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In the Matter of Part 4 of the Real Estate Agents Act 2008 And In the Matter of Complaint No: CB6718538 In the Matter of Russell Benshaw Licence Number: 10017032 Decision of Complaints Assessment Committee Dated this 2nd day of October 2012 Complaints Assessment Committee: CAC20006 Chairperson: Paul Biddington Deputy Chairperson: Ann Skelton Panel Member: Peter McDermott Complaints Assessment Committee Decision finding unsatisfactory conduct 1. The Complaint 1.1. Ms C (the Complainant) has complained to the Real Estate Agents Authority (the Authority) about the conduct of Russell Benshaw (the Licensee). At the time of the conduct the Licensee held a certificate of approval as a salesperson and was working for Key2 Limited which ceased trading in January 2009. The Licensee now works for KEY2 Real Estate Limited which is licensed under the Real Estate Agents Act 2008 (the Act). 1.2. The complaint relates to the purchase, by the Complainant, of an investment property (the Property) on 21 December 2007 in which the Licensee introduced the Complainant to the Property. The Complainant alleges that: (1) (2) (3) (4) (5) (6) The floor area of the Property in the valuation report is 98sqm; The plans attached to the sale and purchase agreement show 81sqm; No DP number recorded on the sale and purchase agreement; No DP number recorded on the plans attached to the sale and purchase agreement; Code of Compliance records the total value of five units as $500,000; and Valuation report values the five units at $1.5 million. 1.3 The complaint was received by the Authority on 5 April 2012 and referred to a Complaints Assessment Committee (the Committee). The Committee initially considered the complaint on 7 May 2012 and made a decision pursuant to section 79(1) of the Act to inquire into the complaint. The Committee considered further evidence on 25 June 2012. 2. Material Facts 2.1 The Complainant was introduced to the Licensee in December 2007 by a property investment advisor. The Complainant was looking to purchase an investment property. The Licensee contacted a Trustee for the Trust (the Vendor), a person with whom he had previous dealings with, to ascertain if they had any suitable properties for sale. The Licensee was able to offer the Complainant the Property which was the last one available in a block of five units. The Complainant wanted to purchase the Property under $300,000, and the Vendor agreed to a purchase price of $290,000 with a reduced deposit of $15,000. The Property was purchased by the Complainant predevelopment. The developer submitted to the Committee that he was responsible for the development plans consisting of five units, with a site coverage of 406m2 and a floor area of 81m2 per unit. 2.1. On 5 August 2007 the Vendor commissioned a valuation company to provide a valuation on the plans for the development of five units. The valuation company’s representative’s instructions from the Vendor were to assess the current market value of the proposed individual units 1-4 for mortgage security purposes, even though five units were to be constructed. The plans supplied for valuation specified each unit would have a total floor area including the garage of 81m 2. The floor area of each unit was calculated by the valuation company’s representative at 74m2 and the garage and laundry at 24m2 giving a total of 98m2. It appears that this discrepancy was not picked up at CAC Decision – Unsatisfactory Conduct 8 March 2013 Page 2 of 7 this time. Each of the five individual units was valued at $300,000 inclusive of chattels. 2.2. On 21 December 2007 the Complainant entered into a transaction to purchase the Property for $290,000 with a deposit of $15,000. The transaction was conducted by the Licensee. At the time the Licensee introduced the Complainant to the Property and drew up the agreement there was no listing authority from the Vendor for the Licensee to act. The Complainant submits when signing the agreement, the Licensee supplied a copy of the Valuation. The development plans were attached to the agreement. The Complainant arranged finance and conducted due diligence. The Licensee sometime later heard from the Vendor that the transaction was unconditional. The Licensee did not receive the deposit of $15,000. This was held in the Vendor’s solicitor’s trust account. 2.3. The Complainant further submits that the sale and purchase agreement did not record a Deposited Plan (DP) number and there was no DP number recorded on the plans attached to the sale and purchase agreement. The transaction provided that the purchaser was purchasing Unit B of the Unit Title subdivision. Also the Valuation showed a total value of the five units as $1.5 million whereas the consent issued in March 2008 by the City Council was for a total value of $500,000. 2.4. On 27 January 2012 an Insurance Valuation was undertaken by (the Body Corporate). This valuation indicated a gross floor area of 395m2 and four residential units. The Body Corporate confirmed there were five units, a total coverage of 405m2 with each unit’s floor area of 81m2. The Complainant furthermore made a complaint to the New Zealand Institute of Valuers against the valuation company about the accuracy of their valuation. On 27 April 2012 the Institute advised that if the Complainant’s unit is only 81m2 in gross building area then it is a different unit to that valued by the valuer. 