New Zealand Legislation: Bills
Bills are proposed Acts
This Bill replaces the Real Estate Agents Act 1976 and introduces a new regulatory framework for the real estate industry that will promote and protect the interests of consumers in real estate transactions by raising industry standards, improving licensing requirements and licensing procedures, providing mandatory disclosure obligations, and providing accountability through an independent, transparent, and effective disciplinary process.
The Real Estate Agents Act 1976 is over 30 years old and lacks many of the modern consumer protection features associated with more recent legislation. It provides for a system of industry self-regulation that lacks independence, transparency, and accountability. This, combined with the significant risk posed to consumers from real estate activity such as mishandling of funds, poor contractual advice, misleading representations, conflicts of interest, and misuse of information, make it essential to provide a regulatory framework that affords consumers an adequate level of protection.
The new regulatory framework will ensure that real estate agency services are offered only by suitably licensed persons, having regard, in particular, to the need to protect consumers and that licensees meet strict eligibility criteria (including meeting fit and proper person requirements and passing the appropriate examinations) and are subject to clearly specified and strict rules of conduct in their business dealings. The framework provides a modern, independent, and robust complaints and disciplinary regime that will offer consumers a transparent, low-cost option for seeking remedies if things go wrong.
The Bill—
establishes a new regulatory body, the Real Estate Agents Authority, to oversee modern licensing, complaints, disciplinary and enforcement processes, set industry standards, and provide information to consumers:
creates a Disciplinary Tribunal administered by the Ministry of Justice that will deal with more serious complaints:
sets out licensing processes and makes provision for a public register:
sets more modern offence provisions with a wider range of penalties and remedies, including the ability for consumers to seek compensation in cases of demonstrated financial loss:
increases industry entry requirements, including a requirement for ongoing training:
makes changes to the conduct required in the day-to-day running of a real estate agency business, including mandatory disclosure requirements (including possible conflicts of interest), requirements to provide information to consumers in specific situations, and new auction requirements:
abolishes the Real Estate Agents Licensing Board:
removes the requirement for compulsory membership by real estate agents of the Real Estate Institute of New Zealand.
Clause 1 is the Title clause.
Clause 2 is the commencement clause. The Bill comes into force on the day after the date on which it receives the Royal assent.
Clause 3 states the purpose of the Bill. The main purpose of the Bill is to promote and protect the interests of consumers in respect of transactions relating to real estate.
Clause 4 relates to interpretation and defines certain terms used in the Bill.
Clause 5 provides that this Act binds the Crown.
Clause 6 provides that, in order to engage in real estate agency work, a person must be either licensed under the Bill and act within the scope of that licence or be exempt from the requirement to be licensed.
Clauses 7 to 13 provide for exemptions from the general requirement that a person must be licensed to carry out real estate agency work. Exemptions are provided for lawyers and conveyancers, licensed auctioneers, Landcorp Farming Limited and its employees, and persons exempted by the Real Estate Agents Authority. A person or class of persons may also be exempted by regulations made by the Governor-General by Order in Council on the recommendation of the Minister. Before making a recommendation the Minister must be satisfied that there is little consumer benefit to be gained by requiring those persons to be licensed and that there are sufficient safeguards to ensure competent and ethical conduct on the part of those persons. The Minister must also consult with relevant organisations that, in the opinion of the Minister, have an interest in the proposed exemption.
Clause 14 establishes the Real Estate Agents Authority (the Authority).
Clause 15 provides that the Authority is a Crown entity for the purposes of section 7 of the Crown Entities Act 2004. Accordingly the provisions of that Act apply except to the extent that the Bill provides otherwise.
Clause 16 sets out the Authority’s functions. These include administering the licensing regime, establishing, keeping, and maintaining a register of persons licensed to carry out real estate agency work, developing practice rules, setting professional standards, and receiving complaints.
Clause 17 provides that the membership of the Authority consists of no more than 7 members. As a consequence of being a Crown entity, the members are appointed by the Minister. The members of the Authority are the members of the board, which is the governing authority. The Minister must appoint a member who is a barrister and solicitor to be the chairperson of the board.
Clauses 18 to 23 contain provisions relating to practice rules. Clause 18 empowers the Authority to make practice rules. These rules must include or provide for a code of professional conduct and client care (clause 18(2)). Practice rules may also be made relating to continuing education requirements (clause 19). The Authority is required to consult with the industry when considering making practice rules (clause 20). The Minister must also approve the rules. When deciding whether to approve the rules, the Minister must have regard, among other things, to certain specified matters (clause 21). The Minister may, after consultation with the Authority and any other persons or groups the Minister thinks fit, amend any practice rules if he or she considers the rules to be deficient (clause 22). Practice rules must be notified in the Gazette and the notice is a regulation for the purposes of the Regulations (Disallowance) Act 1989 (clause 23).
Clauses 24 to 28 relate to the prescribing of fees and operational and disciplinary levies on those licensed under the Bill to engage in real estate agency work. Notices of fees and levies are regulations for the purposes of the Regulations (Disallowance) Act 1989 (clause 27(2)).
Clause 29 gives the Authority the power to take possession of a real estate agent’s financial records and documents in certain circumstances. These include theft on the part of an agent or an employee or contractor of the agent, improper conduct on the part of the agent, inability to administer the trust account, bankruptcy, cancellation or suspension of the agent’s licence, and failing to wind up the trust account after ceasing to carry on business.
