The Justice and Electoral Committee has examined the Real Estate Agents Bill and recommends by majority that it be passed with the amendments shown.
Introduction
This bill is intended to replace the Real Estate Agents Act 1976. It proposes a new regulatory regime for the real estate industry. The Government’s intention is to modernise outdated sections of the 1976 legislation, and increase protection for consumers in real estate transactions.
This commentary covers the key amendments that we recommend to the bill. It does not cover minor or technical amendments.
Membership of the Real Estate Institute of New Zealand
We recommend the inclusion of new clause 157A to remove any uncertainty about the status of membership of the Real Estate Institute of New Zealand (REINZ) that might arise following the repeal of the 1976 Act, which requires all licensed real estate agents to be members of the REINZ. The bill as introduced was silent on the status of current REINZ membership after the passage of the bill. We are concerned that this might cause unnecessary confusion and uncertainty. New clause 157A provides that a current member of the REINZ will continue to be a member until membership is terminated in accordance with the REINZ rules, or until the person resigns his or her membership. This clause is intended to allow a smooth transition from the 1976 Act to the regime proposed by this bill.
Statistics
Some submitters expressed concern that without compulsory membership of the REINZ statistical information on house sales would not be accessible to the public and the industry. We sought advice on this matter, and have been assured that some statistics would be available through other sources such as Quotable Value New Zealand. We also note that the bill does not restrict the REINZ’s ability to collect statistical information from either its members or the industry, and we expect it to continue to do so.
Commencement
We recommend amending clause 2 to ensure that the implementation of the new regulatory regime is staggered and practicable. As introduced, the bill proposes that all provisions come into force on the day after the date on which the bill receives the Royal assent. Given the significant changes proposed, we are concerned that such a commencement date would not allow a smooth transition to the new regime. The amendments we recommend would result in the provisions establishing the Real Estate Agents Authority, making practice rules, setting fees and levies, appointing the Registrar, conferring regulation-making powers, establishing the Complaints Assessment Committees and the associated panel, and establishing the Real Estate Agents Disciplinary Tribunal coming into force the day after enactment. The other provisions of the bill would come into force one year after the date on which the bill received the Royal assent.
Purpose of the Act
We recommend amending clause 3 to include a statement that the Act is intended to promote public confidence in the performance of real estate agency work. This addition is intended to confirm and strengthen the statements in clause 3, and to reinforce the message that the bill sends to the industry and consumers about the importance of consumer protection in real estate transactions.
Definitions
We recommend several amendments to clause 4 to clarify definitions, and to define particular terms used throughout the bill, such as “salesperson”, “branch manager”, and “residential property”. These amendments are intended to assist with interpretation.
Residential property
We recommend including a definition of “residential property”, which is referred to in clauses 125, 129, and 131, to clarify that these clauses only apply to properties used or intended to be used for residential purposes. We also propose amendments to clauses 125 and 129 to ensure that agency agreements would not apply to residential properties in a continuous area that are being sold by the same vendor (subdivisions).
Real estate agency work
The definition of this term, along with the definition of “transaction”, is vital in determining the bill’s application. We recommend amending the definition to ensure that it is clear that work and services for the purpose of bringing about or effecting a real estate transaction are captured by the regulatory regime, and to ensure that bodies such as providers of financial services, businesses offering limited services to vendors selling privately, and newspapers and websites publishing real estate advertising are not captured unintentionally. We received submissions that raised concerns that sharebrokers would be captured by the bill. We do not consider that this is the case, as the sale and purchase of shares do not affect the legal ownership of land.
We also recommend amendment of the definition to include work done or services provided by a branch manager or salesperson under the direction of, or on behalf of, an agent. These amendments accord with the intention of the bill, which is to regulate those involved in the sale and purchase of land interests, rather than those involved solely in advertising or advisory services.
Transaction
We recommend amending this definition to ensure that transactions regarding all registrable interests in land are captured. As introduced, the definition omits various interests and occupation rights that are neither freehold nor leasehold. Our recommended amendments would ensure that sales and purchases of interests including licences under the Land Act 1948, units held under the flat and office owning companies regime in Part 7A of the Land Transfer Act 1952, units in many retirement villages, stratum estates under the Unit Titles Act 1972, and Crown forestry licences under the Crown Forests Assets Act 1985, would be captured. Including all registrable interests in land would provide protection for consumers over the whole range of sale and purchase transactions.
Exemptions
Clauses 7 to 13 of the bill allow the exemption of certain groups from the licensing requirements in the bill.
Lawyers and conveyancers
We recommend the inclusion of clauses 7(1)(c) and 7(3)(c)(v) to ensure that an incorporated firm within the meaning of the Lawyers and Conveyancers Act 2006 is exempt from the licensing requirements if it carries out real estate agency work. Clause 7 is intended to accord with the provisions of the Lawyers and Conveyancers Act 2006, which allows lawyers to undertake real estate agency work, but does not allow a commission to be charged for such work. However, clause 7 as introduced did not prohibit incorporated firms from being licensed and thus charging a commission. We recommend these amendments to address this omission.
We considered whether the charging of a commission should be permitted. We note that this matter was considered carefully during the passage of the Lawyers and Conveyancers Act 2006.
Exemption for Landcorp Farming Limited and granted by Authority
We recommend that clause 9 be deleted from the bill. This clause is a replication of a provision in the Real Estate Agents Act 1976, which allowed Landcorp Farming Limited to carry out any real estate agency work in respect of land of the Crown or of any State-Owned Enterprise. The subsidiary that carried out this business for Landcorp, Landcorp Property Limited, was privatised in 1994, and Landcorp has not acted on behalf of the Crown or of other State-Owned Enterprises since then. It does not envisage doing so in future, making this provision unnecessary.
We recommend the deletion of clause 10, which provides an exemption for persons operating in accordance with a permit. Permits would no longer be granted under the new regime.
Regulation-making power and recommendation by Minister
We recommend that clauses 12 and 13 be deleted and replaced with new clauses 155(aa), 155(2), and 155(3). They provide for an exemption from the requirement to be licensed, to be made by Order in Council. In addition, we recommend amendments to clarify the provisions, for example new clause 155(3)(a)(i).
Real Estate Agents Authority
The establishment of a Real Estate Agents Authority is one of the key proposals of the bill. The Authority would be responsible for administering the licensing regime, setting industry standards, complaints and disciplinary procedures, setting fees and levies, and providing information for consumers. Key clauses in relation to the proposed Authority are set out in Part 2 of the bill.
At present, regulatory responsibility for the industry is divided between the REINZ and the Real Estate Agents Licensing Board. We were told that establishing an independent body to remove direct responsibility from those involved in the industry is expected to improve consumers’ confidence in the complaints and disciplinary process.
We heard from many submitters who supported the establishment of an independent body to oversee the complaints and discipline regime. Some queried the potential cost of such a body, and expressed concern that these costs might be passed on to the consumer. We were advised that the regime would be funded through fees and levies. We investigated the possibility of using the interest from agents’ trust funds to pay for the Authority, in a similar way to that in which interest from lawyers’ trust funds can be used to fund community law centres administered by the Legal Services Agency under the Lawyers and Conveyancers Act 2006. However, we consider that the administrative burden incurred by this type of funding would be too cumbersome, and that it would not be practical to fund the Authority in this way. We asked for costings for funding the Authority by fees, and were provided with material that suggests that licence fees are unlikely to exceed $500 per annum. Fees and levies are discussed further below.
Functions of the Authority
We recommend a number of amendments to clause 16 of the bill, which sets out the functions of the Authority.
Industry training organisation
We recommend the inclusion of new clause 16(3) to ensure that it is clear that the Authority’s functions do not undermine or change the role of any industry training organisation. The Real Estate Institute of New Zealand Industry Training Organisation Limited (REINZ ITO) is currently a recognised industry training organisation. Some submitters expressed concern that the functions of the Authority would undermine its role. Organisations apply to the Minister of Education for industry training organisation status under the Industry Training Act 1992. It is not appropriate to specify an industry training organisation in legislation, as they may change over time.
Consultation
We recommend the inclusion of new clause 16(2) to allow the Authority to consult representatives of the real estate industry on any of its functions. We heard from submitters who expressed concern that representatives of the industry might not be able to participate in the new regime. We consider it appropriate that the bill provide for consultation with the industry as one of the Authority’s functions.
Complaint investigation
We recommend the addition of a new subclause in clause 16 to allow the Authority to initiate investigations on its own motion. The Authority should be able to investigate any act, omission, allegation, practice, or other matter that indicates or appears to indicate misconduct or unsatisfactory conduct by a licensee. We consider this would provide desirable protection for consumers.
Appointment of Registrar
We recommend the addition of new clause 16(ab) and amendments to clause 16(b), which would mean that the Authority appointed a Registrar of the register of licensees, and to make it clear that the Authority had overall responsibility for maintaining a public register. This amendment is intended to remove any doubt about the role of the Authority and the way it reconciles with the role of the Registrar in clause 32.
