170404 - Fair Trading - real estate

One in five real estate agents not updating education.

A random audit of more than 300 people working in the real estate industry has shown more than 20 per cent of them are not compliant with legislation requiring real estate agents to undertake ongoing education.

NSW Fair Trading has found 68 individuals from a pool of 314 had failed to properly undertake mandatory Continuing Professional Development (CPD), which can attract a maximum penalty of $5,500 for individuals.

NSW Fair Trading Commissioner Rod Stowe said consumers expected the real estate industry’s licence and certificate holders to be properly qualified.

“Failing to properly undertake further professional development demonstrates these individuals’ lack of knowledge of their obligations under the industry’s regulations,” Mr Stowe said.

“Renewal of a licence or certificate of registration under the Property, Stock and Business Agents Act 2002 is conditional on licence and certificate holders undertaking CPD every year.

“A total of 60 Penalty Infringement Notices were issued during this compliance program, with a total value of $35,750.”

In addition to fines for individuals, a licensee in charge who fails to supervise an employee by ensuring their CPD is completed may contravene the legislation, resulting in further fines for the business.

NSW Fair Trading randomly selected and audited CPD evidence supplied on 112 recently renewed licence or certificate of registration applications. This audit found 23 individuals were non-compliant. A further 202 people audited at these individuals’ workplaces found another 45 instances non-compliance.

NSW Fair Trading will continue to assess compliance levels within the real estate industry to ensure licence and certificate holders are meeting their obligations under the Act and Regulations.

Thanks to Fair trading for the information and bringing this to light. link

 

Cooling off Period

Leverage Review

Release of the 0.25 percent

By Bailey Compton

Leverage had an interesting inquiry from a real estate agent who wanted a release of the 0.25 percent for the vendor to purchase another property.

The facts are simple:

  • The vendor sold the property to the purchaser and the contracts were exchanged with a five day cooling off period;
  • 0.25 percent was paid as consideration under the contract;
  • During the cooling off period, the vendor found a property to buy; and
  • The vendor wanted to use that 0.25 percent to purchase the new house.

Section 64 of the Property, Stock and Business Agents Act 2002 permits an agent to exchange a contract. Upon this exchange, section 66S of the Conveyancing Act 1919, provides a cooling off period after exchange. Section 66S of the Conveyancing Act 1919 states that, the purchaser can rescind the contract for any reason within five business days provided that they pay 0.25 percent to the vendor. There is no requirement under either statute to pay the 0.25 percent on exchange. In fact, to exchange the contracts, the agent could take a five-cent piece to facilitate the task.

As a means of protecting the vendor, it has become practice between real estate agents and solicitors to collect 0.25 percent upon exchange. This has been primarily to avoid dispute if the purchaser rescinds.

Although the 0.25 percent is the property of the vendor, it does not become the property of the vendor until the contract is rescinded. Hence, in the cooling off period, the 0.25 percent cannot be released to the vendor, even if it is to purchase another property.

Finally, a point of warning for agents; Transferring 0.25 percent from a vendor’s ledger to another vendor’s ledger may be seen as an act of defalcation from the Office of Fair Trading. This practice should be avoided at all costs.

Break Lease Fees

Leverage Review – Property Management

Break Lease Fees

A catch for young players

By Bailey Compton

We have all been taught that the fixed term is a fixed term. A landlord or tenant can terminate a fixed term lease without some level of economic punishment.

The Residential Tenancies Act 2010 (RTA) permits two alternatives if a tenant wishes to terminate a residential tenancies agreement prior to the end of the fixed term tenancy:

  1. The residential tenancies agreement may provide a “break lease fee”. This means that, a tenant knows of the penalties, under the residential tenancies agreement, for breaking the lease early.
  1. Compensation under the common law. The common law provides that a landlord is entitled to compensation where a lease is terminated early. In short, loss of rent, cost of finding a new tenant and loss of agent are fees that can be claimed. This however is balanced with the common law principle that all contractual breaches must be mitigated. This places pressure on the agent and the landlord to do everything in their powers to find a tenant as soon as possible. The rent can be discounted for failure to mitigate. This is complex and it can often be hard to determine whether an agent has done everything they possibly can to mitigate.

The 2010 amendments allow for these two alternatives. Due to the complexities and lack of clarity in relation to the common law remedy, they permit a break lease fee to be entered into the agreement. Agents and landlords need to pick one or the other. They cannot have both remedies available. The standard agreement allows for six weeks rent prior to 50% of the lease period passing and four weeks thereafter. This has clarified the situation, but has not simplified the approach.