Clause 30 enables the Authority to inspect any records relating to trust moneys believed to have been stolen.
Clause 31 requires the Authority to give notice to the real estate agent of the particulars of any document it takes into its possession.
Clause 32 sets out the functions of the Registrar. The Registrar’s main functions are to establish, keep, and maintain the register and to decide on the licensing or continued licensing of those operating in the real estate industry.
Clause 33 sets out the Registrar’s powers of delegation.
Clause 34 sets out who is entitled to be licensed as a real estate agent, branch manager, or salesperson under the Bill.
Clause 35 lists the persons who are prohibited from being licensed.
Clauses 36 to 41 sets out the procedure for applying for a licence. An application for a licence must be made to the Registrar (clause 36). The application must also be advertised (clause 37). Any person may object to the issuing of a licence to an applicant on the grounds set out in clause 38. If an objection is made, the applicant may make a written submission in response (clause 39). In the event that the application for a licence is objected to, the Registrar must hold a hearing (clause 40). A licence must be granted if, after hearing any objection, the Registrar is satisfied that the person is entitled to be licensed under the Bill (clause 41). The Registrar, on granting the licence, must issue 1 of the following types of licences to the applicant:
an agent licence:
a branch manager licence:
a salesperson licence.
Clause 42 contains special provisions in respect of partnerships and companies.
Clause 43 imposes a duty on every licensee to produce evidence of his or her licence if requested to do so.
Clause 44 provides that, unless cancelled, suspended, or surrendered, the term of a licence is for 1 year and is renewable.
Clause 45 provides that a licence may not be transferred to, or vest by operation of law in, another person.
Clause 46 provides that a licence as an agent authorises the licensee to carry out real estate agency work.
Clause 47 provides that a licence as a branch manager or salesperson authorises the licensee to carry out real estate agency work for or on behalf of an agent.
Clause 48 requires a salesperson when carrying out agency work to be properly supervised and managed by either an agent or a branch manager.
Clause 49 provides that a salesperson may be employed by an agent as an employee or an independent contractor, and any written agreement is conclusive in so far as it expressly states that the relationship between the agent and the salesperson is one of employer and independent contractor.
Clause 50 is a review clause. The chief executive of the Ministry of Justice must, no later than 5 years after the commencement of the Bill, report to the Minister as to whether the employment status of salespersons should be determined by the Employment Relations Act 2000.
Clause 51 provides for renewal of licences.
Clause 52 provides that, if an application for renewal of a licence has not been made by the expiry date of the licence, the Registrar must record on the register that the licence has expired.
Clauses 53 to 55 provide for the circumstances in which a Registrar must cancel a person’s licence and remove that person’s name from the register and the cancellation process (other than cancellation of a licence by the Disciplinary Tribunal).
Clauses 56 to 59 provide for the mandatory and voluntary suspension of a licence.
Clause 60 provides for the voluntary surrender of a licence.
Clause 61 provides for the issuing of temporary licences.
Clause 62 provides that the Registrar must establish, keep, and maintain a register of licensees.
Clause 63 sets out the purposes of the register. One of its purposes is to enable the public to determine whether a person is licensed and the status and history of that person’s licence. The register also functions to facilitate the administrative, disciplinary, and other functions of the Authority, Registrar, and Disciplinary Tribunal.
Clause 64 provides that the register may be kept electronically and must be operated at all times unless suspended by the Registrar.
Clause 65 sets out the matters to be contained in the register.
Clause 66 imposes an obligation on licence applicants and licensees to advise the Registrar of any relevant change in circumstances.
Clause 67 enables the Registrar to make amendments to the register.
Clause 68 provides that a person may search the register and requires the Registrar to make the register available for public inspection. The Registrar must supply copies of all or part of the register on request if the provision of those copies is consistent with the register’s purposes.
Clause 69 sets out the circumstances in which a search of the register constitutes an interference with the privacy of an individual.
Clause 70 extends the meaning of licensee for the purposes of this Part. The term covers former licensees as well as current and former officers of companies that are or have been licensees.
Clause 71 defines the meaning of unsatisfactory conduct. This is constituted by agency work that is—
below the standard that a reasonable member of the public can expect from a reasonably competent licensee:
incompetent or negligent:
reasonably regarded as unacceptable by real estate agents of good standing.
Clause 72 defines the meaning of misconduct. This is constituted by conduct that is—
disgraceful in the reasonable view of licensees of good standing or reasonable members of the public:
seriously incompetent or seriously negligent real estate agency work:
a wilful or reckless contravention of applicable enactments or rules made under the Act:
an offence for which a licensee has been convicted and that reflects adversely on the licensee’s fitness.
Clause 73 provides that any person may complain to the Authority about licensees. Complaints must be in writing and must comply with applicable regulations. The Authority must refer complaints received to the Complaints Assessment Committee (the Committee).
Clause 74 provides that the Committee consists of 3 members of the board.
Clause 75 sets out the functions of the Committee. These include inquiring into complaints, making final determinations in relation to complaints, and laying and prosecuting charges before the Disciplinary Tribunal.
Clause 76 requires the Committee to consider the complaint and to determine whether to proceed with it.
Clause 77 authorises the Committee to take no action on any complaint if an investigation of the complaint is no longer practicable or desirable because of the time that has elapsed. The Committee may also decline to take action because of the triviality of the complaint.