Membership of the Authority
We recommend an amendment to clause 17(3) to require the responsible Minister to appoint a member of the Authority who is a lawyer with not less than seven years’ legal experience to be the chairperson of the Authority.
In addition, we recommend the addition of new clause 17(3A) to require the Minister to appoint at least two members to the Authority who are licensees or former licensees. As introduced, the bill provides the Minister with the flexibility to appoint people with a broad range of skills; but it does not specify the need for industry representation, at which many submitters expressed concern. They argued that the requirement to consider the need to represent industry interests would not be sufficient to guarantee adequate industry expertise on the Authority. We agree that industry expertise on the authority would be valuable, and recommend this amendment to provide certainty and reassurance to the industry and consumers.
Consultation on practice rules
We recommend an amendment to clause 20 to allow the Authority to consult those who the Authority considers to be representative of the real estate industry when making practice rules. This amendment is intended to clarify the consultative requirements, and to ensure that consultation would be effective for both the Authority and the industry. We recommend a similar amendment to clause 22, to allow the Minister to consult those considered to be representative of the industry when considering amendments to any practice rules. We hope that these amendments would encourage effective consultation on practice rules with industry representative bodies.
Fees and levies
Many submitters expressed concern about industry input into the prescribing of fees and levies, and concern that excessive costs could be passed on to the consumer. We have received indicative costings that suggest the proposed fees would be $500 per year for an agent, $350 per year for a branch manager, and $300 per year for a salesperson. These fees would be applied to establish and run the new Authority. The Authority would be subject to the Crown Entities Act 2004 as well as the Treasury and Auditor-General guidelines, which would provide significant checks on the setting of fees and levies by the Authority. We are satisfied that the setting of fees and levies by the Authority would be transparent and subject to appropriate guidelines.
Publication of rules, fees, and levies
We recommend amending clause 23(2) and clause 27(2) to provide that notices of fees and levies and rules are regulations for the purposes of the Acts and Regulations Publication Act 1989. This amendment would ensure that any changes to fees, levies, or rules would be published in the SR (Statutory Regulations) series, ensuring transparency of process and access to fee and levy information.
Powers of intervention
Investigation of financial records and trust accounts
In the bill as introduced clause 29 provides that the Authority may take possession of and inspect an agent’s financial records and documents in certain cases, and clauses 122 and 123 provide for the administration of trust accounts by the Authority and the appointment of an interim administrator in certain cases. We recommend the deletion of clauses 122 and 123 and the reinstatement of the substantive focus of these provisions as new clauses 29B and 29C. We recommend including new clause 29D to allow the Authority to direct an audit of an agents trust accounts and to appoint an auditor to carry out that audit. In addition, we recommend deleting clause 29(2) and reinstating this as new clause 29A, which clearly sets out the power of the Authority to take possession of financial records. We recommend that the new clauses use consistent terminology throughout, to remove any doubt about interpretation.
These amendments are intended to ensure that the powers of the Authority in relation to administration of trust accounts and inspection and possession of records are clearly set out in the bill in a logical and readable way.
We also recommend that clause 29 be amended by the addition of new paragraphs (j) and (k), which would allow the Authority to intervene where a trust account had not been administered in accordance with the Act or regulations made under it, or an agent operated a trust account that had been administered fraudulently or recklessly. It is important that the Authority be allowed to intervene in such circumstances if consumers are to be protected adequately.
Registrar
In the bill there is provision for a Registrar to carry out specific functions, particularly in relation to licensing, as outlined in clause 32. However, it is intended that the Authority should have overall control of the licensing process. Some submitters suggested that the respective roles of the Authority and the Registrar regarding licensing were not clear enough.
As noted above, we recommend the addition of new clause 31A and new clause 16(ab) and amendments to clause 16(b) to clarify this interaction.
We also recommend amending clause 33 so that the Registrar could independently delegate only functions of an administrative nature. In the bill as introduced the Registrar could delegate any of his or her functions, duties, and powers to someone else (except the power of delegation). We consider that only the administrative functions of the Registrar should be allowed to be delegated independently. The amendment we recommend would allow other functions (such as decisions about licensing and about the issuing, cancelling, and suspension of licenses) to be delegated with the approval of the Authority. This amendment is intended to provide an additional safeguard for consumers.
Entitlement to licence and renewal of licences
The bill proposes reducing the experience required for an individual to be licensed as an agent or branch manager, from the current requirement of three years’ full-time experience in the real estate industry in the last five years to two years’ experience within the last 10 years.
Some submitters were concerned that this lesser requirement might reduce the available expertise in the industry. They considered that recent experience is essential to ensuring that agents have good current knowledge of industry practices.
Other submitters considered, on the other hand, that the current experience thresholds are too high. They argued that such onerous requirements (three years’ full time real estate work within the last five years) might prevent the introduction of new talent into the industry by presenting a significant barrier to new business ownership. We considered the experience needs of a licensee at length. We concluded that, while some industry experience is necessary, the requirements proposed by some submitters would be most likely to perpetuate a self-replicating business model in the industry. We note also that experience of itself may do little to improve standards, guarantee competence, or protect consumers.
We consider that one of the most important new elements proposed by the bill is the ability for the Authority to make practice rules requiring continuing education (clause 19). If used well, this requirement for continuing education is much more likely to ensure that licensees have a useful knowledge of good current industry practice than experience requirements alone.
Compulsory continuing education
We recommend amending clause 51 to require licensees to complete any compulsory continuing education prescribed under clause 19 in order to renew their licences. We also recommend amending clause 53 to allow the cancellation of a licence if a licensee fails to comply with practice rules on continuing education.
We recommend an amendment to clause 34(1)(e) of the bill to ensure that the experience requirement for real estate agency work is consistent with the definition in clause 4 of the bill.
Trans-Tasman Mutual Recognition Arrangement
Many submitters expressed a view that the Trans-Tasman Mutual Recognition Arrangement could be a source of problems in the real estate industry, because of the difference between industry standards and educational requirements in New Zealand and some Australian states and territories. For example, in New South Wales a person is required to undertake only a one-week course before becoming a licensed real estate agent. This is recognised in New Zealand under the Arrangement. These submitters expressed concern at what they saw as a “short-cut”, and argued that it could lower standards in the industry.
We were not given any evidence that agents or salespersons who registered under the Arrangement are more likely to have complaints made against them than those who have gained the New Zealand qualification. However, we do agree that there is potential for inconsistent standards reflecting differing requirements.
The REINZ ITO has conducted a gap analysis of the courses in New South Wales and New Zealand, and produced a list of qualifications that they consider bridge the gap. We note that the amendments we have recommended to clause 51 requiring continuing education to renew a licence could help to ensure that all licensees, including those eligible under the Arrangement, were aware of legal requirements and industry practices in New Zealand.
We urge the Government to take up the issue of monitoring occupational qualification equivalency in the upcoming review of the Trans-Tasman Mutual Recognition Arrangement.
Persons prohibited from being licensed
We recommend amending clause 35 to prohibit lawyers, conveyancing practitioners, and incorporated firms as defined by the Lawyers and Conveyancers Act 2006 from being licensed. This amendment accords with clauses 6 and 7 of the bill as introduced, which treat lawyers and conveyancing practitioners as distinct from licensees. Lawyers and conveyancing practitioners are subject to the requirements of the Lawyers and Conveyancers Act, and we do not consider it appropriate that they also be subject to the real estate agents’ licensing regime. If lawyers or conveyancing practitioners did not have practising certificates they would be eligible to apply to become licensed real estate agents or branch managers.
We recommend deleting the provision in clause 35(1)(b) that prohibits a person who has been convicted of an offence under section 26 of the Fair Trading Act 1986 in the past five years from being licensed as a real estate agent or a branch manager. Section 26 of the Fair Trading Act relates to false trade description of imported goods, and we do not consider this relevant to a person’s ability to operate in the real estate industry. We also recommend deleting reference to section 25 of the Fair Trading Act, which is not relevant to this bill.
We recommend that clause 35(1)(e) be amended to provide that a person would be ineligible to be a licensed real estate agent or a branch manager if he or she had been prohibited from doing so in another country within the last five years, unless the person satisfied the Authority that he or she was a fit and proper person. This amendment would allow the Authority more flexibility in determining the suitability of prospective licensees, and seeks to ensure that people would not be unduly constrained in applying for licenses.
Licences in partnerships and companies
We recommend deleting clauses 42(2) and 42(3) and replacing them with new clause 42(1A). Clauses 42(2) and 42(3) deal with special provisions in respect of partnerships and companies. They were carried over from the 1976 Act, but the intention of this bill is to relax rules restricting real estate company ownership and directorships, so we recommend that they be replaced with a single provision requiring that at least one officer of a company must hold an agent’s licence at any given time.
