him that drainage work had been done at the Property and that the Property drained well.

3.10. In support of his claim that Licensee 2 gave assurances at the open home regarding the drainage at the Property, the Complainant has provided two brief email statements from his parents.

3.11. The Complainant’s Mother said, “When we were at the open home with [Licensee 2], she made the comment that there had been extensive drainage work done on the property.”

3.12. The Complainant’s Father said, “We were outside wondering (sic) around and [Licensee 2] stated to myself, [the Complainant’s Mother] and to [the Complainant] that there had been drainage work completed on the property.”

3.13. Licensee 2 says that she told the Complainant and his parents that the previous owners had checked the pipe/drain from the property at the rear of the Property. Other than that, she says she would not have made the comments claimed because she had no knowledge of any drainage work having been done at the Property. Licensee 2 also admits that she told the Complainant that she was familiar with the Property, as she had sold it before.

3.14. It is clear that there was some comment by Licensee 2 at the open home concerning drainage at the Property. However, the Committee considers that due to the lack of any substantive detail or explanation from either the Complainant or his parents as to the context in which the alleged comments by Licensee 2 were made, it is more likely than not the comments made by Licensee 2 were of a general nature.

3.15. Licensee 2 provided the Complainant with the Reports and the LIM after the open home.

Neither of the Reports or the LIM indicated that any prior substantive drainage work had been undertaken. The Company A Report recommended that some drainage work be undertaken, albeit minimal. This should have alerted the Complainant to undertake his own due diligence and investigation regarding drainage or, seek further clarification from License 2 especially as

the information in the Reports and the LIM appeared to contradict what he believed Licensee

2 had said and upon which he says he was relying.

3.16. The Committee after consideration of all the evidence, finds it more likely than not that any comments made by Licensee 2 were of a general nature, and the Committee does not consider that they can be deemed representations upon which the Complainant could solely rely particularly as the Reports and LIM subsequently provided by Licensee 2, did not contain any evidence that extensive drainage work had been carried out at the Property.

3.17. The Committee finds it not proved that Licensee 2 lied about drainage work having been done at the Property or, that water drained well from the Property and, accordingly takes no further action concerning this aspect of the complaint.

Disclosure of defects

3.18. A licensee’s obligations under rule 10.7 are twofold. Firstly, a licensee must disclose known defects. Secondly, whilst a licensee is not required to discover hidden or underlying defects, a licensee must either seek further advice or ensure a customer is advised to obtain that advice if it appears likely the land may be subject to hidden or underlying defects.

3.19. There were no disclosures made by the Vendors regarding drainage at the Property. The only disclosure concerned the uneven floor and, that disclosure was made to the Complainant.

3.20. Licensee 2 says that she was familiar with the Property having previously sold it to the Vendors but says she was not aware of any drainage issues at the Property and, other than the recommendation in the Company A Report for the installation of a drain along the side of the Property there was nothing in her inspection of the Property, the Reports or the LIM to indicate that the Property had drainage issues or, that extensive drainage work was required at the Property.

3.21. Licensee 2 and the Agency say that no one from the Agency’s sales or listings team or, potential other buyers identified any drainage issues during the period the Property was marketed for sale.

3.22. Licensee 2 has provided evidence from a salesperson who sold the Property in 2017, who says she knew of no drainage issues and, confirmed that a builder’s report at the time had noted a dry sub-floor.

3.23. The Vendors have also given evidence and say they knew of no drainage issues; they had no discussions with Licensee 2 regarding drainage; they did not experience any flooding outside or under the house; they replaced the water main but did no drainage work during the time that they owned the Property and; contractors had done work under the house and had not noticed any issues.

3.24. In considering the evidence before the Committee including the Reports, the LIM, the statement from the vendors and the salesperson that had sold the Property previously and, Licensee 2’s own knowledge of the Property the Committee considers there were no obvious “red flags” to alert Licensee 2 that any further investigation of the drainage at the Property was required.

3.25. As such, the Committee considers that the drainage problems experienced by the Complainant were a hidden or underlying defect and accordingly, the Committee finds no breach of rule

10.7.

Retraction of undertaking

3.26. Did Licensee 1 say that the Agency would help the Complainant and make a goodwill payment but later said the Agency would not offer compensation?

3.27. Rules 6.2 and 6.4 have been stated above.

3.28. The onus is on the Complainant to prove on the balance of possibilities his assertion that he was told by the Agency that he would be compensated by the Agency, due to Licensee 2’s misleading comments regarding drainage at the Property.

3.29. Licensee 1 agrees that he gave the Complainant an undertaking that he would meet him, and he kept that undertaking. He also agrees that he said that he would investigate the claims made by the Complainant, which he did.

3.30. Licensee 1 accepts that a good will payment was discussed. However, his discussions with the Complainant regarding a possible goodwill payment were qualified by Licensee 1 advising that he would need to discuss the matter with the other Agency directors and undertake an investigation to determine the circumstances of the complaint. The Committee accepts that any discussion concerning the payment of any money to the Complainant was conditional on the Agency accepting that Licensee 2 had made a misrepresentation to the Complainant about the drainage at the Property.

3.31. Licensee 1 says after his investigation which included interviews with the Complainant and Licensee 2 and a review of the Reports and the LIM, he formed the view that Licensee 2 would not have made the comments the Complainants says were made about the drainage, any issues with the drainage was a hidden defect and, for this reason there was no basis for making a financial contribution to the Complainant.

3.32. The Committee finds that Licensee 1 did not make an undertaking nor renege on an undertaking to the Complainant that he would receive a financial contribution for his drainage costs and, accordingly, takes no further action concerning this aspect of the complaint.

4. Publication

4.1. 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.

4.2. 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.

5. Your right to appeal

5.1. If you are affected by this decision of the Committee, the right to appeal is set out in section

111 and is in the attached Appendix 1 which also contains other relevant sections of the Act and the Rules. You may appeal in writing to the Real Estate Agents Disciplinary Tribunal (the Tribunal) within 20 working days after the date notice is given of this decision. Your appeal

must include a copy of this decision and any other information you wish the Tribunal to consider in relation to the appeal. The Tribunal has a discretion to accept a late appeal filed within 60 working days after the date notice is given of this decision, but only if it is satisfied that exceptional circumstances prevented the appeal from being made in time.

5.2. For further information on filing an appeal, read Gu id e to Fil in g a n Ap p ea l on the Real Estate

Agents Disciplinary Tribunal website ( https:// ww w. justice. gov t. nz/ tri bunal s/ real -estate -

agents/ ).

Signed

Amanda Elliott

Date: 15 May 2020

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.

(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 Disciplinary Tribunal against the determination within 20 working days after the day on which notice of the relevant decision was given under section 81 or 94, except that no appeal may be made against a determination under section 89(2)(a) that a complaint or an allegation be considered by the Disciplinary Tribunal.

(1A) The Disciplinary Tribunal may accept a late appeal no later than 60 working days after the day on which notice was given to the appellant if it is satisfied that exceptional circumstances prevented the appeal from being made in time.

(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

(ab) the prescribed fee, if any; 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:

REAA (Professional Conduct and Client Care) Rules 2012

Rule 5.1 A licensee must exercise skill, care, competence, and diligence at all times

when carrying out real estate agency work.

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

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.