Clause 78 requires the Committee to notify the complainant and the person complained about of its decision to take no action.
Clause 79 requires the Committee to commence its inquiries as soon as practicable and authorises it to have assistants.
Clause 80 requires the Committee, when investigating a complaint, to notify the person complained about. That person must be given an opportunity to make a written explanation and may be required to appear before the Committee and to provide specified information in writing.
Clause 81 relates to the Committee’s procedure. The Committee is bound by the rules of natural justice and the provisions of the Act and any regulations, but may otherwise regulate its procedure.
Clause 82 empowers the Committee to obtain information. Before the Committee requires a person to supply information, it must have previously requested the person to provide it voluntarily.
Clause 83 requires the person who has received a notice under clause 82 to produce papers, documents, records, or things to the Committee unless the information or document is privileged or disclosure would result in the breach of an obligation of secrecy or non-disclosure imposed by an enactment.
Clause 84 enables the Committee to see if the complaint can be disposed of by negotiation, conciliation, or mediation. If the parties reach an agreed settlement, the Committee may give effect to it by making a consent order.
Clause 85 relates to evidence. In general terms, the Committee may receive evidence that would otherwise be inadmissible.
Clause 86 deals with the 3 broad types of determinations that the Committee may make. First, in serious cases, it may determine that the complaint be considered by the Disciplinary Tribunal (the Tribunal). Secondly, it may determine that there has been unsatisfactory conduct, in which case it may deal with the matter itself. Finally, it may determine to take no further action.
Clause 87 sets out the default position for Committee hearings, which is that the Committee considers complaints and the related evidence on the papers. Oral hearings are held only if the Committee gives a direction to that effect.
Clause 88 deals with references of complaints to the Tribunal. The Committee refers a matter to the Tribunal by laying a charge with the Tribunal against the licensee complained about.
Clause 89 authorises the Committee, when laying a charge with the Tribunal, to apply for an order suspending the licence of the person who has been charged.
Clause 90 deals with cases where the Committee finds the person complained about guilty of unsatisfactory conduct. The Committee may then make a number of orders against the person, including censuring the person, requiring the person to apologise, requiring the person to undergo training, requiring the person to rectify an error, and requiring the person to pay a fine of up to $10,000 in the case of an individual or $20,000 in the case of a company.
Clause 91 requires the Committee to notify the complainant and the person complained about of its determination.
Clause 92 protects the members of the Committee and any assistants from civil or criminal liability in respect of anything done or omitted to be done in the course of their work.
Clauses 93 and 94 give witnesses providing information to the Committee and counsel appearing before the Committee the same privileges and immunities as witnesses and counsel have in a court.
Clause 95 provides for the enforcement of the Committee’s orders.
Clause 96 provides that if any sum ordered to be paid by the Committee or the Tribunal remains unpaid for 60 days or longer, the Committee may suspend the person’s licence until the person pays the money and, if he or she does not do so within 12 months, cancel his or her licence.
Clause 97 establishes the Tribunal. It consists of a legally qualified chairperson and up to 4 other members. The members of the Tribunal are appointed by the Minister.
Clause 98 provides that, for any hearing, the Tribunal is made up of the chairperson and 2 other members.
Clause 99 sets out the functions of the Tribunal. These consist of hearing and determining any application made by the Committee for the suspension of the licence of a licensee pending the determination of a charge, hearing and determining charges against licensees, hearing any appeal against the Committee, and reviewing decisions of the Registrar.
Clause 100 requires the Ministry of Justice to provide secretarial services to the Tribunal.
Clause 101 applies the provisions set out in the Schedule to the Tribunal and its proceedings. These include the power to summon witnesses, the protection of witnesses from liability, and the Tribunal’s power to take evidence on oath.
Clause 102 allows the Tribunal to regulate its procedure. This is subject to the rules of natural justice and to this Act and any regulations.
Clause 103 allows every person whose rights may be affected by a proceeding against a licensee to appear and be heard at the hearing and to be represented. Charges against licensees are prosecuted by the Committee. The Committee may be represented.
Clause 104 sets out the general rule that the Tribunal’s proceedings are open to the public. However, this does not apply to reviews of decisions of the Registrar, which are heard on the papers. The Tribunal may hold a hearing or part of a hearing in private if it is proper to do so, for example, to protect the privacy of the complainant.
Clause 105 enables the Tribunal to make non-publication orders in respect of particular proceedings.
Clause 106 enables the Tribunal to receive evidence that would otherwise be inadmissible.
Clause 107 provides that the Tribunal determines the question of whether a person charged has been guilty of misconduct on the balance of probabilities. It sets out the kinds of order the Tribunal may make against someone found guilty of misconduct. These orders include:
cancelling or suspending the licence of the licensee:
stopping the licensee from performing any supervisory functions:
terminating any current employment or engagement of the licensee and ordering that no real estate agent employ or engage him or her in connection with real estate agency work:
fining an individual up to $15,000 and fining a company up to $30,000:
ordering the licensee to pay compensation for any loss suffered because of an act or omission of the licensee (maximum amounts of compensation will be prescribed by regulations).
Clause 108 provides for appeals to the Tribunal against determinations of the Committee.
