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Real Estate Agents Bill introduced

4 December 2007 Media Statement

Real Estate Agents Bill introduced

Legislation to overhaul real estate law has been introduced to Parliament, said the Associate Justice Minister Clayton Cosgrove today.

Mr Cosgrove said the Bill delivers on the government’s promise to bring accountability, transparency and openness to the real estate sector, and to establish an independent complaints system that protects consumers and supports honest real estate professionals.

“New Zealanders' greatest asset is often their home, so it is paramount that people have access to a transparent and effective disciplinary process should they feel they have been ripped off,” he said. “Given the high level of concern among members of the public on this issue, I have moved swiftly to introduce these reforms.”

The Real Estate Agents Bill puts an end to self-regulation of the industry and introduces a range of new consumer protection measures, including compensation for consumers who have been ripped off. Mr Cosgrove said the industry’s "closed shop" practices for dealing with complaints were a major factor behind the government’s decision to remove its privilege of self-regulation. The Bill:

- Removes regulatory functions from the Real Estate Institute of New Zealand (REINZ). There will no longer be a compulsory requirement for agents to be members of REINZ
- Creates an independent Real Estate Agents Authority to oversee licensing, complaints, disciplinary and enforcement processes and provide information for consumers. The Authority will have wide investigative powers and will be able to order a wide range of penalties and remedies
- Creates an independent Disciplinary Tribunal to deal with serious cases, which will have the ability to order the cancellation of licences and award compensation. Complainants will not be required to hire lawyers because the Authority - through its Complaints Assessment Committee (CAC) - will represent their case if it is referred to the Disciplinary Tribunal
- Establishes a public register of real estate agents and salespeople that records any breaches of the industry standards against the names of those involved
- Requires licensees to undergo ongoing professional development training
- Makes changes to the conduct required in the day to day running of a real estate agency business, including mandatory disclosure requirements (including possible conflict of interest), requirements to provide information to buyers and sellers in certain situations and new auction requirements

"Consumers will be better protected by an independent disciplinary process with effective redress for breaches of a new code of conduct and of the law. Honest real estate professionals will no longer be tarred by the same brush as the last land shark who rips someone off and brings the entire industry into disrepute," Mr Cosgrove said.

Mr Cosgrove said the new structure would be funded by the industry, not taxpayers, and it will not cost consumers anything to lodge a complaint. Any cases referred to the Disciplinary Tribunal will be represented by the CAC, so complainants will not be required to use the services of lawyers.

The public and the industry will have a further opportunity to comment on the reforms once the Bill is referred to a Select Committee.

Background Information

Why does the Real Estate Act 1976 need to be overhauled?

Concern has been raised by the public and by real estate agents themselves about how effectively the industry deals with complaints and disciplinary matters, and how the current process lacks independence, transparency and accountability. The Act's provisions relating to complaints and discipline are also not being fully utilised by the industry.

While the overwhelming majority of real estate professionals are good, decent people, there is an unethical minority who have caused great financial hardship and anguish for some consumers. The risks associated with real estate activity include mishandling of funds, poor contractual advice, misleading representations, conflicts of interest, abuse of rights to access to property, misuse of information and fraud. Given these risks, it is essential that the regulatory framework governing the conduct and work of estate agents provides for independent resolution of disputes, holds agents to account, and is transparent and fair to consumers and real estate professionals.

The legislation is also 31 years old. Since its introduction there have been substantial advances in regulatory frameworks for consumer protection. Currently the real estate industry lags behind other occupations in this area, such as lawyers and conveyancers, and motor vehicle traders.

What is wrong with disciplinary process currently run by REINZ?

Concerns with the REINZ's current disciplinary process include:
- REINZ acts as gate-keeper and decides if complaints are referred to the Licensing Board, which has the power to suspend or cancel registration, plus impose up to a $5,000 fine on agents. Relatively few complaints are referred to the Licensing Board.
- For example, between 2004 and 2006, REINZ received 507 complaints from members of the public but only 9 of these were referred to the Licensing Board. In addition to these are an unknown number of complaints that REINZ has received from the police, insurance companies and other agents, with no transparency as to the nature or outcome of those complaints.
- Most complaints are dealt with at REINZ sub-committee level, which means decisions about disciplinary action are made by fellow real estate agents, and a $750 is the maximum imposable fine
- Long delays in processing complaints, and complainants not kept informed of progress
- Concerns about the quality of investigations
- Limited information available about the complaints process
- The current regime provides no compensation for complainants when agents or salespeople are found to be at fault, except in cases of fraud
- The industry's current Code of Ethics inhibits agents from expressing their concerns publicly, as it states "Members shall never publicly criticise fellow members”

What are the key reforms contained in the Bill?

