Complaint No C40256 [2021] NZREAA 95 (16 December 2021)

Last Updated: 21 November 2022

Before the Complaints Assessment Committee
In the matter of	Complaint No: C40256 Part 4 of the Real Estate Agents Act 2008
and
Licensee:	Licensee (XXXXXXXX)

Decision to take no further action

16 December 2021

Members of Complaints Assessment Committee: CAC2102 Chairperson: Rachael Schmidt-McCleave

Deputy Chairperson: Noel Cooper Panel Member: Jim Lindsay

V20201203

Complaints Assessment Committee

Decision to take no further action

1. The Complaint

1.1. On 8 March 2021 the Real Estate Agents Authority (the Authority) received a complaint against Licensee (the Licensee) from Complainant (the Complainant).

1.2. The Licensee is a licensed Salesperson under the Real Estate Agents Act 2008 (the Act). At all material times, she was employed by Agency Y (the Agency).

1.3. The complaint relates to a property situated at Unit XXX the Property (the Property).

1.4. The details of the complaint are that, in summary, the Licensee withheld information from

the Complainant relating to a lease variation that gave rights for an adjoining unit (Area 3) of the Property to be converted to a 2-story dwelling either by construction or by demolition and rebuilding. The Complainant alleged this information was not given to him as a

prospective purchaser.

1.5. In particular, the Complainant said:

1. The Property is the middle unit of a block of units owned jointly by two sisters, Ms A and Ms B (hereafter, the Vendors). Unit XXX corresponds to Area 2 in the cross-lease flats plan.
   
2. The Property was marketed for sale by the Licensee in November 2020. On 20

December 2020, the Complainant successfully bid for the Property at auction. His winning bid was $945,000 and he paid a 10% deposit.

100. On 14 December 2020, the Complainant was made aware by the solicitor acting for the Vendors of a lease variation that gave rights for Area 3 (one of the two adjoining units) to be converted to a two-story dwelling either by construction of a second story or by demolition and rebuilding.
     

4. The Complainant had not been made aware of this right by the Licensee. In subsequent telephone discussions, it emerged that the Licensee had known of the existence of the variation, and/or its contents, but for various reasons had not disclosed it.
   
5. The Complainant would not have bought the Property if the information contained in the variation had been disclosed to him. He terminated the agreement for sale and purchase with the assistance of a lawyer, but his deposit was retained.
   
6. The Complainant considers the Licensee could be in breach of clause 6.4 of the REA Code of Conduct because she withheld information that should in fairness have been made available to prospective purchasers.
   
7. The Property has now been put back on the market, and the Licensee has included the variation document as part of the pre-auction information pack. This suggests the

Licensee agrees the information is important and should be disclosed to potential buyers.

8. The Complainant asked the Licensee by telephone on 15 December 2020 why the variation document had not been included in the pre-auction pack, or its contents

otherwise disclosed. The Licensee gave the Complainant a variety of answers, including that the lease variation did not relate to the unit that was for sale and its inclusion

could have caused confusion, that the document had been available at the Open Homes for the Property, that the Complainant’s solicitor was to blame for not conducting adequate due diligence, that the work described in the document might not take place for several years and the Complainant should not therefore be too concerned, and that the document could not be annulled because the Vendors were not prepared to give up their right to develop the Property.

1.6. The Complainant requested a remedy, being:

1. Financial compensation to cover the lost deposit of $94,500 and legal fees incurred, and an additional sum of $50,000 in recognition of his stress and lost opportunity.
   
2. Termination of the Licensee’s license to operate as a real estate agent in New Zealand.
   

100. The Agency to investigate what happened and why, and to commit to annual REA Code of Conduct re-training for all its salespeople.
     

4. A written commitment from the Agency to refuse to provide, or to terminate the provision of, service to any vendor who requires an agent to act in any way that would risk breaching the REA Code of Conduct.
   

1.7. The Licensee responded to the complaint against her.

1.8. In particular, the Licensee said:

1. Ms A (Vendor 1), one of the Vendors, had requested an appraisal for the Property which she owned together with her sister (Vendor 2). The Licensee only dealt with Vendor 1, who had Power of Attorney for Vendor 2 (the latter residing in America).
   