Clause 109 enables the Tribunal to review determinations by the Registrar. The review is conducted on the papers unless the applicant requests to be heard.
Clause 110 requires the Tribunal to notify the parties and the Authority of its decisions and of the right to appeal to the High Court.
Clause 111 provides for the enforcement of the Tribunal’s orders through the District Court.
Clause 112 provides for interim suspension of licences pending the outcome of the hearing of a charge against a licensee. The licensee must be given an opportunity to make submissions on whether his or her licence should be suspended. The Tribunal takes any submissions into account in making its decision. The licensee may appeal to the High Court against a decision to suspend.
Clause 113 gives any person adversely affected by a decision of the Tribunal the right to appeal to the High Court against the decision.
Clause 114 gives the High Court jurisdiction to may make interim orders. The court may allow the appellant to carry out real estate agency work pending the determination of the appeal.
Clause 115 requires the registry of the court in which an interim order is made to send a copy of the order to the Registrar as soon as practicable so that the appropriate entries can be recorded.
Clause 116 provides that the High Court’s decision in the determination of an appeal is final, except for a right of appeal to the Court of Appeal on a question of law.
Clause 117 confers a right of appeal to the Court of Appeal on questions of law.
Clause 118 requires a real estate agent, who receives any money in respect of any transaction in his or her capacity as an agent, to pay it to the person lawfully entitled to that money or in accordance with that person’s directions. Until so paid, the money must be paid into a trust account.
Clause 119 requires a real estate agent to hold any money in the agent’s trust account for a period of 10 working days after the date on which he or she received it.
Clause 120 sets out the duties of a real estate agent to account for trust moneys they receive.
Clause 121 requires trust accounts of agents to be audited in accordance with regulations made under the Act.
Clause 122 enables the Authority to appoint a suitable administrator to administer an agent’s trust account in a number of specified cases. These include the agent’s incapacity, contraventions of the Act, or recklessness in the way the agent administers the trust account.
Clause 123 enables the Authority, if it reasonably suspects that trust moneys are at risk, to appoint an interim administrator pending a decision on whether to appoint a permanent administrator.
Clause 124 generally disentitles an agent from receiving commissions or expenses unless the agency work concerned is performed under a written agency agreement signed by the client and the agent that complies with any regulations, and is given to the client within 48 hours after it is signed. However, a court may excuse the failure by the agent to give a copy of the agency agreement to the client within 48 hours and order that the commission or expenses are wholly or partly recoverable. But the court may make such an order only if satisfied that the failure was inadvertent or beyond the control of the agent, and that the commission or expenses are fair and reasonable, and that not making the order would be unjust.
Clause 125 prohibits an agent from entering into an agency agreement for residential property unless the agent has provided the prospective client with a copy of a guide approved by the Authority.
Clause 126 disentitles an agent from receiving rebates, discounts, and commissions unless the agency agreement contains a statement that identifies the source, and estimates, so far as possible, all rebates, discounts, or commissions that the agent will or may obtain. The estimated amount of those rebates, discounts, or commissions must be specified.
Clause 127 authorises the making of regulations governing agency agreements.
Clause 128 allows a client to cancel a sole agency agreement by 5 pm on the first working day after the client is given a copy of the agreement.
Clause 129 allows both the client and the agent to cancel a sole agency agreement at any time 90 days after the agreement is signed.
Clause 130 requires a licensee who receives a signed contractual document from a person to give the person an accurate copy of the document.
Clause 131 requires a licensee to give a person a guide on the sale of residential property approved by the Authority before the licensee gives the person a copy of an offer or an agreement in respect of any residential property.
Clause 132 prohibits a licensee from acquiring the land or the business to which the transaction relates unless the licensee has the consent of the client. Nor may a licensee permit a related person to acquire the land or business. The client’s consent must be in the prescribed form and the client must be provided with a valuation in accordance with clause 133. If clause 133 is contravened, the client may cancel the contract. No commission is payable in respect of any contravening contract.
Clause 133 deals with the valuations that must be provided to a client for the purposes of obtaining the client’s consent to a transaction in which the licensee or related person seeks to acquire the land or the business to which the transaction relates.
Clause 134 requires licensees performing real estate agency work in respect of a transaction to disclose in writing to every prospective party to the transaction any financial benefits that the licensee may gain from the transaction.
Clause 135 relates to clauses 132 to 134. It sets out a special meaning for the term licensee and defines the cases in which a person is related to a licensee. It also provides that a person is related to a licensee if the person is a partner of the licensee under a partnership agreement, an employee of the licensee, a salesperson or branch manager engaged by the licensee, a spouse, civil union partner, or de facto partner of the licensee, a specified relative of the licensee, or an entity that has an interest in the licensee (if it is a company) or an entity in which the licensee has an interest (other than ones listed on the New Zealand Stock Exchange).
Clause 136 provides that clauses 137 to 141 apply to any auction for the sale of land, whether conducted by a licensee or a registered auctioneer.
Clause 137 requires a list to be drawn up of the persons who are allowed to bid at the auction. The list is called the Bidders Record. The person who conducts the auction must keep the Bidders Record for at least 3 years.
Clause 138 forbids the entry of a prospective bidder in the Bidders Record unless that person’s details are established by specified forms of personal identification.
Clause 139 safeguards the privacy of the persons whose names appear in the Bidders Record.
