The Real Estate Agents Act 2008 comes into effect next month after 33 years of regulation of the real estate industry under the old 1976 Act.
The new Act, in place on 17 November 2009, coupled with the new Real Estate Agents Authority (REAA), aims to provide greater transparency and professionalism in the industry and more protection for consumers involved in residential and commercial real estate transactions.
Scope of the Act and licensing requirements
The scope of the new Act is wider than the 1976 legislation. Under the 1976 Act, a person was deemed to be a "real estate agent" if they acted, or held themselves out to the public as ready to act, for reward, as an agent in respect of the sale, purchase or other disposal or acquisition of land or of businesses, or in the leasing or letting of land, whether or not they carried on any other business. People carrying on the business of a real estate agent required a licence under the 1976 Act. Salespeople and branch managers required a certificate of approval. Under the new Act, anyone who is carrying out, or wants to carry out, "real estate agency work" must be individually licensed by the REAA as an agent, branch manager or salesperson, unless specifically exempted.
"Real estate agency work" is defined in the new Act as any work done or services provided, in trade, on behalf of another person for the purpose of bringing about a transaction. "Transaction" is defined widely as the sale, purchase, or other disposal or acquisition of (i) a freehold estate or interest in land, (ii) a leasehold interest in land; (iii) a licence that is registrable under Land Transfer Act 1952 (LTA); (iv) an occupation right agreement within the meaning of the Retirement Villages Act 2003; or (v) any business (either with or without any interest in land).
agents to carry out real estate agency work on his or her own account (whether in partnership or otherwise);
branch managers to carry out real estate agency work for or on behalf of an agent; and
salespersons to carry out real estate agency work for or on behalf of an agent, provided the salesperson is supervised by an agent or a branch manager when carrying out any real estate agency work.
The scope of the new Act will extend to people carrying out the sale and purchase of businesses on behalf of others (business brokers),although this will not apply to the sale and purchase of shares unless the shares entitle the holder to a licence that is registrable under the LTA.
Lawyers and conveyancing practitioners, licensed auctioneers and any persons exempted by regulation (currently none) are exempt from the requirement to be licensed under the Act. Residential leasing is excluded from the Act. Additionally, "real estate agency work" does not include the provision of general advice or materials to assist owners to locate and negotiate with potential buyers, the act of publishing or broadcasting real estate advertisements, lending of money (on mortgage or otherwise) or the provision of investment advice.
At the real estate agent's branch office, branch managers are now an option rather than a requirement, but any person assisting an agent with real estate agency work is likely to need a licence, at least as a salesperson, and the element of proper supervision and management required for all salespersons must be met either by an agent or a branch manager.
Some further key changes under the new Act and related regulations include:
New regulatory body. The independent REAA has been established to replace the role previously performed by the industry's Real Estate Agents Licensing Board. The REAA is responsible for licensing, complaints, disciplinary action for unsatisfactory conduct, industry standards (including the newly issued Professional Conduct and Client Care Rules 2009) and consumer information.
Improved disclosure obligations. Real estate agents have additional legal responsibilities, including obligations to provide certain information to consumers. This information includes approved guide publications, new requirements to disclose conflicts of interest and also disclosure by the agent of the source of, and estimate amount of, all rebates, discounts or commissions that the agent will receive.
New rules on agency agreements. A client of a real estate agent must be given a copy of the agency agreement within 48 hours after signing it. Sole agency agreements have a cooling off period until 5pm on the working day following signing, allowing time for the client to cancel the contract. However, if work undertaken on a transaction during the cooling off period enables the conclusion of a contact, that contract will be binding.
Public register. There will be a public register of every person licensed under the Act which will include a record of whether a licensee has been subject to disciplinary action in the last three years.
No compulsory REINZ membership. Membership of the Real Estate Institute of New Zealand is no longer compulsory for agents.
New complaints and disciplinary processes. New complaints and disciplinary processes have been introduced, including a new Real Estate Disciplinary Tribunal, administered by the Ministry of Justice, to deal with more serious complaints of unsatisfactory conduct or misconduct by any person (or officer of a company) licensed (or formerly licensed) under the Act. Under the new system, licensees can face a fine of up to $10,000 or, in the case of a company, $20,000 for complaints bought against them and for serious misconduct complaints heard by the Tribunal, individuals can be fined up to $15,000, or $30,000 in the case of companies. Agents can also be ordered to pay up to $100,000 in compensation to the complainant or have their licence cancelled or suspended. Under the old regime, most complaints were dealt with at REINZ sub-committee level, which meant that decisions about disciplinary action were made by fellow real estate agents, and $750 was the maximum imposable fine.
As with all things new, we will have to wait to see whether the new regime meets everyone's expectations. One thing is for certain: this industry is likely to get more transparent very shortly.
The Real Estate Agents Act (Professional Conduct and Client Care) Rules 2009 are now available on the Real Estate Agents Authority's website www.reaa.govt.nz
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.