Complaint No C31999 [2020] NZREAA 33 (9 April 2020)

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Licensee 1: Licensee 1 (XXXXXXXX) Licensee 2: Licensee 2 (XXXXXXXX) The Agency: The Agency (XXXXXXXX)

1.1. On 28 June 2019 the Real Estate Agents Authority (the Authority) received a complaint against

1.2. The Licensee 1 is a licensed Salesperson, Licensee 2 is a licensed Salesperson and the Agency is an Agent Company under the Real Estate Agents Act 2008 (the Act).

(a) After purchasing the Property the Complainant, on the advice of a property manager, had the Property tested for methamphetamine and ten of eleven rooms showed contamination levels above the NZS8510:2017 standard.

(d) Licensee 1 did a pre-settlement inspection on behalf of the Complainant and it is of concern that a conflict of interest existed in this action.

a) After purchasing the Property Third Party 1, a property manager, advised him to have the Property methamphetamine tested prior to Third Party 1 managing the Property. The test showed that it was above NZS8510:2017. The Complainant subsequently had the Property decontaminated. The Complainant has since learnt that the vendor’s daughter was living at the Property and was allegedly known locally for her methamphetamine use at the Property. Licensee 1 lived over the road and her husband was a police officer and the Complainant believes Licensee 1 was likely to have known of, methamphetamine use at the property. The Complainant has also become aware that Third Party 2, the neighbour, made an offer in November 2018 through Licensee A of The Agency, that was rejected by the vendor because it had a methamphetamine test condition in the agreement. That should have been a red flag to The Agency and subsequently to Licensees

b) The agreement dated 4th May 2018 was conditional upon a LIM and building report. The building report subsequently reported “soil buildup on the right-hand side of garage against wall cladding which will lead to rot and deterioration of framing and cladding”. The vendor subsequently cleared the vegetation and rubbish away from the garage and Licensee 1 took photos to confirm the works had been done. This revealed that the previously covered cladding was rotten and had not been disclosed to the Complainant by Licensee 1.

c) The Complainant made a conditional offer of $520,000 on 3rd May 2018 and was advised on the 4th May 2018 that another offer had been made and he was required to sign a multiple offer form. The Complainant increased his offer to $540,000 and was advised later that day that his offer was successful. The Complainant has doubts that there was a true multiple offer situation.

1.6. The Complainant requested a remedy, being that Licensees 1, 2, and 3 be censured, fined and suspended.

a) Licensee 1 showed the Complainant the Property on 18th April 2018 and explained that there was a subdivision planned close by in a nearby road and that the carpet was thread bare and appeared to have carpet bug. The Complainant confirmed this as he was a carpet layer. The Complainant was also informed that the Property had recently been under contract in a multiple offer situation, but the agreement had fallen over due to finance.

b) On 28th April Licensee 1 informed the Complainant that Licensee 2, the listing salesperson, had buyers who were intending to make an offer. Between 30th April and 3rd May Licensee 1 drew up and emailed an agreement and provided information on the form and process of a multiple offer situation. Licensee 1 emphasised to the Complainant that this was in preparation if a multiple offer situation arose. On 4th May the Complainant was advised that another offer had been made and it was now a multiple offer situation. The Complainant, by email, increased the offer from $520,000 to $540,000 and signed the multiple offer form. Both offers were presented to the vendors by The Agency’s Licensee B and the Complainant’s offer was accepted over the other offer.

c) After a request from the Complainant he was provided with the names of 5 builders in the area. A builder’s report showed the garage wall needed repairing. In mitigation of a garage rafter and clearlite repair, a $1,000.00 price reduction was agreed to between the parties. The Complainant requested the builder be allowed access to repair the garage wall once the agreement was unconditional. The vendors carried out agreed works to remove rubbish and soil build up from around the garage wall prior to the unconditional date. Licensee 1 took photos of this work and emailed them to the Complainant. The Complainant then declared the agreement unconditional on 20th May. On 21st May the Complainant emailed Licensee 1 to confirm that the builder had been working on th e garage repair, prior to him going unconditional, and stated “this has confirmed his concern that soil directly up against the garage will rot the plywood he has estimated $1,800.00 to replace”. This email indicated to Licensee 1 that the Complainant was aware from the builder of the state of the garage wall prior to going unconditional. The vendors also had informed Licensee 1 that the builder had been working on the garage before the Complainant went unconditional and as such the Complainant was fully aware of the hidden wall damage.

d) On 27th May the Complainant contacted Licensee 1 and, as he was travelling would not be able to do a pre settlement inspection, asked Licensee 1 to act on his behalf. Licensee 1 informed the Complainant that she would only do a check that chattels were in working order, electrical appliances and lights working and that the Property was tidy. Licensee 1 did this as a favour for the Complainant. The Complainant also asked Licensee 1 to do the property management for the Property. Licensee 1 referred him to the property manager of Agency A.