3. Relevant Provisions 3.1 Whilst the complaint relates to conduct alleged to have occurred prior to the commencement of the Real Estate Agents Act 2008 (the Act), section 172 allows for the Committee to consider such a complaint. Section 172 Allegations about conduct before commencement of this section. (1) A Complaints Assessment Committee may consider a complaint, and the Tribunal may hear a charge, against a licensee of a former licensee in respect of conduct alleged to have occurred before the commencement of this section but only if the Committee or Tribunal is satisfied that – (a) At the time of the occurrence of the conduct, the licensee or former licensee was licensed or approved under the Real Estate Agents Act 1976 and could have been complained about or charged under the Act in respect of that conduct; and (b) (2) 3.2 The licensee or former licensee has not been dealt with under the Real Estate Agents Act 1976 in respect of that conduct. If, after investigating a complaint or hearing of a charge of the kind referred to in subsection (1), the Committee or Tribunal finds the licensee or former licensee guilty of unsatisfactory conduct or of misconduct in respect of conduct that occurred before the commencement of this section, the Committee or the Tribunal may not make , in respect of that person and in respect of that conduct, any order in the nature of a penalty that could not have been made against that person at the time when the conduct occurred. The Committee confirmed that the Licensee was licensed under the Real Estate Agents Act 1976 and has not been dealt with under that Act in respect of the conduct subject to this complaint. CAC Decision – Unsatisfactory Conduct 8 March 2013 Page 3 of 7 3.3 The Committee examined the evidence supplied by the Complainant in her written complaint to determine whether section 72 or section 73 of the Real Estate Agents Act 2008 applied, i.e. was there evidence which would indicate that the Licensee could be considered guilty of unsatisfactory conduct section 72 or misconduct section 73. 72 Unsatisfactory conduct For the purposes of this Act, a licensee is guilty of unsatisfactory conduct if the licensee carries out real estate agency work that – (a) Falls short of the standard that a reasonable member of the public is entitled to expect from a reasonably competent licensee; or (b) (c) Contravenes a provision of this Act or of any regulations or rules made under this Act; or Is incompetent or negligent; or (d) Would reasonably be regarded by agents of good standing as being unacceptable. 73 Misconduct For the purposes of this Act, a licensee is guilty of misconduct if the licensee’s conduct – (a) (b) (c) (d) Would reasonably be regarded by agents of good standing, or reasonable members of the public, as disgraceful; or Constitutes seriously incompetent or seriously negligent real estate agency work; or Consists of a wilful or reckless contravention of – (i) This Act; or (ii) Other Acts that apply to the conduct of licensees; or (iii) Regulations or rules made under this Act; or Constitutes an offence for which the licensee has been convicted, being an offence that reflects adversely on the licensee’s fitness to be a licensee. 4. Discussion 4.1 The Committee is satisfied that the total area of the Complainant’s Property is 81m 2 as per the plans attached to the sale and purchase agreement. The valuation by the valuer contained several errors. The first paragraph in the valuation instructs the Valuer to assess the current market value of proposed individual units 1-4 for mortgage security purposes, not five. This was an oversight by the valuer and his calculations were based on four, instead of five units. His valuation did not include the total floor area of 395m2 for all the units. If the floor area is divided by 4, the individual units have a floor area of just over 98m2. The valuation did, however, give a summary for five units which he valued at $300,000 each, giving a combined market value of $1,500,000. The evidence from the Body Corporate confirmed the total floor area of 395m2, the number of units being five and the floor area of each individual unit of 81m2. On 27 January 2012 the Body Corporate commissioned a report to undertake an insurance valuation. In this report the floor area was correct at 395m 2, however the report said there were four units instead of five which was incorrect. Having considered the reports on the Property, the Committee is of the view that the inaccuracy of the reports is not an Authority issue and makes no finding in regard to them. 4.2 In terms of there being no DP number on the Sale and Purchase agreement and no DP number recorded on the attached plans provided, this is not uncommon in properties that are still to be developed. As the units were yet to be built, they could not be given a DP number until they deposited with Land Information New Zealand (LINZ). The only DP number available relates to the original section before the development commenced. As these matters do not come within the definition of “real estate agency work”, they are outside the ambit of the Act and therefore the Committee can make no finding on this aspect of the complaint. CAC Decision – Unsatisfactory Conduct 8 March 2013 Page 4 of 7 4.3 The Code Compliance Certificate issued by the City Council on 3 March 2008, stating that there were five units constructed with a value of $500,000, is based on the value of construction of all the units themselves and does not include the portion of the land allocated to each unit, or the chattels. The Valuation included a portion of the land and the chattels. As these matters do not come within the definition of “real estate agency work”, they are outside the ambit of the Act and accordingly the Committee can make no finding on this aspect of the complaint. 