Clause 140 prevents a bid being taken at an auction unless the bidder appears in the Bidders Record and identifies himself or herself by displaying an identifying number.
Clause 141 requires the auctioneer to give all bidders sufficient information to enable each bidder to identify any vendor’s bid or to identify every vendor’s bid as soon as it is made.
Clause 142 creates a general offence of knowingly contravening any provisions of the Bill or any regulations made under the Bill.
Clause 143 provides a general penalty for offences under the Bill. The general penalty is—
in the case of an individual, a fine not exceeding $40,000:
in the case of a company or body corporate, a fine not exceeding $100,000.
Clause 144 provides for a forfeiture penalty, in addition to a fine, for certain offences.
Clause 145 provides that offences are punishable on summary conviction.
Clauses 146 to 148 create the following offences relating to the requirement to be licensed:
offence to carry on business of an agent, branch manager, or salesperson unless licensed or exempt:
offence of holding out any person as an agent, branch manager, or salesperson unless licensed or exempt:
offence of employing or contracting unlicensed or non-exempt person as an agent, branch manager, or salesperson.
Clauses 149 and 150 create offences relating to an application for a licence or renewal of a licence. It is an offence to provide false or misleading information or to fail to notify a change of circumstances to the Registrar without reasonable excuse.
Clauses 151 and 152 create the offences of failing to disclose a conflict of interest and rendering false accounts.
Clause 153 creates a number of offences relating to obstruction of an investigation.
Clause 154 sets out requirements relating to service of notices and documents.
Clause 155 is the regulation-making power.
Clause 156 repeals the Real Estate Agents Act 1976.
Clause 157 transfers the assets and liabilities of the Real Estate Agents Licensing Board to the Real Estate Institute of New Zealand Incorporated.
Clause 158 continues certain provisions of the repealed Real Estate Agents Act 1976 for the purpose of winding up the Real Estate Agents Fidelity Guarantee Fund (the Fund).
Clause 159 stops claims against the Fund in respect of events that take place after the commencement of the Act. A deadline is set for making claims in respect of prior events. This is the period of 12 months beginning with the date on which a report under clause 161(1) is submitted.
Clause 160 requires the Council of the Real Estate Institute of New Zealand to give public notice of the last date for submitting any claim against the Fund.
Clause 161 provides for the winding up of the Fund. If the Council of the Real Estate Institute of New Zealand considers that all claims against the Fund have been fully dealt with, it must submit a report to the Minister. If, in the next period of 12 months, further claims against the Fund are submitted, the Council must deal with those claims. After the end of that further period of 12 months, the Council must decline to receive any further claims against the Real Estate Agents Fidelity Guarantee Fund. If no further claims are received or all claims are fully dealt with, the Council must report the facts to the Minister and submit to the Minister its final report and final audited accounts for the Fund. An Order in Council may then be made winding up the Fund.
Clause 162 provides that when the Order in Council is made under clause 161(7), any assets of the Fund are held beneficially by the the Real Estate Institute of New Zealand Incorporated.
Clause 163 provides that, for the purposes of the transitional provisions of the Bill, the Real Estate Agents Licensing Board, the Registrar of Real Estate Agents, and every Regional Disciplinary Committee continue in office.
Clause 164 deems every holder of a current agent’s licence under the Real Estate Agents Act 1976 (the old Act) to be an agent under the Act that will result from the passage of this Bill (the new Act).
Clause 165 deems every person who holds a current certificate of approval as a salesperson or as a branch manager under the old Act to be a salesperson or branch manager under the new Act.
Such salespersons retain, if they continue to be employed or engaged by the same agent, the status that they had before the commencement of the new Act, whether as employee or as independent contractor, until that status is altered by agreement of the parties.
Clause 166 provides for the continuation of permits issued under the old Act.
Clause 167 provides that applications for licences or certificates under the old Act that have not been dealt with by the commencement of the new Act must be dealt with under the old Act.
Clause 168 provides that disciplinary proceedings and inquiries under the old Act that have not been completed before the commencement of the new Act are to be continued and completed as if the old Act had not been repealed.
Clause 169 authorises the Complaints Assessment Committee and the Disciplinary Tribunal to proceed against licensees or former licensees in respect of conduct engaged in before the commencement of the new Act. This is subject to the Committee or the Tribunal being satisfied that the licensee or former licensee could have been complained about or charged under the old Act. Any penalty imposed must be one that could have been imposed when the conduct occurred.
Clause 170 provides for amendments to other acts as set out in Schedule 2.
Schedule 1 contains the administrative provisions relating to the Disciplinary Tribunal.
Schedule 2 makes consequential amendments to other Acts.
A range of problems currently exist with the disciplinary system for real estate agents under the Real Estate Agents Act 1976. Concern has been raised by the public and by real estate agents themselves about how effectively the industry deals with complaints and disciplinary matters.
The risks associated with real estate activity include: mishandling of funds, poor contractual advice, misleading representations, conflicts of interest, abuse of rights of access to property, and misuse of information. Given the significant risk to consumers that real estate agents and their salespeople present, it is considered essential that the regulatory framework governing the conduct and work of real estate agents affords the consumer an adequate level of protection.