Section 98 of the RTA provides:

(1) A tenant may give a termination notice on the ground that the landlord has breached the residential tenancy agreement.

(2) The termination notice must specify a termination date that is not earlier than 14 days after the day on which the notice is given.

(3) The termination notice may specify a termination date that is before the end of the fixed term of the residential tenancy agreement if it is a fixed term agreement.

(4) The Tribunal may, on application by a landlord made before the termination date and within the period prescribed by the regulations, revoke a termination notice by a tenant if satisfied that the landlord has remedied the breach and that it is appropriate, in the circumstances of the case, to continue the tenancy.

Note. The tenant may apply directly to the Tribunal on the ground of breach by the landlord for a termination order without first giving notice (see section 103).

In simple terms, this provision permits a tenant to terminate a residential tenancies agreement early if the “landlord has breached the tenancy agreement”. Provided the notice is no less than fourteen days, the tenant is released without penalty.

Under section 98(4) of the RTA, the landlord or agent must, within the prescribed period, lodge an application with NCAT to state that the tenancy agreement has not been breached by the landlord. The prescribed period, under section 22(3) of the Residential Tenancies Regulations 2010, is seven days. Hence, after receiving a notice to terminate lease due to the landlord’s breach, if the agency does not make an application to NCAT within seven days to confirm that the tenancy agreement is still valid, the landlord has no remedy.

Be careful; if you allow a tenant to break their lease without reason, you may cost your clients the break lease fee or the common law remedies.

Leverage suggests the following:

  1. When a tenant wants to leave early, something should be placed in writing by the tenant to say that they are breaking the lease with no excuse. You may even wish to use terms such as “the landlord has not breached the lease and therefore the break lease fees are required to be paid”. It may be in an acknowledgement, letter or some form of deed of release.
  1. Make an application to NCAT requesting that the tribunal make an order that the tenancy agreement is valid and therefore the lease has been broken and penalties are payable.

Where a tenant has sent you an email wanting to break the lease early and provides a raft of excuses why they are breaking, if any of these excuses amount to a possible breach of lease, you need to take one of the two actions above.

The break lease penalties are predicated on the belief that the landlord has not breached their lease first. If a tenant walks away, section 98 encumbers the landlord or agent to take steps to prove the lease is valid. Merely walking away by the tenant is not enough to protect the landlord.

We have had two people contact Leverage in the last week, one a landlord and the other a tenant. In both cases, the landlord has lost out because the agent has not taken steps to protect the tenant.

We often think we are travelling well because the tenant has not made an application against the landlord. If you do not get an acknowledgement that the landlord has not breached the lease prior to the tenant leaving, or you do not lodge an application, your landlord is robbed of a remedy.

 

The Missing Landlord

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What will you do?

What would you do if your landlord disappeared? What would you do when your landlord has disappeared, and his property is now sufficiently defective that essential services are not being delivered to the tenant?
What would you do if you held back the rent and you still had no response yourself from your landlord?

What you have, is a tenant who is paying rent on a property where the kitchen does not work and the instructions on your agency agreement is to spend no more than $300. Where do you get instructions?

There are four options as to your landlord’s whereabouts:
a) he is dead;
b) he is overseas and un-contactable;
c) he is suffering dementia;
d) he is in jail.

What do you do?

A tenant is entitled to essential services. In this case, they need to be able to cook their meals, the repairs are in excess of $1,000 and therefore retaining the rental does not resolve the position.

Our first suggestion is to try and find the landlord. You should file a missing persons’ report with the police and/or engage a process server who has data to pursue your landlord. If you cannot find your landlord, your hands are tied.

You need to advise your tenant to make a claim to NCAT seeking the right to repair the kitchen and keep their rent until the repairs are completed. You have an obligation to your landlord, but the Residential Tenancies Act 2010 gives you an obligation to ensure that the tenant’s obligations are fulfilled. By sending it to NCAT, you remove yourself from the responsibilities.

In short, protect the tenant but don’t absolve yourself from your fiduciary obligations.

Parliamentary Pantomime

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Someone is out of character

The day after parliament settles down each year, the parliament has a Christmas party. As part of this Christmas party, the parliamentary parties get together to stage a theatrical performance. It was thought many years ago that, considering the escapades in question time, politicians would make excellent actors.

It has been leaked to Leverage that, the pantomime this year is going to be the Wizard of Oz. I understand its casts have been selected carefully and based on its special skills that the politicians bring to the table.