e) Licensee 1 lives over the road from the Property and it came as a complete shock when the Complainant informed her that the Property tested positive for methamphetamine. Licensee 1 did not know the vendor’s daughter tenant and Licensee 1’s husband, a police officer, was unaware of any methamphetamine use at the Property and had never mentioned any drug issues with the tenancy.

f) The Property had been on the market since June 2018 and was overpriced at $575,000 and the vendors were holding out for a premium price. As such the Property only became

marketable on 1st February 2019 when the vendors dropped the price to $550,000. During this time Licensee 1 had several buyers through the Property. One buyer was so sensitive to chemicals that the buyer requested any room fresheners be removed and this buyer spent over 1 hour in the Property. There had never been any indications from the buyers or the other Licensees showing buyers through that the Property had methamphetamine use. The Property was always tidy and there were no smells. The tenant had vacated the Property by the time the Complainant viewed it.

a) As required by the agency agreement, Licensee 2 on listing the Property on 28th June 2018 had the vendor specifically confirm “is there any Methamphetamine use/production history/toxic ie asbestos (any known issues)” and to this the vendor said no and ticked the box “No”.

b) Licensee 2 marketed the Property from 28th June 2018 till settlement date 31st May 2019.

During this period open homes were conducted and at no time were there any indications from the presentation of the Property or visiting purchasers that the Property had been used for methamphetamine. Local neighbours visited the open homes and there was never any mention from them that the tenant was a drug user or difficult. Licensee 2 would at times arrange buyer viewings at short notice and when the tenant was residing in the Property there was never any indications of drug use. The tenant also had her children living with her for a period.

c) Prior to Christmas 2018 the neighbour third party 2 made an offer through Licensee A from The Agency. The offer was for $525,000 and because the vendor was away negotiations did not take place for two weeks. The offer did not contain a methamphetamine test clause. The vendor came back with a counteroffer of $540,000. When third party 2 increased his offer to

$530,000 and required a methamphetamine test condition the vendor rejected the offer as too low. There is no record of the counteroffer, and the vendor was adamant that the offer was too low and wanted to know why they wanted a methamphetamine test done. The vendors were also concerned that Third Party 2 wanted to cut down trees at the back of the section so they could improve their views.

d) The Property then had a multiple offer presented by Licensee A and was conditionally accepted at $550,000. This agreement then failed on finance as the purchasers had an undisclosed debt to the IRD. Licensee 2 then obtained another offer that was presented along with the Complainant’s offer to the vendor by The Agency manager as per Agency policy. The Complainant’s offer was accepted.

e) Licensee 2 is very concerned that she marketed a property for 12 months and unknowingly was exposed to methamphetamine above the NZS8510:2017. Licensee 2 visited a doctor on

29th July 2019. The results of this visit re methamphetamine exposure are inconclusive.

Licensee 2 is distressed that she has been exposed to methamphetamine and any insinuation that she would have knowingly marketed the property for 12 months and willingly exposed herself and clients to methamphetamine is simply not true.

a) Third Party 1 knows the past tenant by reputation only and has no social or work contact with her. Third Party 1 is unaware of any physical evidence suggesting the tenant has methamphetamine use convictions. It is a generally accepted rumor in the community of

5000 that the tenant is a methamphetamine user and has a volatile partner. Third Party

1 has never received Police advice regarding methamphetamine properties but believes the property management agency has. The Police did not provide to the property management agency any methamphetamine advice on this Property.

b) Third Party 1 was approached by the Complainant prior to him making an offer on the Property to obtain a rental appraisal. Third Party 1 advised him to have the Property methamphetamine tested. Third Party 1 did not disclose a reason for that advice. This advice is normal practice, but Third Party 1 considered it a red flag issue with this Property because of the tenant’s rumored reputation. On being appointed to manage the Property Third Party 1 insisted on having the Complainant methamphetamine test the Property prior to renting it out. The test came back positive above the NZS8510:2017. The Property has been decontaminated and the new tenants are aware of the past situation.

2.1. On 24 July 2019 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 28 January 2020 the Committee held a hearing on the papers and considered all the information gathered during the inquiry.

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 Rules

5.1 (Skill care), 6.4 (Mislead false information), 10.7 (disclosure of defects).