The Real Estate Institute of New Zealand (REINZ) and the Real Estate Agents Licensing Board (the Licensing Board) are responsible for the industry disciplinary processes. Some recent high profile cases have highlighted significant shortcomings with these processes, such as a lack of independence, transparency, and accountability. Concern has also been expressed about a lack of redress for consumers where things have gone wrong, excessive time delays in processing complaints, and about low penalties imposed in proportion to the commission received. There has also been criticism that the 30-year-old Real Estate Agents Act 1976 is no longer fit for its purpose in that it lacks many of the features of modern consumer protection frameworks for other occupations, such as lawyers and conveyancers, motor vehicle traders, and builders.
To address these concerns, the Government agreed to a full review of the Real Estate Agents Act 1976. Following the review, in July 2007, Cabinet agreed to the release of a public consultation paper to outline the Government’s preferred option for reform of the Real Estate Agents Act 1976.
The proposed reforms will allow consumers access to an independent, transparent, and robust complaints and disciplinary system that will have the powers necessary to impose effective penalties and remedies. The proposed reforms are wide-ranging and are designed to significantly increase consumer confidence in the real estate industry, thereby ensuring the healthy growth of the industry.
The main reform proposals are—
the establishment of a new regulatory body, the Real Estate Agents Authority, to oversee modern licensing, complaints, disciplinary and enforcement processes, set industry standards, and approve the educational criteria for real estate agents and salespeople:
the creation of a Disciplinary Tribunal within the Ministry of Justice that will deal with more serious cases:
more modern offence provisions with a wider range of penalties and remedies:
increased industry entry requirements, including a requirement for ongoing training:
changes to the conduct required in the day-to-day running of a real estate agency business, including mandatory disclosure requirements and requirements to provide information to consumers in specific situations.
The costs of administering the Authority will be met from licensing fees and, where necessary, levies.
The Ministry of Justice has reviewed this regulatory impact statement and considers the regulatory impact statement to be adequate according to the adequacy criteria.
There are approximately 1 500 real estate agents in New Zealand and over 20 000 real estate salespeople. The average selling price of the 102 000 homes that were sold through real estate agents in New Zealand in 2006 was $310,400. The REINZ has estimated that approximately $1.5 billion passes through real estate agents’ trust accounts each year relating to deposits.
Recently cases have come to light where misconduct by real estate agents or their salespeople has resulted in a financial detriment to the consumer of tens of thousands of dollars. The risks that consumers are exposed to are significant and there is the possibility of considerable consumer detriment in terms of direct monetary loss and of costs associated with the time required to pursue remedies when things go wrong.
The Real Estate Agents Act 1976 established a licensing regime that includes a complaints and disciplinary system covering agents and salespeople. The Act does not provide any consumer redress options, and consumers must seek remedies either directly from agents or through the courts.
Responsibility for industry regulation is shared between the REINZ and the Licensing Board. All licensed real estate agents must belong to the REINZ and both organisations are strongly affiliated to the real estate agent industry. The Licensing Board has responsibility for granting and renewing licenses and certificates of approval and hearing disciplinary matters that are referred to it by the REINZ. The REINZ makes a range of rules relating to the industry, including qualifications needed to become a real estate agent or salesperson and sets the ethical standards that REINZ members must comply with.
The REINZ is also responsible for deciding whether or not disciplinary action is taken against an agent or salesperson. It acts as a gate-keeper by deciding whether complaints are serious enough to be referred to the Licensing Board, which has the power to suspend or cancel licences. The vast majority of consumer complaints are dealt with at REINZ subcommittee level, which means that decisions about disciplinary action are taken by fellow real estate agents. The maximum fine that can be imposed by the REINZ subcommittee is $750. There is no consumer representation in the disciplinary process.
A review of the Real Estate Agents Act 1976 identified further problems with the current industry regulatory regime. There is concern over the high threshold required for suspension and removal of real estate agents and their salespeople and about the quality of the investigations undertaken. Where investigations do find that a real estate agent’s conduct has not been up to the level required, there is concern about the lack of proportionality between the potential high financial rewards for misconduct and the low level of penalties that can be imposed.
There is also concern about a lack of transparency, with no reporting requirements for either the REINZ or the Licensing Board, no statutory requirement to publish or report complaint decisions, a lack of accessibility for consumers to the complaints system with limited public information available, and no consumer representation in the disciplinary process.
The current regime is a self-regulatory model undertaken within a legislative framework and consequently there is a low level of independence from the industry. There is significant public and industry concern about whether the current licensing, complaints, and disciplinary processes are as effective as they could be in upholding industry standards.
Allowing this situation to continue runs the risk of leaving consumers exposed to an unacceptable level of risk and consequent potential financial detriment. It is also likely that failing to address this issue would fatally undermine the consumer confidence required for the healthy growth of the real estate industry.
The policy objectives are—
quality assurance: real estate services offered for reward must be offered only by suitably licensed persons, having regard, in particular, to the need to protect consumers. Those licensed must meet strict eligibility criteria (including meeting good character requirements and passing the appropriate examinations). They must also be subject to clearly specified and strict rules of conduct in their business dealings:
discipline and redress: those licensed must be subject to an effective disciplinary process if they breach those clearly specified and strict rules of conduct. Where a breach occurs, consumers must be provided with effective avenues of redress:
fairness, timeliness, transparency, and independence: the licensing process, the rule-setting process, and the procedures for enforcement, discipline, and redress must at every level be fair, timely, transparent, and independent of industry control.