  • Bill Shorten has been cast in the role of the Wizard. Bill Shorten in the last election was able to prove that if you tell a lie hard enough and lie enough, people will believe it. Just as Medicare was going to be privatised, the Wizard of Oz in the famous movie, had monetised fabrication.
  • We believe Julia Bishop has been cast as Dorothy. The sweet smiling foreign minister has been thought to be a perfect candidate to replacing Dorothy. Never doing anything wrong, always smiling and always backing the right bloke. She has that little bit of majesty that reminds you of Julie Garland. I wonder if she drinks as well!!!
  • The Tin Man will be played by Peter Dutton, the Minister responsible for the refugees. Many think he needs a heart and should allow all persons to migrate to Australia. Maybe Peter can provide all refugees with a present. Give them all permanent residency, place them in the major cities of Australia and give them housing commission properties and pay them Centrelink. This would provide all refugees with a return on their investments of the people smugglers.
  • The Scarecrow is obviously Christopher Pyne. A man is much in need of brains and intelligence. Each Friday morning when he appears on the Today Show he scares the hell out of me and makes me turn off the television immediately. I believe his understudy is going to be Anthony Ablanese.
  • The Lion is Malcolm Turnbull. The parliament believes that Malcolm is much in need of courage. It is hoped that when he meets the Wizard, which he does on a daily basis, he will acquire some courage. Many think Malcolm has lost his “mo-jo” because Lucy is now using his Viagra.
  • Pauline Hanson is staring as the Good Witch from the North. Many thought Pauline should have been made the wicked witch, but she felt that she now has a party and has graduated from the wicked witch of the West to the Good Witch of the North. Others may not like it, but people from the North love her. All in Queensland is strange!
  • The Wicked Witch of the West has got to be Tanya Plibersek. Great casting. She says she loves the West and I believe she is a little bit wicked.
  • I believe the Greens are performing the role of the Yellow Brick Road. If you follow them, we will find utopia.

We believe this is a private performance, which is a pity, that we will not be there for this command performance by parliament. Many think that this happens every day at 2pm in parliament when question time is on.

For those who have taken me seriously, wake up! This is a “G” up and meant for humour purposes only.

 

Stranger Danger

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The “Airbnb” phenomenon has entered the world of strata and community title. It is one of the most controversial issues in the strata industry. Places where people live are now being frequented by strangers.

The new Strata Schemes Management Act 2015 and the previous Strata Schemes Management Act has made no provision for short term tenants. If you are a tenant, a property manager should advise the strata manager of the availability of the tenants within the building. In short term tenants with the “Airbnb” service, people come and go without warning. Strangers enter the premises, entertain themselves and then leave. They have no concept of by-laws, no responsibility with the Owners Corporation and no long term desire to maintain the relationship with the neighbours. Rightfully, Executive Committees are becoming increasingly concerned with the rise and rise of “Airbnb”.

Warning; if the Owners Corporation has a development approval for residential dwellings, “Airbnb” is unlawful. Ever since Ronald Ashley Woodlands v Sutherland Shire Council, if a building is not zoned for short term accommodation (tourism) short term accommodation is unlawful. Short term accommodation is anything shorter than 90 days.

There are two completely opposite legal issues here;

  • Owners Corporations cannot make by-laws permitting “Airbnb” unless it is development approved for short term accommodation. This will require a consent authority under Section 96 of the Environmental Planning and Assessment Act, 1979 to be lodged with the local council for an alternate use of the building. Because the building is not approved for the use of short-term accommodation, any such by-law is unlawful.
  • Alternatively, Owners Corporations can move by-laws to outlaw “Airbnb”. In other words, by-laws can be made prohibiting short term or executive accommodation within the premises. This can be enforced under the new law by notice of ceasing to Act or by fines issued by NCAT. There is a remedy for those who don’t want “Airbnb” within their premises. Action can be taken who do want it, but it is an extreme and costly undertaking to alter a building from residential to tourism. Moreover, to change any building from residential to tourism requires it to be a tourist zoned area.

The “Airbnb” Invasion!

 

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Property Management is vital to the real estate industry. It represents an ongoing cash flow for real estate businesses, and is the primary asset of that business. The “Airbnb” invasion is poised to attack this traditional service.

Those landlords who want long term tenants will continue to use real estate agents for the purpose of managing their property. Those however, who want a greater return on their property, may find that the “Airbnb” type portal may be an unwanted competitor.