Vicarious liability
Clause 49 of the bill preserves the ability of agents to employ independent contractors as salespeople, as allowed under the 1976 legislation. We recommend an amendment to ensure that an agent who employs such an independent contractor could be vicariously liable for that salesperson’s actions as if they were an employee. This affords better protection to consumers than the bill as introduced.
Review of employment status
Clause 49 preserves the right of salespersons (who are exempt from the tests governing employment status in the Employment Relations Act 2000) to be engaged as independent contractors (from section 51A of the 1976 Act).
Clause 50 of the bill as introduced requires the chief executive of the Ministry of Justice to report to the Minister on the appropriateness of clause 49 not later than five years after the commencement of the Act.
The exemption in clause 49 means that some employment requirements applying to other occupations do not apply to salespeople, which has the potential to harm the industry. For example, there is no obligation for agents to pay salespeople a minimum wage, and salespeople can be engaged on commission-only contracts, so that the cost of wages does not limit the number of salespeople. With these low costs, real estate firms can take on large numbers of salespeople to raise their business profile, regardless of the general business need for staff. The ability to engage salespeople as independent contractors at low cost facilitates large numbers and high turnover of staff.
We accept that many salespeople in the industry prefer to be engaged on commission-only contracts. Many industries engage contractors on similar terms and conditions and are not exempt from the Employment Relations Act. Such occupations include insurance sales, car sales, and contractors to private industry and Government departments. However, we are concerned that in some instances real estate salespeople do not receive remuneration or entitlements that meet minimum standards in employment law. A number of submitters made this point. We consider that it would therefore be useful to retain provision for a review of clause 49, but for the sake of certainty in the industry we recommend amendments to ensure that the report to the Minister takes place after the Act has been in force for five years.
Misconduct
We recommend amending clause 72 of the bill as introduced by taking out the reference to the Fair Trading Act. We are concerned that using this legislative example might unintentionally limit the way this provision is interpreted and thus restrict its application. However, we strongly recommend that when considering the offence of misconduct the Tribunal deem contraventions of Acts such as the Fair Trading Act 1986 to be misconduct. We consider that this change will not limit protection for consumers but in fact give them more.
Complaints Assessment Committee
The bill proposes the establishment of a Complaints Assessment Committee (to be appointed by the Authority), with responsibility for investigating complaints. We were advised that the Complaints Assessment Committee would be expected to hire investigators to do most of the practical investigating, under the oversight of the Committee. The Committee would also oversee the Authority’s provision of information to the public about the complaints and discipline system.
Establishment
The bill proposes the establishment of a single Committee (clause 74). We are concerned that the introduction of a new complaints and disciplinary regime might prompt a surge in the number of complaints received, possibly resulting in a bottle-neck preventing the timely addressing of complaints. The REINZ told us that it receives approximately 200 telephone complaints or enquiries each month. In addition, Consumer NZ noted that it regularly receives complaints from clients about the real estate industry. Consumer NZ said it has logged 53 complaints about the real estate industry in the past five years.
We recommend amending clause 74 to allow the Authority to appoint as many Complaints Assessment Committees as it considers necessary to deal effectively with complaints and allegations about licensees. The bill allows discretion to resolve low-level complaints without referral to the Complaints Assessment Committee.
To ensure that the Authority could appoint Committees efficiently, we recommend the inclusion of new clause 74A, which requires the Authority to maintain a panel of members for possible appointment to Complaints Assessment Committees. When considering the appropriateness of panel members, the Authority would be required to have regard to the prospective members’ knowledge of matters likely to come before a Committee. This would ensure that the Authority could appoint appropriately staffed Committees promptly.
Committees would consist of three members, one member being a member of the Authority, and two appointed from a panel maintained by the Authority under new clause 74A. One member would also have to be a lawyer of not less than seven years’ legal experience. We expect that these amendments would help to avoid delays in the complaints process, and ensure that Committees were appropriately staffed.
Investigations
We recommend the inclusion of new clause 75(ab) to allow Complaints Assessment Committees to inquire into and investigate allegations against licensees on their own initiative. We consider that this amendment would provide more protection and an easier process for the consumer, as an investigation would not have to be complaint-driven.
We recommend amendments to clauses 79, 80, 86, 88, and 90 to ensure that it is clear that Committee investigations need not be in response to complaints.
Power to make orders
Clause 90 of the bill outlines the powers of a Committee to discipline a licensee. We recommend amending this clause to allow the Complaints Assessment Committee to make one or more of the orders provided for in the clause. This would make it clear that a Committee could use more than one order in a particular case, and would help to ensure that the most appropriate form of discipline could be used in any case of unsatisfactory conduct.
Real Estate Agents Disciplinary Tribunal
Membership
We recommend amending clause 97 of the bill to require that at least one member of the Tribunal must be a licensee. Having industry representation on the Tribunal should ensure that the Tribunal had sufficient experience and knowledge to carry out its functions well.
We also recommend the insertion of new clause 97(4), which would require the designation of a deputy chairperson when the Tribunal was formed. We consider this is important to minimise delays in the disciplinary regime.
Charges and orders
We recommend the addition of new clauses 107(4) and 107(5) to allow the Tribunal to make any of the orders that the Complaints Assessment Committee could have made, or to refer a matter back to the Committee where it considered a licensee had engaged in “unsatisfactory conduct”, but was not guilty of misconduct. This amendment would allow the Committee to deal appropriately with licensees who breached the rules, and allow flexibility for addressing inappropriate behaviour even where it did not amount to misconduct.
We recommend amending clause 108 by replacing the word “complainant” with “appellant”, to recognise that it might not necessarily be a complainant who made an appeal to the High Court.
Business to be identified
We recommend the addition of new clause 117A, which would require every agent to clearly exhibit a notice of their name and the fact that they are a real estate agent licensed under the Act at their place of business. This information would also need to be shown on all notices, advertisements and other publications issued by or on behalf of the agent. We consider that this would promote transparency and help to protect consumers by ensuring that information about the agent and their status as a licensee was readily available. It would also help to draw consumers’ attention to the legislation under which the industry and licensees’ behaviour is regulated. We note that this is a requirement under the current regime.
Agency agreements
Cancellation of sole agency agreements
The bill provides that an agent is not entitled to a commission or expenses without an agency agreement (clause 124). We recommend amending the definition of “sole agency agreement” in clause 4 to simplify it and to make it clear that it is an agreement (between an agent and a client) in which the client agrees not to instruct any other agent to act for the client in respect of the relevant transaction.
Clause 128 provides that a client may cancel a sole agency agreement with effect by 5 p.m. the next working day. This provision is intended to introduce a “cooling-off period”, to help to ensure that clients are not rushed into binding agreements without time to think carefully about them. Because this is such an important protection, we recommend the inclusion of new clause 128(3) to provide that parties cannot contract out of this provision. Under the amendment the provision would continue to have effect regardless of any provision in a contract to the contrary. For the same reason we recommend a similar amendment to clause 129, which would ensure that a party could not contract out of the ability to cancel a sole agency contract.
We also recommend the inclusion of new clause 128(4) to ensure that where a sole agency agreement has been cancelled, an agent could still rely upon that agreement to, for example, recover expenses or commission if work had already been carried out. This would ensure that the cancellation provisions were not misused to the detriment of agents.
Cancellation of sole agency agreements after 90 days
We recommend amending clause 129 so that it applies to agency agreements for the sale of residential property. We also recommend the inclusion of a definition of “residential property” in clause 4 and amendments to clauses 125 and 129, to make it clear that residential properties do not include multiple properties that form part of a single development.
The clause as introduced allows any party to a sole agency agreement to cancel the agreement at any time after a period of 90 days (from the date of signature) has expired. Many submitters were concerned that this provision would not be appropriate for commercial, industrial, and rural properties, or properties in a residential development. We are satisfied that the recommended amendment takes industry realities into account, while providing consumers with protection.
We also recommend the inclusion of new clause 129(1A) to provide that parties can agree to renew the agency agreement at the end of 90 days, and that the agreement can be cancelled at the end of a further 90 days. This would allow for the situation where both parties wanted to renew an agency agreement, and it might encourage good service provision as such renewed agreements are likely only where the vendor is satisfied with the services being provided.
Copy of contract
We recommend deleting from clause 130 the list of types of documents that a licensee is required to give a copy of to the person who signed them. The addition of a reference to “contractual document” in this clause, with an associated definition in clause 4, renders the list unnecessary.
Regulations and agency agreements
We recommend deleting clauses 127(a) and 127(b), which allow regulations to be made regarding the form and required terms and conditions of agency agreements. Some submitters considered subclause (b) to be too broad; and both subclauses could be used to regulate the fees or commissions charged by agents. We do not consider it appropriate for the content of agency agreements or real estate agents’ commissions to be governed by regulation.
Approved guide
Clause 131 requires the agent or licensee to provide an approved guide to a person before giving them a copy of an offer to buy or sell property or a proposed agreement for the sale and purchase of property. We recommend amending this clause so the agent or licensee was required to provide the guide before an offer or sale and purchase agreement was signed. We consider that this would ensure that consumers were informed as to the protections available to them throughout a real estate transaction.