Meeting these objectives will help restore consumer confidence and allow the healthy growth of the real estate industry.
A range of possible options for reform, both non-legislative and legislative, were considered. The options were evaluated against 5 principles which are consistent with the Benchmarks for Industry-Based Customer Dispute Resolution. These are—
the scheme should be independent, transparent, and accountable:
the scheme should maximise confidence in the industry:
the scheme should not reduce competition and innovation in the industry:
the scheme is suitable for the industry in New Zealand:
costs.
This option allows the real estate industry to retain responsibility for how the industry operates. It has cost advantages in that it would avoid legislative changes and the set up and administrative costs of an independent body to oversee the industry. In 2006, the REINZ were asked to make proposals to the Government that would improve accountability and transparency within the industry. REINZ made proposals for improving the current disciplinary and investigation processes through a new code of practice for complaint procedures, updating the industry code of ethics and code of practice, and establishing a new team of trained professional investigators. However, their proposals failed to provide for a complaints and disciplinary regime with the necessary level of independence from the industry.
Enhancing self-regulation will not address the problems identified within the real estate industry. Unscrupulous agents are likely to remain outside the regime offering the consumer no real additional protection while those within the regime would continue to have insufficient incentives to comply with voluntary codes of practice. The complaints system would also continue to lack consumer representation and remain difficult to access. Without the imposition of mandatory standards and an independent, open, and transparent complaints and disciplinary process there is little likelihood that consumer confidence in the industry will be restored. For these reasons enhanced self-regulation is not thought to offer a suitable solution to the problems identified within the real estate industry.
A number of options with a legislative design that addresses the need for a combination of a disciplinary system and consumer redress were examined. All the legislative options examined are intended to be industry funded and would be free to the user.
This option would require legislation to modify the Real Estate Agents Act 1976. The changes would allow the Licensing Board and REINZ committees to order compensation to be paid to consumers for the misconduct of real estate agents or their salespeople. It would also provide for new and increased penalties and would require an annual report of the activities of REINZ and the Licensing Board to be made public.
This option has the advantage of building off the existing organisations and relationships and would be industry funded. However, it is unlikely that a modified scheme could fully reflect modern standards for complaints and dispute resolution services. It would also fail to provide the independence from the industry that is required to restore consumer confidence.
This option would require legislation to establish a three-stage model for consumer complaints, similar to the one used for lawyers and conveyancers. The first stage would require REINZ to set up a complaints service to receive complaints and to provide public information about the service. The second stage would be the setting up of an independent Standards Committee to hear consumer complaints, and the third stage would be to establish the post of a Complaints Review Officer to review decisions made by the Standards Committee. A range of remedies would be available and there would be a Disciplinary Tribunal, with the ability to impose a range of penalties including fines, suspensions, and cancellation of licences where appropriate.
There is credibility in using a system that has previously been judged as suitable for New Zealand; however, it is not certain that this type of system would be sufficiently independent from the industry to restore consumer confidence in the wake of recent well-publicised consumer difficulties within the industry.
This option would involve an ombudsman-style model which would provide an independent body to investigate consumer complaints. It would have the ability to make binding decisions on redress for consumers. An independent body would be established with responsibility for handling disciplinary matters, with a range of disciplinary powers, including the ability to order fines, remedial training, and suspensions and cancellations of licences.
This option would provide the necessary level of independence from the industry, however, there would be difficulties in binding industry members to the scheme through a contractual-based system, as it would be restricted to REINZ members, which covers all real estate agents but not all salespeople whose membership is voluntary. There would also be potential conflict with the disciplinary code in the Real Estate Agents Act 1976 without further major modification of the Act.
Under this type of licensing system certain people or groups of people are given the right to perform certain tasks. It offers a more flexible system than occupational regulation as the restrictions usually relate to a specific part of the job. This system is generally used where consumers face heavy costs when a task is performed badly, or where government wants to control who carries out certain functions for the State.
However, the risks that exist in the real estate industry relate to the behaviours exhibited over a range of tasks and situations, including drafting contracts, holding funds, and negotiating sales. There is also a danger with this type of regulation that the tasks become outdated. For these reasons it is not thought that the real estate industry is suitable for this type of regulation.
Certification is where an industry body certifies to the public that particular people have met requirements that indicate their ability to do the job effectively. A person who is certified has the exclusive right to use a certain title that indicates their standing within the industry. Uncertified people can offer services in competition with those that are certified, but are not permitted to use the certified title.
Certification would allow an informed choice, between using the services of those certified and those not, to be made by the consumer. It would also allow for increased competition and a reduction in costs to the consumer as those uncertified are likely to charge less for their services. In most cases the industry body offering certification will insist on those it certifies adhering to a code of conduct.
However, in the context of the real estate industry, where both the vendor and purchaser face risk, the purchaser has no choice other than to deal with the vendors selected agent. Also under this system it leaves those uncertified outside of any code of conduct or other form of industry body control. It would also not allow for independent scrutiny of agents’ trust accounts. For these reasons, certification is not thought to be appropriate for the real estate industry.
Disclosure is a regime that requires a person to disclose certain information to potential clients. It is usually used in sectors where there is a risk to people’s money such as the financial industry. It has the advantage of providing consumers wishing to use the service with information about the processes involved and about the person they are considering dealing with, which allows them to make an informed choice about the level of risk.