The area which is most vulnerable is those who have based their business in the short term accommodation market. In tourist areas, such as, the Blue Mountains, Kosciusko and Byron Bay at the other extreme, are the ones most likely to suffer for an “Airbnb” service. Let’s consider the normal residential property market; Leverage has a client who in Western Australia has sacked her property managers and replaced it with an “Airbnb” service. All she has to do is;

  • Allow the booking to be made online;
  • Arrange for cleaners between tenancies; and
  • Hand keys over before the person enters the property.

Yes, there are some alarm bells that ring in relation to protection of the property. In discussions with this client and a friend of hers who has a similar service running in New South Wales, may say the risk are worth it. In their opinion, they are trebling the return on their investment. Such return is in some cases to hard for people to reject.

This simple service also removes the problem of whinging tenants, bonds, termination and all the problems with NCAT. It’s a service that needs no skills and has very little compliance regime.

The short term accommodation market is the most vulnerable. All that is offered by the current agents is what has been set out above. Anyone can clean, and anyone can be available to hand over the keys. Neither of these services require a licence or a certificate of registration. Most of all, it can be done remotely and without access to locals.

The “Airbnb” type service does not need a licence. Specific exemptions operate under the New South Wales legislation for advertising portals. “Airbnb” is merely an advertising portal which has a booking system attached. It is this part of the service which may offer a glimmer of light for agents. There is no licence required, and therefore there is no protection for monies held in trust. “Airbnb” has proven to be a highly effective and efficient way of conducting business for property owners. Unfortunately, new upgraded versions will hit the market at some time who may not be as ethical as “Airbnb”. They can undertake they can provide this service and collect all rent and not distribute them to the landlords.

All state and territory legislation provide for property services compensation fund or something similar in each state. This means that, all monies go into a trust account of a Real Estate Agent are protected and underwritten by the government. “Airbnb” services have no such protection and if money does disappear, the landlords are not protected.

The three marketing advantages that Agents have against “Airbnb” services are:-

  • Skills;
  • Protection; and
  • Systems

“Airbnb” is a serious disrupter and a major competitor to agents. Most importantly, it is totally legal.

The Prohibition on Landlords

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Landlords should be prohibited from managing their own property. There are two reasons why landlords can’t manage properties in NSW:
1. The regulatory structures are too complex;
2. The legislation and the systems are tenant biased.

Residential tenancies Act 2010 sets out the rules that regulate the conduct between landlords and tenants. It is so complex that lawyers are having difficulty interpreting the legislation. Landlords who attempt to traverse this mind field either damage their own rights or provide tenants with a free gift.

The NSW Civil Administration Tribunal administers approximately 80,000 tenancy disputes per annum. The tribunal has available for every tenant a tenant advocate to assist in running and conducting cases against landlords. This is a free service, fully funded by the NSW government.

It is bad enough that a property manager who knows the rules but untrained in advocacy is facing trained and supported representation to the tenant, let alone a landlord who has no idea of their rights or obligations. Originally, tenancy claims could not exceed $3,000. Now they can claim $15,000 worth of damages. The example below cost the Landlord approximately $11,000. We reviewed the cases, one he should have won and the other he should have had at least half the damages ordered against him.

This landlord managed two properties. 12 months prior to the end of the lease he increased the rent with the agreement of the tenant. He failed to provide the 60 day notice in proper form. He lost the benefit of this increase at NCAT. Additionally, he allowed the mother to move out leaving the boys behind to live in the premises. Mum was on the lease and was held not to be liable for her boys’ destruction. As the head tenant, mum should have been held liable for damages or a lease should have been found against the sons and them made to pay. The Landlord did not possess sufficient skills or knowledge to protect himself.

His second attempt was in relation to a damages claim. Clearly the damage was done, but the tribunal found against him. The damages were in the vicinity of $7,000.

We have said it before, property managers are the most practiced solicitors in town. They attend the tribunal regularly, and have built up a range of skills that have taught them to survive in hostile territory. Although there are no clear statistics available, it appears that property managers in the right win more often than lose.

Agents should use these stories when speaking to landlords. Alternatively, landlords should think twice before managing their own property. If a landlord intends to manage their own property, they should undertake the real estate practice certificate course so that they are vested with the skills of the average property manager. For less than 5% of the rental income of your property you could avoid liability with an agent.

Can a landlord’s rent be garnisheed?