Disclosure of information
We recommend amending clause 133 so that a valuation of a business can be provided by an independent chartered accountant where a client is to contract with a licensee or related person. Clause 133 is carried over from the 1976 Act and compels licensees to provide a valuation to the client on whose behalf they are carrying out real estate agent work, when they or someone they know is likely to acquire the land or business.
Written disclosure
Clause 134 requires a licensee who carries out real estate agency work to provide in writing for every transaction a statement as to whether they or someone related to them may benefit financially from the transaction. We consider this might duplicate disclosures required under clauses 126 and 132 and impose an unnecessary administrative burden on agents in these circumstances. We recommend amending clause 134 by the addition of new clause 134(1A) to make it clear that when clauses 126 and 132 apply, licensees are not required to make a further disclosure under clause 134.
Auctions
We recommend amending clause 136 by replacing the words “registered auctioneer” with “licensed auctioneer”. In fact under the Auctioneers Act 1928 auctioneers are licensed, not registered.
Licensees
We recommend amending clauses 46(2) and 47(2) of the bill to exempt licensees from being required to also hold an auctioneers’ licence in order to conduct a real estate auction. We consider the bill’s licensing requirements and the disciplinary regime would be sufficient to enhance protection for consumers.
Bidders record
We recognise that a large number of submissions opposed the requirement for a Bidders Record at auctions. However, it is important that reasonable protections are afforded during the auction process. We consider that a Bidders Record would provide some guarantee for both the vendor and purchaser that only genuine bids will be accepted.
Access to Bidders Record
We recommend deleting clauses 137(6)(a) and (b), which allow regulations to be made which confer an entitlement on a seller to inspect the Bidders Record, and the manner and form in which the Bidders Record is to be kept. We do not consider that sellers should have unlimited access to the Bidders Record. We do however consider that access should be available if it is needed for post-auction negotiations. We recommend the insertion of new clause 137(6)(ba) to allow sellers to access Bidders Record information where it is necessary to effect the transaction to which the auction relates. These amendments are intended to afford bidders reasonable privacy, whilst facilitating auction-based transactions. We consider clause 137(6)(b) unnecessary.
Bidder’s identity
We recommend an amendment to clause 138 to clarify that only the bidder’s identity needs to be proven through documentation, and not the bidder’s address. We consider verification of an address unnecessary for the purposes of this bill.
Offences and penalties
Many submitters expressed dissatisfaction with the low penalties and fines available in the present regime. Some told us that efforts had been made to raise the available penalties for several years. We agree with submitters that the penalties and fines are inadequate and it is very important that this matter is addressed.
Clauses 142 to 153 set out the offence and penalty provisions. We recommend the deletion of clause 142, which is a general offence provision, and its replacement with the specific offence provisions contained in new clauses 150A, 150B, 150C, 151AA, 151AAB, 152A, and 152B. A general offence provision does not distinguish between serious breaches involving substantial loss or risk to consumers, and less serious breaches involving technical failures. The new offence provisions recommended make such distinctions clear.
Fines
The bill as introduced contains a general penalty provision in clause 143. We recommend amending this clause to ensure that it applies only to offences against the Act, and not to offences against regulations. In addition, we recommend amending clause 150 to provide that the maximum fine for failing to notify the Registrar of a change in circumstances would be $10,000 for individuals and $50,000 for a company. We also recommend that these penalties be applied to the new offence in new clause 150C of failing to provide information or documents. These fines recognise the nature of the offences, and are comparable with other disciplinary regimes. We note that our proposed maximum fines for an individual are comparable with the Immigrations Advisors Licensing Act 2007.
Civil remedies
We recommend the inclusion of new clause 154A, which replicates provisions of the 1976 Act. This clause provides that nothing in the Act will affect any civil remedy that any person may have against a real estate agent, salesperson, or branch manager in respect of any matter. We consider civil remedies to be an important consumer protection, and it should be clear that they remain available.
Regulations
We recommend a number of amendments to clause 155, which contains the bulk of the regulation-making powers proposed in the bill as introduced. We recommend adding new clause 155(fa), which would allow regulations to be made about the conduct of proceedings before the Disciplinary Tribunal. New clauses 155(aa), 155(2), and 155(3) would replace deleted clauses 12 and 13.
Audit
We recommend deleting clause 155(g), which allows regulations to be made for the auditing of trust accounts, and the insertion of new clause 155(ga) which is more specific than the original clause and provides more detail about the content of regulations regarding audit. The proposed amendment would offer more protection for consumers by ensuring that regulations made in respect of audit functions covered the necessary matters.
Prescribing offences
We recommend amending clause 155(k) to make it clear that offences prescribed by regulation must relate only to contravention of or non-compliance with regulations. In addition, we recommend an amendment to ensure that the maximum penalties available for offences against regulations are clear. In the case of an individual, the maximum penalty should not be permitted to exceed $25,000 and, in the case of a company, $50,000.
Compensation
We recommend deleting clause 155(m), and amending clause 107(2)(g) to specify that the maximum amount of compensation that could be awarded by the Tribunal would be $100,000. The bill as introduced allowed regulations to be made under clause 155(m) prescribing the maximum amount of compensation that could be awarded. We sought the advice of the Regulations Review Committee on the appropriateness of allowing such a matter to be set by regulation, and upon their recommendation suggest including the maximum compensation that the Tribunal can award in the bill itself.
Transition of agency agreements
We recommend the inclusion of new clause 167A to make it clear that agency agreements entered into prior to the Act coming into force remain subject to section 62 of the Real Estate Agents Act 1976. The suggested amendment should help clarify which Act an agency agreement is subject to, and minimise transitional issues in this regard.
Property managers
We examined the possibility of amending the bill to apply to property managers, but such an amendment would be outside the scope of the bill as introduced. The focus of the bill as introduced is the regulation of behaviour regarding the sale and purchase of land interests. The bill does not propose the regulation of any property management activities (such as leasing, letting, collection of rental or collection of payment for other property management services). We recognise that, whilst many real estate agents undertake a property management function, this does not make property management a real estate transaction.
We agree with submitters who raised concerns about the lack of regulation of property managers and property management, and the lack of protection for consumers dealing with them. We consider it imperative that immediate action be taken to create an appropriate regulatory regime for property management activities. We do not consider that the provisions for property management in the Residential Tenancies Act 1986, which relate primarily to relationships between parties such as a tenants, owners, and property managers, are sufficient to ensure that consumers are protected in property management transactions. We would expect an appropriate regime to include, at a minimum, trust account and audit requirements, and provision for an independent disciplinary body.
We heard from the REINZ that the last claim against the Real Estate Agents Fidelity Guarantee Fund related to the misappropriation of trust account funds by a property management company. The claim against the fund was for a total of $67,154.65. We are concerned that there would only be criminal or civil remedies for any misappropriation of funds by property managers, and no other disciplinary regime, if this bill comes into force.
We have been advised that the Government intends to review the regulation of property management. We expect that this review and any legislative proposal that may eventuate will be coordinated so that they coincide with the implementation of this bill, ensuring that some measures in relation to property managers are in place before the entirety of this bill is brought into force.
New Zealand National Party minority view
The National Party opposes the Real Estate Agents Bill.
National agrees that a new independent authority (with industry representation) is required to give consumers confidence that there is effective oversight of this industry.
National supports timely reform of the real estate industry but thinks this bill is inadequate.
A common theme of the majority of submitters was the concern that property management is not included in the bill. We heard that the last claims on the Fidelity Fund were in relation to property management and that about one in five complaints relates to property management. Property management is often an integral part of real estate work and National believes that if the real objective of the bill is consumer protection then property management should be included.
National is also concerned:
about the uncertainty created by the five year review of the employment status of real estate agents;
about the inadequacy of the transitional provisions (the Lawyers and Conveyancers Act 2006 has a two year transitional period, as opposed to the one year proposed in this Bill);
that auctioneers remain excluded from the legislation. The new rules relating to auctions are impractical;
that the auction Bidders Record is impractical;
that the bureaucracy created by this bill will result in the consumers paying more in real estate fees to meet the costs of such bureaucracy; and
that the requisite experience for a real estate agent to hold a licence (two years experience within the preceding ten years) is insufficient. National agrees with the majority of the submitters that three years out of five years would be more appropriate.
National supports workable, consumer protection legislation for the real estate industry. This bill does not achieve this objective.
Appendix
Committee process
The Real Estate Agents Bill was referred to the committee on 11 December 2007. The closing date for submissions was 29 February 2008. We received and considered 1,328 submissions from interested groups and individuals. We heard 767 submissions, which included holding a hearing in Auckland.
We received advice from the Ministry of Justice. The Regulations Review Committee reported to the committee on the powers contained in clause 155(m).
Commentary
Recommendation
The Justice and Electoral Committee has examined the Real Estate Agents Bill and recommends by majority that it be passed with the amendments shown.