In the context of the real estate industry, this type of regulation is not sufficient to address the risk to purchasers from agents that have been chosen by the vendor. Nor does it address risk associated with the drawing up of binding contracts, with potential conflicts of interest, or the holding of purchase deposits.
Negative licensing is a system in which a person does not need a licence to provide a service but may be stopped from doing so in certain situations or if certain behaviours are exhibited. People can be stopped from providing a service if they break the law or do not meet certain standards when carrying out their job.
It is not thought that this type of regulation, in the context of the complexity and value of real estate industry transactions, offers sufficient protection for consumers.
In March 2007, Cabinet noted a range of problems with the Real Estate Agents Act 1976 and agreed to a full review of it, including the entry and annual licensing requirements, consumer redress, discipline and general regulation of real estate agents; activities. In May 2007, the Government’s preferred option for reform of the Real Estate Agents Act 1976 was published.
Occupational regulation with new independent licensing, complaints, and disciplinary schemes is the preferred model. This will require primary legislation to replace the existing Real Estate Agents Act 1976. The preferred model will also make provision for increased control over industry entry requirements such as education and training. It will set out a range of disclosure requirements, ensuring that where a conflict of interest arises it is disclosed to the consumer.
There will also be a range of measures designed to widen the offences and the sanctions and remedies that are available.
A new stand-alone regulatory body, independent of the industry, will be created called the Real Estate Agents Authority (the Authority).
The Authority will be responsible for the licensing and registration of real estate agents and salespeople. It will be compulsory for all persons who work in the real estate agent industry in any of the categories listed below to be licensed. There would be 3 categories of licence—
an agent’s licence: to permit a person or company to run a real estate business:
a branch manager’s licence: to permit a person to run a branch office for a licensed real estate agent business:
a salesperson’s licence: to permit a person to work for an agent as a salesperson.
The authority will also be responsible for setting entry criteria for real estate agents and salespeople; approving new licence applications and applications for licence renewals; maintaining a public register of agents and salespeople; setting industry standards (codes); provision of consumer information; and first-tier complaints and discipline procedures.
A Real Estate Agents Disciplinary Tribunal will be established, within the Ministry of Justice, which will be responsible for making decisions on serious cases referred to it by the Authority.
The Tribunal will have a range of penalties and remedies at its disposal, including the power to award compensation to consumers where it is satisfied that the person had suffered financial loss by reason of an act or omission by an agent. The Tribunal will have the power to order the interim suspension of an agent’s licence while it considers a case. It can also cancel an agent’s licence if it considers the person guilty of unsatisfactory conduct and impose a fine not exceeding $15,000 for individuals and $30,000 for a company.
Government: The main cost to government will be costs associated with the primary legislative process to replace the existing Real Estate Agents Act 1976. There will also be set-up costs and administrative costs for the proposed Disciplinary Tribunal that will be established within the Ministry of Justice; however, it is proposed that these costs would be recovered by a levy on the industry.
Industry: The Real Estate Agents Authority will be funded entirely by the real estate industry. It is estimated that the Authority would cost $4.4 million per year to operate. The cost would be recovered from the annual licensing fee. There will be an additional cost for running the Disciplinary Tribunal, which will be operated by the Ministry of Justice. To cover the set-up costs of the Authority and the Tribunal, estimated at $1.5 million, it is proposed that the levy will be collected by the Authority and paid to the Crown. However, it is expected that the overall costs of the regulatory regime will fall as the cost will be off-set by the fact that there will no longer be compulsory membership of the REINZ.
Consumers: The new scheme will be free to use for consumers.
Government: The Government is likely to benefit from the continued healthy growth of the industry. Rogue agents will be identified and removed from the industry ensuring consumer confidence is restored. This will protect consumer housing wealth and the overall wealth of the country.
Industry: Setting up a complaints and disciplinary system that is transparent, accessible, and independent from the industry will restore consumer confidence and allow for the healthy growth of the industry. As the new system reduces the numbers of complaints about the industry it will provide an environment in which those agents and salespeople who act responsibly, within the rules and regulations of the industry, will be able to thrive.
Consumers: It is estimated that the introduction of the proposed changes has the potential to greatly reduce the financial detriment currently experienced by consumers.
Primary legislation will be required to implement the proposal. It is intended that a new Real Estate Agents Bill be introduced in Parliament in late 2007.
The Ministry will continue to work with the industry and will provide regular updates by email and through the Internet as the Bill makes its passage through Parliament. The Ministry will also assist the industry to prepare for the changes required when the new Act comes into force in 2008.
In May 2007, after a series of public meetings around the country, the Government’s preferred option for reform of the Real Estate Agents Act 1976 was published for pubic consultation. Five hundred and ninety-seven responses were received. The majority of those responses came from within the industry: from industry representatives, real estate agents, and salespeople. The rest came from consumers and consumer representatives and other professional bodies.
A majority of the responses received, including a majority of those received from within the industry, recognised the need for major reform of the current Act.
These submissions, together with wider public comment on the content of the proposed regulation, have been used by Ministry officials to provide the required detail for the proposals.
In preparing the Cabinet paper and this RIS, the Ministry of Justice consulted with the Treasury, the Ministry of Consumer Affairs, the Ministry of Economic Development, the Department of Building and Housing, the Commerce Commission, and the State Services Commission. Comments from those agencies were taken into account in the paper.