2. The Property is the middle unit of three units located at the front of the section that slopes down towards the esplanade reserve and the water.
   

100. On 9 November 2020, the Licensee listed the Property for Vendor 1. Vendor 1 explained to the Licensee that the title for the Property was pending because they had authorised variations to the leases on the three units. The variations were as follows:
     
     1. For Unit XXX, to allow the extension of the deck.
        
2. For Unit C, to allow the erection of a second story for the unit, or demolition and rebuilding as a 2-story building within the existing footprint as permitted

alterations.

3. The leases were also being varied so that Unit ZZZ had a ½ share in the land rather than a ¼ share as it had 50% of the land reserved for its exclusive use.
   

4. On 11 November 2020, Vendor 1’s lawyer emailed the Vendors and the Licensee copies of the new titles issued for the Property and the two neighbouring units. The lawyer also sent the three lease instruments for Areas 1, 2 and 3 plus a copy of the full

memorandum of lease.

5. The Licensee read the information provided by the lawyer and discovered there was an error. Vendor 1 had told her Area 1 was exclusive use to Area 2 but when the Licensee reviewed the document, it did not include Area 1. It had in fact been assigned to the exclusive use of Area 3 (Unit ZZZ). The Licensee informed Vendor 1 of this and Vendor 1 instructed her lawyer to fix the error.
   
6. As a result of that error and subsequent rectification, when the Licensee began to

market the Property, the title was still pending as the Vendors did not want to wait

until the new title was issued. The Vendors wanted to complete a sale before Christmas 2020. The Licensee therefore asked the Vendors’ solicitor for the sale to add a clause to the Sale and Purchase Agreement for the auction whereby the Vendors warranted the

title would be rectified before settlement. The solicitor did not agree because he considered the clause would confuse purchasers and he was confident the new title documents would be issued before the auction took place.

7. The marketing campaign for the Property went live on 18 November 2020. The first Open Home was scheduled for 21 November 2020.
   
8. LINZ issued the new titles on 19 November 2020. The Vendors’ solicitor provided copies to the Licensee confirming that the title was clean, clear correct and that a layperson could understand it.
   
9. The Licensee had an assistant Ms H (Third Party 1) helping her at the Open Homes.

When the Licensee spoke to potential buyers at the Open Homes, she took care to

explain the cross-lease flat plan and the lease variations to them, including the right for Unit ZZZ to build a second story.

10. The Licensee also took potential buyers out on the deck of the Property to point out where the second story might be built. The Licensee says she did that in order to

demonstrate that the lease variation for Unit ZZZ would not have a significant impact on the views, light, sun and privacy.

11. The Licensee directed potential buyers to the documents available at the Open Home. She also advised potential buyers to take legal advice and undertake due diligence before the auction.
    

50. The Licensee recalls speaking to the Complainant at the Open Home and explaining

what the flat plan meant, who had exclusive use of what, and the rules about pets. The Licensee also explained the lease variations to the Complainant, included the

permitted alteration for the deck and the second story for Unit ZZZ. She also directed the Complainant to the documentation on the table. The Licensee also took the Complainant out onto the deck and explained the possible impact of the second story.

13. The Licensee does not know if the Complainant looked at the documents or took any copies. The Licensee recalls advising the Complainant to speak to his lawyer with

regard to potential purchase of the Property.

14. The Complainant was successful in securing the Property at auction on 10 December 2020 for $945,000 with a settlement date of 29 January 2021.
    
15. On 14 December 2020, the Licensee received an email from the Complainant attaching the lease variation for Area 3 and asking if it had been included in the Property

Information Pack. The Licensee was confused as to why the Complainant was asking that. The Complainant said because he did not know about the right of Unit ZZZ to build up, which surprised the Licensee as they had spoken about the variations.

16. The Licensee did not include the variations on the drive file because the references to them were on the title and providing a large amount of paperwork often confuses purchasers. The Licensee asked the Complainant if his lawyer had looked at the title

before the auction and the Complainant confirmed that he had. The Licensee explained that the lease variation had been available in hard copy at the Open Home and that it was the responsibility of the purchaser and his or her lawyer to carry out due diligence.