Introduction
This bill is intended to replace the Real Estate Agents Act 1976. It proposes a new regulatory regime for the real estate industry. The Government’s intention is to modernise outdated sections of the 1976 legislation, and increase protection for consumers in real estate transactions.
This commentary covers the key amendments that we recommend to the bill. It does not cover minor or technical amendments.
Membership of the Real Estate Institute of New Zealand
We recommend the inclusion of new clause 157A to remove any uncertainty about the status of membership of the Real Estate Institute of New Zealand (REINZ) that might arise following the repeal of the 1976 Act, which requires all licensed real estate agents to be members of the REINZ. The bill as introduced was silent on the status of current REINZ membership after the passage of the bill. We are concerned that this might cause unnecessary confusion and uncertainty. New clause 157A provides that a current member of the REINZ will continue to be a member until membership is terminated in accordance with the REINZ rules, or until the person resigns his or her membership. This clause is intended to allow a smooth transition from the 1976 Act to the regime proposed by this bill.
Statistics
Some submitters expressed concern that without compulsory membership of the REINZ statistical information on house sales would not be accessible to the public and the industry. We sought advice on this matter, and have been assured that some statistics would be available through other sources such as Quotable Value New Zealand. We also note that the bill does not restrict the REINZ’s ability to collect statistical information from either its members or the industry, and we expect it to continue to do so.
Commencement
We recommend amending clause 2 to ensure that the implementation of the new regulatory regime is staggered and practicable. As introduced, the bill proposes that all provisions come into force on the day after the date on which the bill receives the Royal assent. Given the significant changes proposed, we are concerned that such a commencement date would not allow a smooth transition to the new regime. The amendments we recommend would result in the provisions establishing the Real Estate Agents Authority, making practice rules, setting fees and levies, appointing the Registrar, conferring regulation-making powers, establishing the Complaints Assessment Committees and the associated panel, and establishing the Real Estate Agents Disciplinary Tribunal coming into force the day after enactment. The other provisions of the bill would come into force one year after the date on which the bill received the Royal assent.
Purpose of the Act
We recommend amending clause 3 to include a statement that the Act is intended to promote public confidence in the performance of real estate agency work. This addition is intended to confirm and strengthen the statements in clause 3, and to reinforce the message that the bill sends to the industry and consumers about the importance of consumer protection in real estate transactions.
Definitions
We recommend several amendments to clause 4 to clarify definitions, and to define particular terms used throughout the bill, such as “salesperson”, “branch manager”, and “residential property”. These amendments are intended to assist with interpretation.
Residential property
We recommend including a definition of “residential property”, which is referred to in clauses 125, 129, and 131, to clarify that these clauses only apply to properties used or intended to be used for residential purposes. We also propose amendments to clauses 125 and 129 to ensure that agency agreements would not apply to residential properties in a continuous area that are being sold by the same vendor (subdivisions).
Real estate agency work
The definition of this term, along with the definition of “transaction”, is vital in determining the bill’s application. We recommend amending the definition to ensure that it is clear that work and services for the purpose of bringing about or effecting a real estate transaction are captured by the regulatory regime, and to ensure that bodies such as providers of financial services, businesses offering limited services to vendors selling privately, and newspapers and websites publishing real estate advertising are not captured unintentionally. We received submissions that raised concerns that sharebrokers would be captured by the bill. We do not consider that this is the case, as the sale and purchase of shares do not affect the legal ownership of land.
We also recommend amendment of the definition to include work done or services provided by a branch manager or salesperson under the direction of, or on behalf of, an agent. These amendments accord with the intention of the bill, which is to regulate those involved in the sale and purchase of land interests, rather than those involved solely in advertising or advisory services.
Transaction
We recommend amending this definition to ensure that transactions regarding all registrable interests in land are captured. As introduced, the definition omits various interests and occupation rights that are neither freehold nor leasehold. Our recommended amendments would ensure that sales and purchases of interests including licences under the Land Act 1948, units held under the flat and office owning companies regime in Part 7A of the Land Transfer Act 1952, units in many retirement villages, stratum estates under the Unit Titles Act 1972, and Crown forestry licences under the Crown Forests Assets Act 1985, would be captured. Including all registrable interests in land would provide protection for consumers over the whole range of sale and purchase transactions.
Exemptions
Clauses 7 to 13 of the bill allow the exemption of certain groups from the licensing requirements in the bill.
Lawyers and conveyancers
We recommend the inclusion of clauses 7(1)(c) and 7(3)(c)(v) to ensure that an incorporated firm within the meaning of the Lawyers and Conveyancers Act 2006 is exempt from the licensing requirements if it carries out real estate agency work. Clause 7 is intended to accord with the provisions of the Lawyers and Conveyancers Act 2006, which allows lawyers to undertake real estate agency work, but does not allow a commission to be charged for such work. However, clause 7 as introduced did not prohibit incorporated firms from being licensed and thus charging a commission. We recommend these amendments to address this omission.
We considered whether the charging of a commission should be permitted. We note that this matter was considered carefully during the passage of the Lawyers and Conveyancers Act 2006.
Exemption for Landcorp Farming Limited and granted by Authority
We recommend that clause 9 be deleted from the bill. This clause is a replication of a provision in the Real Estate Agents Act 1976, which allowed Landcorp Farming Limited to carry out any real estate agency work in respect of land of the Crown or of any State-Owned Enterprise. The subsidiary that carried out this business for Landcorp, Landcorp Property Limited, was privatised in 1994, and Landcorp has not acted on behalf of the Crown or of other State-Owned Enterprises since then. It does not envisage doing so in future, making this provision unnecessary.
We recommend the deletion of clause 10, which provides an exemption for persons operating in accordance with a permit. Permits would no longer be granted under the new regime.
Regulation-making power and recommendation by Minister
We recommend that clauses 12 and 13 be deleted and replaced with new clauses 155(aa), 155(2), and 155(3). They provide for an exemption from the requirement to be licensed, to be made by Order in Council. In addition, we recommend amendments to clarify the provisions, for example new clause 155(3)(a)(i).
Real Estate Agents Authority
The establishment of a Real Estate Agents Authority is one of the key proposals of the bill. The Authority would be responsible for administering the licensing regime, setting industry standards, complaints and disciplinary procedures, setting fees and levies, and providing information for consumers. Key clauses in relation to the proposed Authority are set out in Part 2 of the bill.
At present, regulatory responsibility for the industry is divided between the REINZ and the Real Estate Agents Licensing Board. We were told that establishing an independent body to remove direct responsibility from those involved in the industry is expected to improve consumers’ confidence in the complaints and disciplinary process.
We heard from many submitters who supported the establishment of an independent body to oversee the complaints and discipline regime. Some queried the potential cost of such a body, and expressed concern that these costs might be passed on to the consumer. We were advised that the regime would be funded through fees and levies. We investigated the possibility of using the interest from agents’ trust funds to pay for the Authority, in a similar way to that in which interest from lawyers’ trust funds can be used to fund community law centres administered by the Legal Services Agency under the Lawyers and Conveyancers Act 2006. However, we consider that the administrative burden incurred by this type of funding would be too cumbersome, and that it would not be practical to fund the Authority in this way. We asked for costings for funding the Authority by fees, and were provided with material that suggests that licence fees are unlikely to exceed $500 per annum. Fees and levies are discussed further below.
Functions of the Authority
We recommend a number of amendments to clause 16 of the bill, which sets out the functions of the Authority.
Industry training organisation
We recommend the inclusion of new clause 16(3) to ensure that it is clear that the Authority’s functions do not undermine or change the role of any industry training organisation. The Real Estate Institute of New Zealand Industry Training Organisation Limited (REINZ ITO) is currently a recognised industry training organisation. Some submitters expressed concern that the functions of the Authority would undermine its role. Organisations apply to the Minister of Education for industry training organisation status under the Industry Training Act 1992. It is not appropriate to specify an industry training organisation in legislation, as they may change over time.
Consultation
We recommend the inclusion of new clause 16(2) to allow the Authority to consult representatives of the real estate industry on any of its functions. We heard from submitters who expressed concern that representatives of the industry might not be able to participate in the new regime. We consider it appropriate that the bill provide for consultation with the industry as one of the Authority’s functions.
Complaint investigation
We recommend the addition of a new subclause in clause 16 to allow the Authority to initiate investigations on its own motion. The Authority should be able to investigate any act, omission, allegation, practice, or other matter that indicates or appears to indicate misconduct or unsatisfactory conduct by a licensee. We consider this would provide desirable protection for consumers.
Appointment of Registrar
We recommend the addition of new clause 16(ab) and amendments to clause 16(b), which would mean that the Authority appointed a Registrar of the register of licensees, and to make it clear that the Authority had overall responsibility for maintaining a public register. This amendment is intended to remove any doubt about the role of the Authority and the way it reconciles with the role of the Registrar in clause 32.