- That the Real Estate Agents Act 1976 be repealed and replaced by a new Real Estate Agents Act.

- New Regulatory Structure: The Bill will remove the regulatory functions from the Real Estate Institute of New Zealand (REINZ) and abolish the existing Real Estate Licensing Board, which will be replaced with a new Real Estate Agents Authority ("the Authority"). This means REINZ’s current complaints and disciplinary system, which includes District Investigation Subcommittees and Regional Disciplinary Subcommittees, will cease to exist.

- The Authority will oversee modern licensing, complaints, disciplinary and enforcement processes and provide information for consumers. The Authority will be required to report annually on its activities, which will ensure that its actions are transparent.

- The establishment of a two tier disciplinary process:
>> A Complaints Assessment Committee (CAC), made up of members of the Authority, to consider complaints and impose penalties and remedies in cases involving unsatisfactory conduct
>> The Real Estate Agents Disciplinary Tribunal, which will be administered by the Ministry of Justice, will deal with serious disciplinary cases and be able to order a wide range of penalties and remedies, including cancellation of licences and awarding compensation.

- The Minister of Justice will be responsible for:
>> appointing members of the Authority and Disciplinary Tribunal
>> approving educational qualification requirements, on advice of the Ministry of Justice
>> approving professional practice rules and any changes to those rules, on advice of the Authority

- As the disciplinary function of the REINZ would move to the new Authority, real estate agents would no longer be required to be members of REINZ. However they will be required to be licensed under the new Authority.

- Qualifications: Currently only real estate agents must hold a licence, and branch managers and salespeople must hold a certificate of approval. The new legislation will provide for three categories of licence:
>> Agent’s licence: to permit a person or company to run a real estate business
>> Branch manager’s licence: to permit a person to run a branch office for a licensed real estate agent business
>> Salesperson’s licence: to permit a person to work for an agent as a salesperson.

- Licencees will have to meet a fit and proper person test: an applicant with specified convictions (such as convictions for dishonesty offences within the last 10 years, or breaches of the Fair Trading Act 1986) or subject to certain statutory orders will not be able to be licensed. The Bill will include transitional provisions allowing existing licence and certificate of approval holders to be registered under the new Act, as long as none of the disqualifying criteria apply.

- Education requirements: Currently, to obtain a real estate agent’s licence in New Zealand a person must first pass exams under a syllabus prepared by REINZ and there is no requirement for ongoing training for estate agents or salespeople once a licence or certificate of approval has been granted.

- The qualifications required by real estate professionals will be set out in regulations under the new Act. Real estate professionals will also be required to undertake ongoing professional development training. The Minister of Justice will approve the minimum qualifications required, and the training unit standards will be developed by the Real Estate Industry Training Organisation.

- The new Act will not prevent people from being licensed as a real estate agent in Australia and subsequently applying to be an agent in New Zealand. The Trans-Tasman Mutual Recognition Act 1997 and related treaty obligations require New Zealand to recognise persons registered as agents in Australia. They will be barred from registration where they do not meet the fit and proper person test. In addition, they will need to comply with continuing professional development requirements in order to retain their licence as well as being subject to all other ongoing duties of agents in New Zealand.

- Conduct: The Bill will modernise the rules that real estate agents, salespersons and branch managers must comply with in order to provide a higher level of protection to consumers, including:
>> Improved disclosure rules around conflicts of interest
>> Introducing mandatory safeguards to reduce the risks associated with sellers entering into a sole agency agreement, such as a 24 hour cooling off period, which will allow the seller to cancel the agreement without being required to give a reason, and giving either party the right to cancel the sole agency agreement after 90 days
>> Requiring agents to provide buyers and sellers with mandatory standard information approved by the Authority before they sign a Sale and Purchase Agreement
>> Introducing new mandatory requirements for the conduct of real estate auctions, including controls on vendor bidding

What is the situation with salepeople who work as contractors?