3.1. The Committee has sympathy for the position the Complainant has been placed in. On the balance of the evidence presented to the Committee, however, we conclude that Licensees 1 and 2 were not aware that the Property could be or was contaminated with methamphetamine. The Committee has also taken note of the guidance given by the Real Estate Authority about methamphetamine disclosure as it relates to the Gluckman report NZ85610:2017. The Committee notes that Company A’s report dated 19th June 2019 showed Dinning A

18.6ug/100cm2, that is outside the Gluckman report level of 15.0ug/100cm2. The Company A

3.2. Licensee 1 on entering into the Agency agreement with the vendor obtained a clear statement, from the vendor, “is there any Methamphetamine use/production history/toxic ie asbestos (any known issues) NO”. Licensee 1 was entitled, as were other licensees, to rely on the vendor’s signed acknowledgement unless evidence was present to show otherwise. Licensee 1 had no indications from neighbours who visited the open home or the immediate neighbour Third Party 2 that there were rumours about the tenant’s methamphetamine use. The Committee accepts as genuine the shock demonstrated by Licensee 1 upon learning of the methamphetamine presence in the Property.

3.3. The Complainant prior to making an offer sought advice from Third Party 1 as to rental value.

Third Party 1 did advise the Complainant to make the agreement conditional upon a methamphetamine test. Third Party 1 has acknowledged that information regarding the tenant being a methamphetamine user was based on rumour and that there is no Police or other substantive evidence that the Committee can rely on to substantiate that rumour. In those circumstances, the Committee does not consider a rumour in a small town enough of a red flag to Licensee 1 to inquire further, even if she had been made aware of the rumour (which the Committee accepts she was not).

3.4. The Committee accepts that Third Party 2’s offer was declined primarily by the vendor due to the initial “cheeky” $525,000 offer and the vendors $575,000 price expectations. There being no actual copy of the counteroffer with the then included methamphetamine test condition, the Committee has to rely on Third Party 2’s memory as to the vendor’s response. The Committee is of the opinion that even if the vendor responded negatively to the inclusion of the methamphetamine clause, this does not necessarily indicate that the vendor knew the Property was contaminated. The vendor had previously signed a legally binding Agency Agreement stating that there was no known contamination.

3.5. The Committee further notes that the building inspector, although not required to determine Methamphetamine contamination, did also not note any unusual indicators that methamphetamine use, or production had taken place at the Property.

3.6. The Committee further notes that the Property was owner occupied until three years ago. The property was then rented out at separate individual weekly intervals for two years over each summer 6-week holiday period. For the last year the vendor’s daughter had lived in the Property. The Committee is mindful that there is a possibility that the Property may have become methamphetamine contaminated during one of those 12 separate holiday tenancies.

3.7. The Committee accepts that Licensee 1 did not mislead the Complainant as to the condition of the garage wall cladding. The agreement was conditional upon a builder’s report that identified an issue regarding soil build up against the wall and possible subsequent damage requiring repair. The Complainant asked the vendors to remove the soil build up and rubbish and had the builder commence works on the garage prior to going unconditional. Licensee 1 took photos of the area and emailed them to the Complainant. The Committee is of the opinion that the Complainant had ample information and time prior to the unconditional date to renegotiate this issue with the vendors. The fact that the Complainant only renegotiated $1,000 for the garage roof rafter and Clearlite indicates to the committee that the Complainant was okay with the quote of $1,800 for the garage wall and did not need to factor this in.

3.8. The Committee accepts the evidence provided by Licensees 1 and 2 that the Complainant did have his offer presented in a multiple offer situation. This is evidenced by the unsuccessful Sale and Purchase Agreement and multiple offer form from purchasers Third Party 3 and the Complainant’s Sale and Purchase Agreement and multiple offer form.

3.9. The Committee further accepts that the correct Agency procedure was followed by the presentation of the Agreements to the vendor by an independent Agency Licensee B.

3.10. The Committee is of the opinion that Licensee 1’s actions in checking the Property prior to settlement was not done in an official capacity for the Complainant but as a favour to assist a client who was based out of town and who was unable to make a pre-purchase inspection The Committee accepts that Licensee 1 was reluctant to do a “Final Inspection” for the Complainant and expressed such to him. Licensee 1 only agreed to check that all chattels were in place and that all items were in working order and the Property clean and tidy.

3.11. The Committee is satisfied that The Agency supervised the Licensees in accordance with the

3.12. The Committee therefore considers there is no basis to impose a finding of unsatisfactory conduct on Licensees 1, 2 or 3 (Agency) and takes no further action on the complaint.

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 Licensees 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.

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

111. 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

5.2. For further information on filing an appeal, refer to the Real Estate Agents Disciplinary

(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.

	(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

(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

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

(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 defects4, a licensee must either –

New Zealand Real Estate Agents Authority

Complaint No C31999 [2020] NZREAA 33 (9 April 2020)