Membership of the Authority
We recommend an amendment to clause 17(3) to require the responsible Minister to appoint a member of the Authority who is a lawyer with not less than seven years’ legal experience to be the chairperson of the Authority.
In addition, we recommend the addition of new clause 17(3A) to require the Minister to appoint at least two members to the Authority who are licensees or former licensees. As introduced, the bill provides the Minister with the flexibility to appoint people with a broad range of skills; but it does not specify the need for industry representation, at which many submitters expressed concern. They argued that the requirement to consider the need to represent industry interests would not be sufficient to guarantee adequate industry expertise on the Authority. We agree that industry expertise on the authority would be valuable, and recommend this amendment to provide certainty and reassurance to the industry and consumers.
Consultation on practice rules
We recommend an amendment to clause 20 to allow the Authority to consult those who the Authority considers to be representative of the real estate industry when making practice rules. This amendment is intended to clarify the consultative requirements, and to ensure that consultation would be effective for both the Authority and the industry. We recommend a similar amendment to clause 22, to allow the Minister to consult those considered to be representative of the industry when considering amendments to any practice rules. We hope that these amendments would encourage effective consultation on practice rules with industry representative bodies.
Fees and levies
Many submitters expressed concern about industry input into the prescribing of fees and levies, and concern that excessive costs could be passed on to the consumer. We have received indicative costings that suggest the proposed fees would be $500 per year for an agent, $350 per year for a branch manager, and $300 per year for a salesperson. These fees would be applied to establish and run the new Authority. The Authority would be subject to the Crown Entities Act 2004 as well as the Treasury and Auditor-General guidelines, which would provide significant checks on the setting of fees and levies by the Authority. We are satisfied that the setting of fees and levies by the Authority would be transparent and subject to appropriate guidelines.
Publication of rules, fees, and levies
We recommend amending clause 23(2) and clause 27(2) to provide that notices of fees and levies and rules are regulations for the purposes of the Acts and Regulations Publication Act 1989. This amendment would ensure that any changes to fees, levies, or rules would be published in the SR (Statutory Regulations) series, ensuring transparency of process and access to fee and levy information.
Powers of intervention
Investigation of financial records and trust accounts
In the bill as introduced clause 29 provides that the Authority may take possession of and inspect an agent’s financial records and documents in certain cases, and clauses 122 and 123 provide for the administration of trust accounts by the Authority and the appointment of an interim administrator in certain cases. We recommend the deletion of clauses 122 and 123 and the reinstatement of the substantive focus of these provisions as new clauses 29B and 29C. We recommend including new clause 29D to allow the Authority to direct an audit of an agents trust accounts and to appoint an auditor to carry out that audit. In addition, we recommend deleting clause 29(2) and reinstating this as new clause 29A, which clearly sets out the power of the Authority to take possession of financial records. We recommend that the new clauses use consistent terminology throughout, to remove any doubt about interpretation.
These amendments are intended to ensure that the powers of the Authority in relation to administration of trust accounts and inspection and possession of records are clearly set out in the bill in a logical and readable way.
We also recommend that clause 29 be amended by the addition of new paragraphs (j) and (k), which would allow the Authority to intervene where a trust account had not been administered in accordance with the Act or regulations made under it, or an agent operated a trust account that had been administered fraudulently or recklessly. It is important that the Authority be allowed to intervene in such circumstances if consumers are to be protected adequately.
Registrar
In the bill there is provision for a Registrar to carry out specific functions, particularly in relation to licensing, as outlined in clause 32. However, it is intended that the Authority should have overall control of the licensing process. Some submitters suggested that the respective roles of the Authority and the Registrar regarding licensing were not clear enough.
As noted above, we recommend the addition of new clause 31A and new clause 16(ab) and amendments to clause 16(b) to clarify this interaction.
We also recommend amending clause 33 so that the Registrar could independently delegate only functions of an administrative nature. In the bill as introduced the Registrar could delegate any of his or her functions, duties, and powers to someone else (except the power of delegation). We consider that only the administrative functions of the Registrar should be allowed to be delegated independently. The amendment we recommend would allow other functions (such as decisions about licensing and about the issuing, cancelling, and suspension of licenses) to be delegated with the approval of the Authority. This amendment is intended to provide an additional safeguard for consumers.
Entitlement to licence and renewal of licences
The bill proposes reducing the experience required for an individual to be licensed as an agent or branch manager, from the current requirement of three years’ full-time experience in the real estate industry in the last five years to two years’ experience within the last 10 years.
Some submitters were concerned that this lesser requirement might reduce the available expertise in the industry. They considered that recent experience is essential to ensuring that agents have good current knowledge of industry practices.
Other submitters considered, on the other hand, that the current experience thresholds are too high. They argued that such onerous requirements (three years’ full time real estate work within the last five years) might prevent the introduction of new talent into the industry by presenting a significant barrier to new business ownership. We considered the experience needs of a licensee at length. We concluded that, while some industry experience is necessary, the requirements proposed by some submitters would be most likely to perpetuate a self-replicating business model in the industry. We note also that experience of itself may do little to improve standards, guarantee competence, or protect consumers.
We consider that one of the most important new elements proposed by the bill is the ability for the Authority to make practice rules requiring continuing education (clause 19). If used well, this requirement for continuing education is much more likely to ensure that licensees have a useful knowledge of good current industry practice than experience requirements alone.
Compulsory continuing education
We recommend amending clause 51 to require licensees to complete any compulsory continuing education prescribed under clause 19 in order to renew their licences. We also recommend amending clause 53 to allow the cancellation of a licence if a licensee fails to comply with practice rules on continuing education.
We recommend an amendment to clause 34(1)(e) of the bill to ensure that the experience requirement for real estate agency work is consistent with the definition in clause 4 of the bill.
Trans-Tasman Mutual Recognition Arrangement
Many submitters expressed a view that the Trans-Tasman Mutual Recognition Arrangement could be a source of problems in the real estate industry, because of the difference between industry standards and educational requirements in New Zealand and some Australian states and territories. For example, in New South Wales a person is required to undertake only a one-week course before becoming a licensed real estate agent. This is recognised in New Zealand under the Arrangement. These submitters expressed concern at what they saw as a “short-cut”, and argued that it could lower standards in the industry.
We were not given any evidence that agents or salespersons who registered under the Arrangement are more likely to have complaints made against them than those who have gained the New Zealand qualification. However, we do agree that there is potential for inconsistent standards reflecting differing requirements.
The REINZ ITO has conducted a gap analysis of the courses in New South Wales and New Zealand, and produced a list of qualifications that they consider bridge the gap. We note that the amendments we have recommended to clause 51 requiring continuing education to renew a licence could help to ensure that all licensees, including those eligible under the Arrangement, were aware of legal requirements and industry practices in New Zealand.
We urge the Government to take up the issue of monitoring occupational qualification equivalency in the upcoming review of the Trans-Tasman Mutual Recognition Arrangement.
Persons prohibited from being licensed
We recommend amending clause 35 to prohibit lawyers, conveyancing practitioners, and incorporated firms as defined by the Lawyers and Conveyancers Act 2006 from being licensed. This amendment accords with clauses 6 and 7 of the bill as introduced, which treat lawyers and conveyancing practitioners as distinct from licensees. Lawyers and conveyancing practitioners are subject to the requirements of the Lawyers and Conveyancers Act, and we do not consider it appropriate that they also be subject to the real estate agents’ licensing regime. If lawyers or conveyancing practitioners did not have practising certificates they would be eligible to apply to become licensed real estate agents or branch managers.
We recommend deleting the provision in clause 35(1)(b) that prohibits a person who has been convicted of an offence under section 26 of the Fair Trading Act 1986 in the past five years from being licensed as a real estate agent or a branch manager. Section 26 of the Fair Trading Act relates to false trade description of imported goods, and we do not consider this relevant to a person’s ability to operate in the real estate industry. We also recommend deleting reference to section 25 of the Fair Trading Act, which is not relevant to this bill.
We recommend that clause 35(1)(e) be amended to provide that a person would be ineligible to be a licensed real estate agent or a branch manager if he or she had been prohibited from doing so in another country within the last five years, unless the person satisfied the Authority that he or she was a fit and proper person. This amendment would allow the Authority more flexibility in determining the suitability of prospective licensees, and seeks to ensure that people would not be unduly constrained in applying for licenses.
Licences in partnerships and companies
We recommend deleting clauses 42(2) and 42(3) and replacing them with new clause 42(1A). Clauses 42(2) and 42(3) deal with special provisions in respect of partnerships and companies. They were carried over from the 1976 Act, but the intention of this bill is to relax rules restricting real estate company ownership and directorships, so we recommend that they be replaced with a single provision requiring that at least one officer of a company must hold an agent’s licence at any given time.
Vicarious liability
Clause 49 of the bill preserves the ability of agents to employ independent contractors as salespeople, as allowed under the 1976 legislation. We recommend an amendment to ensure that an agent who employs such an independent contractor could be vicariously liable for that salesperson’s actions as if they were an employee. This affords better protection to consumers than the bill as introduced.
