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Murray Cleland: Justice And Electoral Committee

Introductory Comments To The Justice And Electoral Committee By Murray Cleland, President, Reinz

13 March 2008

Good morning Madam Chair and Committee members. I am Murray Cleland, the National President of REINZ. With me are Mike Elford, the National Vice President, Christine Le Cren, our CEO, and our legal adviser, Mai Chen from Chen Palmer.

Also here today are our National Councillors, some District Presidents, and representatives from each of our 12 regions around the country. They have come from all over New Zealand to support this appearance before the Committee, because the industry is relying on the select committee to fix the very serious issues we see with the Bill.

Some of these issues might have been avoided had officials been allowed by the Minister to engage with the industry while the Bill was being drafted. But we were told by them that they were not allowed to see us and we were locked out of any engagement until the last week of February, well after the Bill had been introduced to the House. They rang us, and said “we are allowed to talk to you now”.

We would have thought it would have been common sense to draw on the industry’s knowledge when reforming that industry’s legislation. This opportunity was missed, and is a stark contrast to the Unit Titles Act where REINZ was consulted by officials throughout. That reform is going to work fine.

REINZ has been the mandated regulatory body for the real estate industry for more than 90 years. During that time we have built up a significant expertise on how the industry works. The reason why our submission is so long is because the Bill is so defective, and the trouble is, the Bill won’t work. We say this given our practical experience in the real estate industry.

REINZ has been pushing for a complete overhaul of the 1976 Act for more than 10 years and supports some of the provisions in the Bill. We support the creation of an independent complaints and disciplinary regime with effective penalties and remedies.

We also support the introduction of compulsory continuing education to raise industry standards and to ensure that people understand their compliance obligations under the law.

These changes will assist in building public confidence in the industry, improving consumer protections and raising professional standards - all objectives which are very important to REINZ.

But we consider that the Bill as now drafted is inconsistent and unbalanced and is not as good for consumers as the 1976 Act in many respects.

A number of good consumer protection provisions in the 76 Act have either not been brought across to the Bill, or have been transferred to the Bill but watered down. I give you seven examples of these:
• The removal of the requirement that agents are vicariously liable for the acts and omissions of salespeople within their care;
• The removal of the ability to object to applications for licence renewals;
• The removal of the provision that real estate agents must always advertise in their own names;
• The lack of any reference in the Bill to whether the audit regulations will continue to apply;
• The failure of the Bill to extend to cover property managers and to residential letting and leasing agents;
• The removal of the reference to protecting the public interest in the fit and proper person test for licences; and
• The reduction of the experience requirement for an agent or branch manager licence from three years of the last five working full-time in the industry to two years of the last ten and not necessarily full-time.

It is hard to see how the consumer is advantaged by any of these changes. In fact the Bill moves strongly in the opposite direction.

The Minister has said that the industry has not provided enough evidence to support claims that property management funds could be abused if not regulated by the Bill, and that Blue Chip is erroneously cited as an example of residential property management gone wrong. Let me quote from Martin Dunn, who is fighting on behalf of mum and dad investors in Blue Chip companies: “tens of millions have gone missing in rentals”. Would you like a copy of this article?

That is one problem that the Committee has to grapple with. Another problem is the Minister’s power to exempt classes of people from the Bill. If the Joneses, for example, had been exempt, where would their clients be now? Their money would not have been in a trust account, and they would be in the same situation as the mum and dad investors in Blue Chip.

The Bill sets up a big new bureaucracy which will take over all the roles now performed by the industry, even where there have been no complaints about the industry’s performance of some of those functions.

The Authority will be a de facto Government Department, required to give effect to Government policy as directed by the Minister on the advice of the Ministry of Justice. This is not appropriate as the Authority will determine complaints and thus needs true independence from the Government.

Further, the Bill effectively breaches the doctrine of separation of powers by giving the Authority the power to make rules and regulations and the power to enforce those rules and regulations. The Minister’s approval function will be on the advice of Justice officials who will probably have no experience of real estate agency work.

Recently, I met with Ministry of Justice officials, and when discussing why the Bill’s requirements on auctions won’t work, it became very clear to me that they had never attended an auction before. This makes it difficult to get the regulation right.

Another point I want to make, which Howard Morley, President of the REINZ ITO will elaborate on, is this: While REINZ has been accused of not lifting the bar in the industry, the Minister has had in his possession from REINZ qualifications lifting the bar on the salesperson qualification requirements. This sat on the Minister’s desk for 18 months before he signed it off, and now won’t come into effect until May this year.

Our final big point, select committee, is this: REINZ has real concerns that the Bill will repeat the difficulties experienced with the Building Act. These include increased compliance costs, delays and uncertainty.

The building levy which only came into force in 2005 has already trebled in size and local authority costs have also increased sharply as councils have had to staff up to handle the new licensing requirements. These increased expenses have been passed on to the consumer and have made housing affordability problems worse.

The Building Act has proved impossible to implement in its original form, has had to be amended twice and will now not be fully implemented until 2011 – two years later than initially envisaged, a full 7 years since the Building Act came into force

We believe that the Real Estate Agents Bill, unless substantially amended, will make the same mistakes as the Building Act - but on a larger scale.

The Bill’s transitional arrangements are patently inadequate. The Bill is set to come into force the day after it receives the Royal Assent yet there will be no time to get the machinery of the new regime in place. There are no transitional provisions to allow:
• Authority members to be appointed;
• The Registrar and members of the Complaints Assessment Committee to be appointed;
• The Authority to set fees and levies;
• Practice rules to be developed and professional standards set; and
• Approved consumer information guides to be prepared.

For example, the day after the Bill is passed, and someone rings up with a complaint, we can’t do anything. If an agent rings up about his trust account, we can’t audit it, as we have been doing to 3000 trust accounts at present. All we can do is refer them to the Authority, which is unlikely to be established.

There are also no savings provisions to make it clear that current agency agreements will remain valid, even if they don’t meet the Bill’s new requirements.

Unless these omissions and flaws in the Bill are remedied, the new framework will limp into existence in an environment of chaos, confusion, delay and mounting cost.

That is the single most important message we want to communicate to the Committee today. Please have regard to the lessons of the Building Act and take the time now to get the Bill right. Otherwise we will all find ourselves back here in three years time trying to do an expensive repair job.

Ends

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