2. What we decided

2.1. On 5 May 2021 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 3 November 2021 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, namely Rule 5.1 (skill and diligence), Rule 6.2 (act fairly) and Rule 6.4 (misleading or

withholding information).

3. Our reasons for the decision

3.1. The Committee concluded, in summary, that none of the Rules have been breached by the

Licensee here and that the Licensee took all steps required of her. It was incumbent upon the Complainant as purchaser, and his lawyer, to inspect the title before the auction. The

variation was evident on the title. The Committee does not consider any more information could have been provided by the Licensee than what she provided.

3.2. The Committee has therefore decided to take no further action on this complaint. Its reasons are expanded upon below.

3.3. First, with respect to whether or not the Licensee informed the Complainant of the variation and its potential impact on the Property at the Open Home. The Committee is faced with competing evidence on this point. The Complainant says he was not informed; the Licensee said she did inform him, that she took him out on the deck to point it out and explain the

impact to him, and that there was a hard copy of the variation available on the table at the Open Home.

3.4. The Committee is not in a position to resolve which of these two accounts is correct.

However, Third Party 1, who was the sales associate assisting the Licensee at the Open Home, has also provided information on what she remembers of the Open Home. Third Party 1

recalls the Complainant and recalls the Licensee telling the Complainant the same

information about the Property (including the impact of the variation) as the Licensee told other potential purchasers at the Open Home.

3.5. The Committee therefore prefers the Licensee’s version of events and accepts that the Complainant was told about the variation at the Open Home.

3.6. Second, with respect to the title, it is incumbent on purchasers and their lawyers to conduct a search of the title before purchasing a property. Although the titles were still pending at the

time the Property was marketed, LINZ issued the title on 19 November. The Complainant visited the Open Home (at which hard copies of the variation were available) on 21

November 2020, and the auction took place on 10 December 2020. During that intervening time period, the Complainant’s solicitor ought to have, in the Committee’s view, raised the

issue of the variation directly with the Complainant as part of the due diligence process. That the solicitor did not do so is unfortunate but, in the Committee’s view, the Licensee did all

that was required of her in this situation.

4. Publication

4.1. The Committee directs publication of its decision. This 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 of the Act. 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 the 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. The Notice of Appeal form, which includes information on filing an appeal, can be located on the Ministry of Justice’s website: https://www.justice.govt.nz/tribunals/real-estate-

agents/apply/.

6. Provisions of the Act and Rules referred to

6.1. The provisions of the Act and the Rules referred to in this decision are set out in the Appendix.

Signed

Rachael Schmidt-McCleave Chairperson

Noel Cooper

Deputy Chairperson

Jim Lindsay Member

Date: 16 December 2021

Appendix: Provisions of the Act and Rules referred to

The Real Estate Agents Act 2008 provides:

78 Functions of Committees

The functions of each Committee are—

(a) to inquire into and investigate complaints made under section 74:
(b) on its own initiative, to inquire into and investigate allegations about any licensee:
(c) to promote, in appropriate cases, the resolution of complaints by negotiation, conciliation, or mediation:
(d) to make final determinations in relation to complaints, inquiries, or investigations:
(e) to lay, and prosecute, charges before the Disciplinary Tribunal:
(f) in appropriate cases, to refer the complaint to another agency:
(g) to inform the complainant and the person complained about of its decision, reasons for the decision, and appeal rights:
(h) to publish its decisions.

79 Procedure on receipt of complaint

(1) As soon as practicable after receiving a complaint concerning a licensee, a Committee must consider the complaint and determine whether to inquire into it.
(2) The Committee may—

• (a) determine that the complaint alleges neither unsatisfactory conduct nor misconduct and dismiss it accordingly:
• (b) determine that the complaint discloses only an inconsequential matter, and for this reason need not be pursued:
• (c) determine that the complaint is frivolous or vexatious or not made in good faith, and for this reason need not be pursued:
• (d) determine that the complaint should be referred to another agency, and refer it accordingly:
• (e) determine to inquire into the complaint.
  

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 Rules from the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012 referred to in this decision are:

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

Rule 6.2: 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.