Review of employment status
Clause 49 preserves the right of salespersons (who are exempt from the tests governing employment status in the Employment Relations Act 2000) to be engaged as independent contractors (from section 51A of the 1976 Act).
Clause 50 of the bill as introduced requires the chief executive of the Ministry of Justice to report to the Minister on the appropriateness of clause 49 not later than five years after the commencement of the Act.
The exemption in clause 49 means that some employment requirements applying to other occupations do not apply to salespeople, which has the potential to harm the industry. For example, there is no obligation for agents to pay salespeople a minimum wage, and salespeople can be engaged on commission-only contracts, so that the cost of wages does not limit the number of salespeople. With these low costs, real estate firms can take on large numbers of salespeople to raise their business profile, regardless of the general business need for staff. The ability to engage salespeople as independent contractors at low cost facilitates large numbers and high turnover of staff.
We accept that many salespeople in the industry prefer to be engaged on commission-only contracts. Many industries engage contractors on similar terms and conditions and are not exempt from the Employment Relations Act. Such occupations include insurance sales, car sales, and contractors to private industry and Government departments. However, we are concerned that in some instances real estate salespeople do not receive remuneration or entitlements that meet minimum standards in employment law. A number of submitters made this point. We consider that it would therefore be useful to retain provision for a review of clause 49, but for the sake of certainty in the industry we recommend amendments to ensure that the report to the Minister takes place after the Act has been in force for five years.
Misconduct
We recommend amending clause 72 of the bill as introduced by taking out the reference to the Fair Trading Act. We are concerned that using this legislative example might unintentionally limit the way this provision is interpreted and thus restrict its application. However, we strongly recommend that when considering the offence of misconduct the Tribunal deem contraventions of Acts such as the Fair Trading Act 1986 to be misconduct. We consider that this change will not limit protection for consumers but in fact give them more.
Complaints Assessment Committee
The bill proposes the establishment of a Complaints Assessment Committee (to be appointed by the Authority), with responsibility for investigating complaints. We were advised that the Complaints Assessment Committee would be expected to hire investigators to do most of the practical investigating, under the oversight of the Committee. The Committee would also oversee the Authority’s provision of information to the public about the complaints and discipline system.
Establishment
The bill proposes the establishment of a single Committee (clause 74). We are concerned that the introduction of a new complaints and disciplinary regime might prompt a surge in the number of complaints received, possibly resulting in a bottle-neck preventing the timely addressing of complaints. The REINZ told us that it receives approximately 200 telephone complaints or enquiries each month. In addition, Consumer NZ noted that it regularly receives complaints from clients about the real estate industry. Consumer NZ said it has logged 53 complaints about the real estate industry in the past five years.
We recommend amending clause 74 to allow the Authority to appoint as many Complaints Assessment Committees as it considers necessary to deal effectively with complaints and allegations about licensees. The bill allows discretion to resolve low-level complaints without referral to the Complaints Assessment Committee.
To ensure that the Authority could appoint Committees efficiently, we recommend the inclusion of new clause 74A, which requires the Authority to maintain a panel of members for possible appointment to Complaints Assessment Committees. When considering the appropriateness of panel members, the Authority would be required to have regard to the prospective members’ knowledge of matters likely to come before a Committee. This would ensure that the Authority could appoint appropriately staffed Committees promptly.
Committees would consist of three members, one member being a member of the Authority, and two appointed from a panel maintained by the Authority under new clause 74A. One member would also have to be a lawyer of not less than seven years’ legal experience. We expect that these amendments would help to avoid delays in the complaints process, and ensure that Committees were appropriately staffed.
Investigations
We recommend the inclusion of new clause 75(ab) to allow Complaints Assessment Committees to inquire into and investigate allegations against licensees on their own initiative. We consider that this amendment would provide more protection and an easier process for the consumer, as an investigation would not have to be complaint-driven.
We recommend amendments to clauses 79, 80, 86, 88, and 90 to ensure that it is clear that Committee investigations need not be in response to complaints.
Power to make orders
Clause 90 of the bill outlines the powers of a Committee to discipline a licensee. We recommend amending this clause to allow the Complaints Assessment Committee to make one or more of the orders provided for in the clause. This would make it clear that a Committee could use more than one order in a particular case, and would help to ensure that the most appropriate form of discipline could be used in any case of unsatisfactory conduct.
Real Estate Agents Disciplinary Tribunal
Membership
We recommend amending clause 97 of the bill to require that at least one member of the Tribunal must be a licensee. Having industry representation on the Tribunal should ensure that the Tribunal had sufficient experience and knowledge to carry out its functions well.
We also recommend the insertion of new clause 97(4), which would require the designation of a deputy chairperson when the Tribunal was formed. We consider this is important to minimise delays in the disciplinary regime.
Charges and orders
We recommend the addition of new clauses 107(4) and 107(5) to allow the Tribunal to make any of the orders that the Complaints Assessment Committee could have made, or to refer a matter back to the Committee where it considered a licensee had engaged in “unsatisfactory conduct”, but was not guilty of misconduct. This amendment would allow the Committee to deal appropriately with licensees who breached the rules, and allow flexibility for addressing inappropriate behaviour even where it did not amount to misconduct.
We recommend amending clause 108 by replacing the word “complainant” with “appellant”, to recognise that it might not necessarily be a complainant who made an appeal to the High Court.
Business to be identified
We recommend the addition of new clause 117A, which would require every agent to clearly exhibit a notice of their name and the fact that they are a real estate agent licensed under the Act at their place of business. This information would also need to be shown on all notices, advertisements and other publications issued by or on behalf of the agent. We consider that this would promote transparency and help to protect consumers by ensuring that information about the agent and their status as a licensee was readily available. It would also help to draw consumers’ attention to the legislation under which the industry and licensees’ behaviour is regulated. We note that this is a requirement under the current regime.
Agency agreements
Cancellation of sole agency agreements
The bill provides that an agent is not entitled to a commission or expenses without an agency agreement (clause 124). We recommend amending the definition of “sole agency agreement” in clause 4 to simplify it and to make it clear that it is an agreement (between an agent and a client) in which the client agrees not to instruct any other agent to act for the client in respect of the relevant transaction.
Clause 128 provides that a client may cancel a sole agency agreement with effect by 5 p.m. the next working day. This provision is intended to introduce a “cooling-off period”, to help to ensure that clients are not rushed into binding agreements without time to think carefully about them. Because this is such an important protection, we recommend the inclusion of new clause 128(3) to provide that parties cannot contract out of this provision. Under the amendment the provision would continue to have effect regardless of any provision in a contract to the contrary. For the same reason we recommend a similar amendment to clause 129, which would ensure that a party could not contract out of the ability to cancel a sole agency contract.
We also recommend the inclusion of new clause 128(4) to ensure that where a sole agency agreement has been cancelled, an agent could still rely upon that agreement to, for example, recover expenses or commission if work had already been carried out. This would ensure that the cancellation provisions were not misused to the detriment of agents.
Cancellation of sole agency agreements after 90 days
We recommend amending clause 129 so that it applies to agency agreements for the sale of residential property. We also recommend the inclusion of a definition of “residential property” in clause 4 and amendments to clauses 125 and 129, to make it clear that residential properties do not include multiple properties that form part of a single development.
The clause as introduced allows any party to a sole agency agreement to cancel the agreement at any time after a period of 90 days (from the date of signature) has expired. Many submitters were concerned that this provision would not be appropriate for commercial, industrial, and rural properties, or properties in a residential development. We are satisfied that the recommended amendment takes industry realities into account, while providing consumers with protection.
We also recommend the inclusion of new clause 129(1A) to provide that parties can agree to renew the agency agreement at the end of 90 days, and that the agreement can be cancelled at the end of a further 90 days. This would allow for the situation where both parties wanted to renew an agency agreement, and it might encourage good service provision as such renewed agreements are likely only where the vendor is satisfied with the services being provided.
Copy of contract
We recommend deleting from clause 130 the list of types of documents that a licensee is required to give a copy of to the person who signed them. The addition of a reference to “contractual document” in this clause, with an associated definition in clause 4, renders the list unnecessary.
Regulations and agency agreements
We recommend deleting clauses 127(a) and 127(b), which allow regulations to be made regarding the form and required terms and conditions of agency agreements. Some submitters considered subclause (b) to be too broad; and both subclauses could be used to regulate the fees or commissions charged by agents. We do not consider it appropriate for the content of agency agreements or real estate agents’ commissions to be governed by regulation.
Approved guide
Clause 131 requires the agent or licensee to provide an approved guide to a person before giving them a copy of an offer to buy or sell property or a proposed agreement for the sale and purchase of property. We recommend amending this clause so the agent or licensee was required to provide the guide before an offer or sale and purchase agreement was signed. We consider that this would ensure that consumers were informed as to the protections available to them throughout a real estate transaction.