Salespeople can currently be engaged as independent contractors or employees, but section 51A of the Act provides that where the contract states that salespeople are engaged as independent contractors, the tests in the Employment Relations Act 2000 for determining whether a person is an independent contractor or employee will not apply. The provision will be retained, but it will be reviewed within five years after the new Act comes into force to consider whether there is any justification for the real estate industry not being subject to the same employment tests as other industries.

Will it cost anything to lodge a complaint under the proposed new system?

No.

What sanctions can be imposed under the proposed new complaints system?

Limited sanctions are available at present, with maximum fine levels set at $750 (before Subcommittees) and $5,000 (before the Licensing Board). The CAC will publicise its decisions and have a wide range of sanctions available to it. These are:
- Ordering the terms of an agreed settlement.
- Censure or reprimand.
- Requiring an apology to be made to the claimant.
- Ordering the reduction of estate agent’s fees.
- Ordering remedial training or education to be undertaken.
- Imposing fines of up to $10,000 for individuals and $20,000 for a company.

The Disciplinary Tribunal can impose all the sanctions available to the CAC, and additionally it will be able to:
- Order the suspension and cancellation of an agent’s licence
- Order the employment or engagement of a person by a real estate agency business to be terminated and order that person not be employed in connection with real estate agency work.
- Impose a fine of up to $15,000 for individuals and $30,000 for a company.
- Award compensation
- Publicise its decisions.

Can an agent or salesperson also be charged with criminal offences?

Yes, the maximum penalty for criminal offences under the Bill, such as selling real estate while unlicensed, will be raised to $40,000 for individuals and $100,000 for a company. This compares to the current maximum penalty for a criminal offence under the current Act which is $2,000.

What sort of compensation will be made available?

The Disciplinary Tribunal will be able to award compensation where a complainant has suffered a financial loss. Compensation levels will be dependant on the amount of that loss. The maximum amount of compensation the Disciplinary Tribunal can award will be set by regulation.

How will the new complaints system work in practice?

A new system, independent of the industry, will replace the current inhouse structure.

The Complaints Assessment Committee (CAC) will receive and assess all complaints. Small and vexatious claims will be dealt with swiftly by the CAC, which will mean a quick resolution for complainants and honest real estate professionals, whose names will not be under a cloud. It will investigate complaints in a timely manner, and publicise its finding and the sanction(s) imposed. It will have the power to impose a range of sanctions on those it finds guilty of unsatisfactory conduct. It is anticipated that the majority of complaints will be dealt with by the CAC.

However the CAC will refer serious cases to the Real Estate Agents Disciplinary Tribunal, which will investigate all charges laid before it by the CAC. Complainants will not be required to hire lawyers because the CAC will take a prosecutorial role in representing their interests.

The Disciplinary Tribunal will have the power to impose wider sanctions, including the suspension or cancellation of a licence, and it will have the power to award compensation where a claimant has suffered a financial loss. It will make its finding and the reason for it public.

Why has the government decided not to extend the new regime to letting and property managers?

Property managers pose considerably less risk to consumers than other real estate services, as the sums of money are smaller and the transactions are frequent so any transgressions become apparent quickly. There has not been significant evidence of widespread problems with how unlicensed property managers handle funds, and issues are more likely to relate to the landlord / tenant relationship.

This also stops duplication. There is already legislation that reduces the risk to consumers - the Residential Tenancies Act 1986, which sets out minimum rights for tenants and landlords, and the Law Practitioners Act 1982, which limits the type of tenancy agreements that can be drawn up by persons other than lawyers.

What will happen to the Fidelity Guarantee Fund?

The REINZ advise that this fund has about $2 million in it. In the last 10 years very few claims have been made against the Fund. The REINZ advises that the last payout was in 2003. Although few claims have been made, the costs of running it are reasonably high. It is therefore appropriate to abolish the requirement to have this Fund, as too few people benefit from it to justify its running costs. The Fidelity Guarantee Fund will be wound up. The funds will revert to the REINZ after winding up.

ENDS

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