4.4 On 29 May 2012 the Licensee submitted that at the time the Complainant was introduced to the Property the Licensee did not have a signed agency authority from the Vendor, and the Property was never marketed by Key2 other than the one off introduction to the Complainant. Notwithstanding the Licensee never marketed the Property or held a deposit in his trust account, he acted as a Licensee. Real estate agency work or agency work means – (a) Any work done or services provided, in trade, on behalf of another person for the purpose of bringing about a transaction. (b) Includes any work done by a branch manager or salesperson under the direction of, or on behalf of an agent to enable the agent to do the work or provide the services described in paragraph (a). The Committee is satisfied the Licensee engaged in real estate work. 4.5 On the basis that the Committee cannot rely on a breach of an obligation under the current Act and Rules to find the Licensee guilty of unsatisfactory conduct, as they were not in force at the time the conduct occurred, the Committee will have to look to the rules of the Real Estate Institute of New Zealand (REINZ) and the 1976 Act. The rules of REINZ set minimum standards and were a reference point for discipline. Accordingly the Committee is of the view that the Licensee has breached an obligation under the rules of the 1976 Act and the relevant rule 14.1 of Rules of Practice. Rule 14.1 The terms of any agency agreement with a Principal shall be in writing. This rule required members to have the terms of any agency agreement committed to writing. It is a breach of this rule to act as an agent without a written agency agreement. The reason for this is twofold. Firstly, it is consistent with the provisions of the Real Estate Agents Act 1976 that require an agency agreement to be in writing to be enforceable. Secondly it reduces the risk of a dispute arising between the agent and principal and of any damage to the industry that may result from such a dispute. The essential elements of the rule are: (1) The member acted as an agent; and (2) The member had not obtained a written agency authority. 4.6 Having found the Licensee’s conduct was unsatisfactory, the Committee must determine what orders, if any should be made. 4.7 Section 172(2) prevents the Committee from making an order against the Licensee that could not have been made in respect of the conduct at the time the conduct occurred. The 1976 Act applied at the time the conduct occurred. 4.8 Accordingly the Committee must now consider what orders could have been made against the Licensee in respect of the conduct under the 1976 Act. 4.9 The available orders under the 1976 Act were a maximum fine of $750 and censure. However CAC Decision – Unsatisfactory Conduct 8 March 2013 Page 5 of 7 disciplinary proceedings were conducted before Regional Disciplinary Sub-Committees for a breach of the rules and were based on the concept of “effective control”. This meant, although a complaint about the breach of the rules could be made concerning an approved salesperson or branch manager under rule 16.2, the responsible party against whom the orders could be made was the Licensee who was in effective control of the salesperson or branch manager. 4.10 This was made clear by rule 16.22: “Where the Regional Disciplinary Sub-Committee (RDS) finds a breach of duties and obligations imposed by the Act or these rules: 16.22. 1 It may exercise one or more of the following disciplinary powers: 16.22.1.1 Order the member, or, where the member is a company, the principal officer of the company, to pay the institute such sum by way of a penalty [not exceeding the sum prescribed by s70 (1) (O) of the Act [$750] as the RDS thinks fit; 16.22.1.2 Censure the member, or, where the member is a company, the principal officer of the company.” 5. Decision 5.1 It is the view of the Committee that the Licensee’s conduct was a breach of Rule 14.1 of REINZ Rules of Practice and the 1976 Act which amounts to unsatisfactory conduct pursuant to section 72(b) of the 2008 Act. 5.2 Notwithstanding that the Licensee was an approved salesperson under the Real Estate Agents Act 1976, orders cannot be made against the Licensee in respect of the conduct at issue in this complaint. Therefore the finding of unsatisfactory conduct itself is the only order the Committee may make in these circumstances. 6. Publication 6.1 One of the Committee’s functions pursuant to section 78(h) of the Act is to publish its decisions. 6.2 Publication gives effect to the purpose of the Act by ensuring that the disciplinary process remains transparent, independent and effective. The Committee also regards publication of this decision as desirable for the purposes of setting standards and that it is in the public interest that the decision be published. 6.3 The Committee directs publication of its decision, but omitting the names and identifying details of the Complainant (including the address of the property), and any third parties in the publication of its decision. The name of the Licensee and the Company she works for should be published. 6.4 The Authority will publish the Committee’s decision after the period for filing an appeal has ended unless an application for an order preventing publication has been made to the Real Estate Agents Disciplinary Tribunal (Tribunal). Such an application can only be made as part of an appeal to that Tribunal. In order to ensure publication of the decision does not take place it is important that you serve a copy of your application on the Authority. Publication of the decision will not take place until the Tribunal has made a decision on the application. CAC Decision – Unsatisfactory Conduct 8 March 2013 Page 6 of 7 7. Right of Appeal 7.1. A person affected by a determination of a Complaints Assessment Committee may appeal by way of written notice to the Real Estate Agents Disciplinary Tribunal (the Tribunal) against a determination of the Committee and must do so within 20 working days from the date of the determination. 7.2. Appeal is by way of written notice to the Tribunal. You should include a copy of this Notice with your Appeal. 7.3. Further information on filing an appeal is available by referring to the Guide to Filing an Appeal at www.justice.govt.nz/tribunals. Signed Paul Biddington Chairperson Complaints Assessment Committee Real Estate Agents Authority Date: 2 October 2012 CAC Decision – Unsatisfactory Conduct 8 March 2013 Page 7 of 7