Disclosure of information
We recommend amending clause 133 so that a valuation of a business can be provided by an independent chartered accountant where a client is to contract with a licensee or related person. Clause 133 is carried over from the 1976 Act and compels licensees to provide a valuation to the client on whose behalf they are carrying out real estate agent work, when they or someone they know is likely to acquire the land or business.
Written disclosure
Clause 134 requires a licensee who carries out real estate agency work to provide in writing for every transaction a statement as to whether they or someone related to them may benefit financially from the transaction. We consider this might duplicate disclosures required under clauses 126 and 132 and impose an unnecessary administrative burden on agents in these circumstances. We recommend amending clause 134 by the addition of new clause 134(1A) to make it clear that when clauses 126 and 132 apply, licensees are not required to make a further disclosure under clause 134.
Auctions
We recommend amending clause 136 by replacing the words “registered auctioneer” with “licensed auctioneer”. In fact under the Auctioneers Act 1928 auctioneers are licensed, not registered.
Licensees
We recommend amending clauses 46(2) and 47(2) of the bill to exempt licensees from being required to also hold an auctioneers’ licence in order to conduct a real estate auction. We consider the bill’s licensing requirements and the disciplinary regime would be sufficient to enhance protection for consumers.
Bidders record
We recognise that a large number of submissions opposed the requirement for a Bidders Record at auctions. However, it is important that reasonable protections are afforded during the auction process. We consider that a Bidders Record would provide some guarantee for both the vendor and purchaser that only genuine bids will be accepted.
Access to Bidders Record
We recommend deleting clauses 137(6)(a) and (b), which allow regulations to be made which confer an entitlement on a seller to inspect the Bidders Record, and the manner and form in which the Bidders Record is to be kept. We do not consider that sellers should have unlimited access to the Bidders Record. We do however consider that access should be available if it is needed for post-auction negotiations. We recommend the insertion of new clause 137(6)(ba) to allow sellers to access Bidders Record information where it is necessary to effect the transaction to which the auction relates. These amendments are intended to afford bidders reasonable privacy, whilst facilitating auction-based transactions. We consider clause 137(6)(b) unnecessary.
Bidder’s identity
We recommend an amendment to clause 138 to clarify that only the bidder’s identity needs to be proven through documentation, and not the bidder’s address. We consider verification of an address unnecessary for the purposes of this bill.
Offences and penalties
Many submitters expressed dissatisfaction with the low penalties and fines available in the present regime. Some told us that efforts had been made to raise the available penalties for several years. We agree with submitters that the penalties and fines are inadequate and it is very important that this matter is addressed.
Clauses 142 to 153 set out the offence and penalty provisions. We recommend the deletion of clause 142, which is a general offence provision, and its replacement with the specific offence provisions contained in new clauses 150A, 150B, 150C, 151AA, 151AAB, 152A, and 152B. A general offence provision does not distinguish between serious breaches involving substantial loss or risk to consumers, and less serious breaches involving technical failures. The new offence provisions recommended make such distinctions clear.
Fines
The bill as introduced contains a general penalty provision in clause 143. We recommend amending this clause to ensure that it applies only to offences against the Act, and not to offences against regulations. In addition, we recommend amending clause 150 to provide that the maximum fine for failing to notify the Registrar of a change in circumstances would be $10,000 for individuals and $50,000 for a company. We also recommend that these penalties be applied to the new offence in new clause 150C of failing to provide information or documents. These fines recognise the nature of the offences, and are comparable with other disciplinary regimes. We note that our proposed maximum fines for an individual are comparable with the Immigrations Advisors Licensing Act 2007.
Civil remedies
We recommend the inclusion of new clause 154A, which replicates provisions of the 1976 Act. This clause provides that nothing in the Act will affect any civil remedy that any person may have against a real estate agent, salesperson, or branch manager in respect of any matter. We consider civil remedies to be an important consumer protection, and it should be clear that they remain available.
Regulations
We recommend a number of amendments to clause 155, which contains the bulk of the regulation-making powers proposed in the bill as introduced. We recommend adding new clause 155(fa), which would allow regulations to be made about the conduct of proceedings before the Disciplinary Tribunal. New clauses 155(aa), 155(2), and 155(3) would replace deleted clauses 12 and 13.
Audit
We recommend deleting clause 155(g), which allows regulations to be made for the auditing of trust accounts, and the insertion of new clause 155(ga) which is more specific than the original clause and provides more detail about the content of regulations regarding audit. The proposed amendment would offer more protection for consumers by ensuring that regulations made in respect of audit functions covered the necessary matters.
Prescribing offences
We recommend amending clause 155(k) to make it clear that offences prescribed by regulation must relate only to contravention of or non-compliance with regulations. In addition, we recommend an amendment to ensure that the maximum penalties available for offences against regulations are clear. In the case of an individual, the maximum penalty should not be permitted to exceed $25,000 and, in the case of a company, $50,000.
Compensation
We recommend deleting clause 155(m), and amending clause 107(2)(g) to specify that the maximum amount of compensation that could be awarded by the Tribunal would be $100,000. The bill as introduced allowed regulations to be made under clause 155(m) prescribing the maximum amount of compensation that could be awarded. We sought the advice of the Regulations Review Committee on the appropriateness of allowing such a matter to be set by regulation, and upon their recommendation suggest including the maximum compensation that the Tribunal can award in the bill itself.
Transition of agency agreements
We recommend the inclusion of new clause 167A to make it clear that agency agreements entered into prior to the Act coming into force remain subject to section 62 of the Real Estate Agents Act 1976. The suggested amendment should help clarify which Act an agency agreement is subject to, and minimise transitional issues in this regard.
Property managers
We examined the possibility of amending the bill to apply to property managers, but such an amendment would be outside the scope of the bill as introduced. The focus of the bill as introduced is the regulation of behaviour regarding the sale and purchase of land interests. The bill does not propose the regulation of any property management activities (such as leasing, letting, collection of rental or collection of payment for other property management services). We recognise that, whilst many real estate agents undertake a property management function, this does not make property management a real estate transaction.
We agree with submitters who raised concerns about the lack of regulation of property managers and property management, and the lack of protection for consumers dealing with them. We consider it imperative that immediate action be taken to create an appropriate regulatory regime for property management activities. We do not consider that the provisions for property management in the Residential Tenancies Act 1986, which relate primarily to relationships between parties such as a tenants, owners, and property managers, are sufficient to ensure that consumers are protected in property management transactions. We would expect an appropriate regime to include, at a minimum, trust account and audit requirements, and provision for an independent disciplinary body.
We heard from the REINZ that the last claim against the Real Estate Agents Fidelity Guarantee Fund related to the misappropriation of trust account funds by a property management company. The claim against the fund was for a total of $67,154.65. We are concerned that there would only be criminal or civil remedies for any misappropriation of funds by property managers, and no other disciplinary regime, if this bill comes into force.
We have been advised that the Government intends to review the regulation of property management. We expect that this review and any legislative proposal that may eventuate will be coordinated so that they coincide with the implementation of this bill, ensuring that some measures in relation to property managers are in place before the entirety of this bill is brought into force.
New Zealand National Party minority view
The National Party opposes the Real Estate Agents Bill.
National agrees that a new independent authority (with industry representation) is required to give consumers confidence that there is effective oversight of this industry.
National supports timely reform of the real estate industry but thinks this bill is inadequate.
A common theme of the majority of submitters was the concern that property management is not included in the bill. We heard that the last claims on the Fidelity Fund were in relation to property management and that about one in five complaints relates to property management. Property management is often an integral part of real estate work and National believes that if the real objective of the bill is consumer protection then property management should be included.
National is also concerned:
about the uncertainty created by the five year review of the employment status of real estate agents;
about the inadequacy of the transitional provisions (the Lawyers and Conveyancers Act 2006 has a two year transitional period, as opposed to the one year proposed in this Bill);
that auctioneers remain excluded from the legislation. The new rules relating to auctions are impractical;
that the auction Bidders Record is impractical;
that the bureaucracy created by this bill will result in the consumers paying more in real estate fees to meet the costs of such bureaucracy; and
that the requisite experience for a real estate agent to hold a licence (two years experience within the preceding ten years) is insufficient. National agrees with the majority of the submitters that three years out of five years would be more appropriate.
National supports workable, consumer protection legislation for the real estate industry. This bill does not achieve this objective.
Appendix
Committee process
The Real Estate Agents Bill was referred to the committee on 11 December 2007. The closing date for submissions was 29 February 2008. We received and considered 1,328 submissions from interested groups and individuals. We heard 767 submissions, which included holding a hearing in Auckland.
We received advice from the Ministry of Justice. The Regulations Review Committee reported to the committee on the powers contained in clause 155(m).
Committee membership
Lynne Pillay (Chairperson)
Chris Auchinvole
Charles Chauvel
Christopher Finlayson
Hone Harawira (non-voting member)
Ann Hartley (until 29 February 2008)
Nándor Tánczos
Nicky Wagner
Louisa Wall (from 5 March 2008)