The High Court, in a recent case (Quin v the Real Estate Agents Authority [2012] NZHC), has discussed what obligations an agent has to explain defects to a potential purchaser. It has also clarified whether a Complaints Assessment Committee (“CAC”) can order an agent to pay damages if there is a breach of those obligations.
Facts
In 2009, a couple visited a Tauranga property which was for sale by auction. The couple told the agent that they wanted a property where they could build a workshop from which they could operate a business, and which had heavy vehicle access. The property for sale had a suitable area for the construction of a workshop, as well as good access for heavy vehicles, as long as the existing entrance way could be used.
The agent was asked to point out the boundaries during the visit. The agent indicated that the eastern boundary of the property was marked by a wire fence. This meant that the entire driveway, including a gateway, was part of the property, and would provide the access required by the couple.
The couple purchased the property at auction.
After settlement, the couple discovered that the actual boundary to the property was 8 meters inside the wire fence. This meant that the workshop could not be constructed at the chosen location, because it was too close to the boundaries. A different location had to be used, and that required the construction of a new access way, which needed a resource consent.
The couple lodged a complaint, and the CAC decided that the agent was guilty of unsatisfactory conduct. The CAC said that the agent knew that the exact location of the eastern boundary was uncertain, and that the agent should not have indicated the boundaries of the property, but should have told the couple, in the “clearest terms”, that the owners had said that the gate was not where it was meant to be. The agent should also have advised the couple to make their own enquiries.
The CAC ordered the agent to pay a fine of $7,000.00 to the Real Estate Agents Authority, undergo additional training, and pay $25,000 plus GST to the couple, to compensate them for the additional work required to provide an alternative access way.
The agent appealed the CAC’s decision to the Tribunal on number of grounds, including that the CAC did not have power to order the agent to pay the compensation of $25,000.00 plus GST.
The Tribunal dismissed the appeal, and actually increased the amount payable by the agent as compensation to $40,000.00 including GST, as it had more information available to it about the actual cost required for the works. The Tribunal also said that the misconduct was on going until the auction, as the agent should have corrected her earlier misrepresentation prior to the actual auction.
The agent accepted the decision that her conduct amounted to unsatisfactory conduct, but challenged the CAC’s and Tribunal’s right to make an order for compensation.
High Court Decision
On the first issue, the High Court agreed that the agent’s unsatisfactory conduct was on-going because, knowing that there were potential problems with the access way and gate to the property, she failed to make adequate enquiries to find out what the actual situation was. The Court said that the agent had an obligation to make those enquiries, and then to inform the couple of the outcome. She should have passed on the results of her enquiries to the purchasers, and if the result of the enquiry was inconclusive, she should have advised the purchasers to get specialist help to establish the boundaries.
The second issue was whether the CAC had the power to order the agent to pay compensation.
The Court said that section 93 (1) (f) (i) of the Act allows a CAC to order a licensee “rectify” any error or omission. It said that “rectify” means to put right or to correct. I.e. the CAC can order a licensee to do something to put right or correct an error or omission made by the licensee.
Section 93(1) (f) (ii) of the Act allows the CAC to require an action to be taken or relief to be provided from the consequences of an error or omission where rectification is not appropriate.
The court gave examples of the powers that a CAC may order under this section. Those examples are;
a.A licensee may tell purchasers that the vendor would permit them to take early possession of a residential property. The purchasers may enter into an agreement to sell their own home with the settlement date earlier than that of the house they have purchased. The vendor then refuses to give early possession – the agent had just assumed that the vendor would agree. The Court said that in those circumstances, the CAC could order a licensee to try to reach an agreement with a vendor to allow early possession in return for a reasonable payment by the licensee. If that was not possible, the licensee could be ordered to arrange suitable accommodation and storage for the purchaser at the licensee’s expense.
b.The second example given was that if a licensee told the purchaser that a chattel was included in the price when it was not. The Court said the CAC could order the licensee to pay for the chattel if the vendor was willing to sell it to the purchaser, or if the vendor was not willing to sell, the licensee would have to by an equivalent chattel from elsewhere for the purchaser.
However, while the Court said that a CAC does have power to order the licensee to rectify an error or omission, or to take steps to provide relief from its consequences, but a CAC does not have power to order a licensee to pay compensatory damages, unless there was misconduct, or a more serious offence than unsatisfactory conduct.
In this case, the error or omissions was failing to tell the purchasers that there was a problem with the location of the boundaries. The consequence was that the couple bought a property which they would not have bought had they known the true location of the boundaries. It was then too late for the licensee to rectify (put right or correct) the error or omission. But there were steps she could have taken to provide relief from the consequences of her error. Those steps would have been to put the property back on the market and resell it. The agent would have had to pay for the cost of marketing the property and selling it to the new purchasers. There could also be other possible costs as a consequence of a resale.
However, if the property was sold for a price less than that paid for by the purchasers, the agent would not have to pay for that loss under section 93 (1) (f) of the 2008 Act. The purchaser may still have some rights under the general law to recover that loss, but not under that section of the Act.
In this case, the purchasers decided to keep the property. They paid the extra costs of developing it, which gave them the result they wanted when they bought it. However, the court said the extra costs were not payable by the agent under section 93 (1)(f). Again, the purchaser may have had other rights against the agent for compensation, but not under that section of the Act.
Lessons
1. Agents should not tell a potential purchaser anything unless they are sure that the information they are giving is 100% correct;
2. If a potential purchaser asks an agent something which the agent does not know the answer to, the agent should make appropriate enquiries on behalf of the purchaser, and pass the results of those enquiries on to the purchaser.
3. When passing on the results of any enquiries on to the purchaser, the agent should tell the purchaser that the agent is not confirming whether or not the information they are giving is correct or not, but just passing on information that they had received.
4. If there is any uncertainty about any information, the agent should tell the purchaser to make their own enquiries.
5. If an agent makes a misrepresentation, the agent will be required to correct the impression created by it – an agent cannot keep quiet if he or she discovers that he or she has given incorrect information.
6. A CAC or the Tribunal can order an agent who is guilty of unsatisfactory conduct to rectify the harm caused by that misconduct, or to take certain other action if rectification is not appropriate, but under the Act an agent cannot be ordered to pay compensatory damages.
