Tribunal Ruling Sends A Clear Message To Real Estate Licensees On Importance Of Disclosure

The Real Estate Authority (REA) says the decision of the Real Estate Agents Disciplinary Tribunal (READT) to fine two licensees $10,000 for not disclosing a significant potential defect in a property is a timely reminder to the sector of their obligations to consumers.

On 22 January 2021, the Tribunal found two licensees guilty of misconduct for not disclosing to a buyer that a ‘party wall’ at a property was at risk of collapsing in an earthquake. In May, they were issued with a formal censure and ordered to pay a fine of $10,000 each.

REA Chief Executive Belinda Moffat says the case and subsequent penalties reinforce the obligation of licensees to disclose both known defects and significant risks of defects to potential buyers.

“The Code of Conduct is quite clear,” Belinda says. “A licensee must ensure that a buyer is informed of any significant potential risk of hidden or underlying defects in a property so that the customer has the option of seeking expert advice to assess the issue before they make an offer.

“A licensee must not continue to act for a client who directs important information to be withheld from a potential buyer. It is a critical part of the regulatory framework that promotes and protects the interests of buyers and gives all consumers trust and confidence in the real estate system.

“The Tribunal’s decision is a valuable reminder to the industry of the importance of its disclosure obligations, particularly where a potential safety risk has been identified,” Belinda says.

The Tribunal decision relates to the sale of a property in Wellington in June 2015. After settlement, the new owners discovered that a brick ‘party wall’ between the property and their neighbour may be an earthquake risk and require strengthening work. They raised concerns about the issue with the licensees who claimed they were unaware of any issues with the party wall when they sold the property.

A complaint was made to the REA which referred the matter to an independent Complaints Assessment Committee (Committee). The Committee directed an investigation and filed charges in the Tribunal alleging misconduct under the Real Estate Agents Act 2008.

The Tribunal found that the licensees were aware of the ‘party wall issue’ and that their failure to disclose the risk of this defect to the buyers was a serious breach of acceptable standards required under the real estate agents code of conduct and undermined the consumer-protection purposes of the Real Estate Agents Act 2008. It ordered fines of $10,000 each.

In separate proceedings concerning the same sale and purchase transaction, following a Tribunal finding of unsatisfactory conduct, the licensees were also ordered by the Tribunal to pay fines of $2,500 each as they failed to disclose Dux Quest piping to the purchasers. The total fines of $12,500 are significant given that maximum fine able to be imposed is $15,000. The purchasers were also successful in their application for costs to be paid by the licensees.

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