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The question was posed to me last week regarding whether a landlord’s rent could be garnisheed from an agent’s trust account. The agency had been issued with a garnishee order to pay to the debt collector all rent kept in the trust account. They were provided with two documents:

  1. Garnishee order;
  2. A judgment debt for the payment of the order.

The agent was left in a conundrum:

  1. Do they pay the money in accordance with the orders of the court?;
  2. Are they required to only pay money on the basis of the direction of their landlord?

Section 86 of the Property, Business and stock agents Act 2002 states that money can only be paid out of the trust account on direction of the principal, being, the landlord. Any payment otherwise is considered a defalcation and is punishable by an agent losing their license. The question was, which one prevails: the court order or the garnishee?

A court cannot make an order that is unlawful. Hence, the garnishee is unlawful if it requires an agent to do something that is unlawful. Alternatively, if the agent refused to pay in accordance with the garnishee order, they could be taken to court under s 123 of the Civil Procedure Act and may face costs.

What also became an issue at law was that, the common law surrounding garnishees says that a court can garnishee any money held by the subject (i.e. the landlord).

After balancing all these different issues, Leverage made a determination that the garnishee order should be complied with. First, if an agent is ordered to something which lawfully they must do, Fair Trading would have difficulties taking any action against the agent; and secondly, no agent should place themselves on the line to have a cost order made against them in protection of the landlord. On balance, the risk was lesser in complying with the orders of the court.

If you get a garnishee order, always receive legal advice. The two things which you should consider are that:

  • You will never be punished for doing something lawfully ordered by the court;
  • The commission which is payable to you at the end of the month is yours and not the landlords and may lawfully be deducted from the sum paid to the debt collector.

Please note that, garnishee orders can only be utilized once. Therefore, you only need to pay it out once within 14 days of receiving . This may be a regular occurrence in the industry in the future as people co-chase debts after people. As noted above, make certain you get legal advice to be placed on your file if Fair trading later investigates.

Paging Dr.Freud

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The definition of insanity is doing the same thing over and over again and expecting a different result. -Albert Einstein

If Einstein were alive today, he would be referring Real Estate Salespersons to Dr. Freud’s couch. We have seen two examples where agents repeatedly make the same mistake. Obviously, paying fines and losing commission is not sufficient incentive for agents to learn that government policy has changed.

Everyone knows that government policy is hell bent to stop over quoting to vendors, and under quoting to purchasers. The laws were changed in 2015 to require that estimated selling prices recorded on agency agreements and quotes given to purchasers must be upon reasonable grounds. Agents are still provocatively testing the boundaries and are demonstrating levels of insanity which cannot be reconciled with common logic.

Domain reports the case of Hocking Stuart (Richmond). This is a jurisdiction that doesn’t yet have the under quoting laws that currently exist in NSW. Hocking Stuart pleaded guilty to under quoting on 11 properties. Vendors were even advised that low marketing gave the ‘impression of a bargain’ and would enhance the vendor’s opportunity to sell.

Hocking Stuart was prosecuted in the Federal Court under the Australian consumer law. The Federal Court fined Hocking Stuart $330,000, which equated to $30,000 per property.

In New South Wales you can now be fined $22,000 for each property under the Property, Stock and Business Agents Act 2002, and may face an extra $30,000 per property set by the Federal Court as a precedent. In other words, $52,000 per misrepresentation.

I have seen three agents in the past 7 days stretch the estimated selling price legislation to allow for low-ball marketing. If you cannot substantiate your price, you will run foul of the under quoting legislation and face enormous fines. It baffles us why agents would even try it.

One of the major concerns before the court, raised by Hocking Stuart was the effect on its representation in the marketplace. They know the damage and hope the court would show leniency. Well, they got no leniency and the report has been splashed Australia wide. The cost is not just monetary but in reputation.

We have also seen recently from a large franchise, over three offices, agency agreements that aren’t completed in accordance with s 55 of the Property, Stock and Business Agents Act 2002. The latest one, showed the head agent as a unit trust, which obviously cannot hold a licence. Additionally, the co-agent’s licence lapsed in 2012. Section 8(2) states that no commission is payable where no licence exists. They are not the first to do it.

All we can say, is we’re glad that none of these clients have been trained by Leverage. The risks are so high that programs should be in place to protect an agent’s commission and reduced the opportunity of prosecution.

Leverage has for some time offered compliance health checks. As a special deal, Leverage will undertake a health check and provide you with feedback regarding your liabilities for an investment of $1,200 plus GST and four hours of your time.