CPPDSM4080A Work in the Real Estate Industry

Transcription

1 CPPDSM4080A Work in the Real Estate Industry

2 CPPDSM4080A - Work in the Real Estate Industry Overview This unit of competency specifies the outcomes required to enable a new entrant to the industry to gain a basic understanding of the industry and work ethically and effectively in a real estate agency. This incudes awareness of ethical and conduct standards, core functions of real estate agency operations, legislative and regulatory framework within which the industry operates and industry employment requirements. The unit may form part of the licensing requirements for persons engaged in real estate activities in those States and Territories where these are regulated activities. This Unit of Competence (CPPDSM4080A) is one of the core (compulsory) units in the following qualifications: CPP30207 Certificate III in Property Services (Agency) CPP40307 Certificate IV in Property Services (Real Estate). Assessment Assessment for this unit includes tasks to be marked by your Assessor, which may include multiple choice questions, short answer questions, case studies, projects, role-plays and / or demonstrations. Assessment Activities for this unit are provided in a separate assessment document, which has been customised to meet the legislative requirements in your state or territory. You may apply for assessment through LA recognition process whereby you demonstrate your current competence through prior learning (RPL) by compiling a portfolio of evidence to demonstrate your skills and knowledge. Your RPL will be supported by interview questions and / or third party reports to confirm your skills and abilities. Competence in this unit will be demonstrated when you are able to show that you can meet the Elements and Performance criteria, shown on the following page. These have been extracted from the full Unit Descriptor which is available upon request. Tutorial Assistance Should you require assistance or tutorial support at any time during your study, a course facilitator is available to assist you. To request a support call, please send an to [email protected] with a brief outline of your query. Notes_CPPDSM4080A_Version NSW Page 3 of 114

3 Work in the Real Estate Industry Introduction and Overview Welcome to the Unit of Competence Work in the Real Estate Industry! The real estate industry is a varied and dynamic industry to work in. There are many career options available to those wishing to enter the industry, and many specialist areas, such as: Residential Sales and Leasing Commercial Sales and Leasing Stock and Station Agency Business Sales Office Building and Shopping Centre Management to name just a few. Work in the Real Estate Industry gives an overview of all sectors of the industry, and details the general foundation knowledge to allow a person to work effectively in real estate. This unit is part of a course of study for people who want to start working in the real estate industry or who may have started work and need to gain a formal qualification to continue to work in the industry. The various basic legal terms and requirements, ethical requirements, general procedural knowledge and documentation required to meet the requirements may seem daunting at first. The purpose of this unit is to enable the participant to describe basic real estate terms and concela, the structure of the industry, job functions within the industry and professional standards of conduct and industry ethics. The real estate industry is governed by extensive legislation as well as sets of rules and regulations. These are designed to ensure that agents and salespeople behave appropriately towards their clients and customers. Notes_CPPDSM4080A_Version NSW Page 4 of 114

4 In this unit you will explore: The depth and breadth of the real estate industry Property services and types of property Clients, customers and agency relationships The duties and ethical responsibilities of agents Legal aspects of the real estate industry, including: The Property Stock and Business Agents Act, 2002 Licensing and registration The role of the Office of Fair Trading Consumer protection legislation Statutory regulatory authorities Other significant legislation that governs the real estate industry Privacy and discrimination Trust accounts Land and property law Land titles Real vs personal property Encumbrances on land titles Contracts Risk management Professional associations: Representative bodies Working conditions and the award system Notes_CPPDSM4080A_Version NSW Page 5 of 114

5 What is the Real Estate Industry? The most visible sector in the real estate industry is the residential real estate sector, but there are many other people and professionals who work with property that are not so obvious to the general public. The commercial sector makes up a very large proportion of the industry. Just think of all the shops, offices and other public buildings in your local area all these are owned, managed, bought, sold, leased, demolished and rebuilt, refurbished and maintained by professionals and tradespeople who are specialists in their particular area of the real estate industry. What about all the residential and commercial developments that are under construction? These require architects, surveyors, planners, environmental specialists, engineers, developers and builders to be part of the process in turning land into property. Then there are the financiers, bankers, insurers, accountants and solicitors that represent those that wish to buy, sell, lease or manage all these properties, and the insurers that protect those that own the properties. Now think about all those who manufacture, supply and transport the raw materials that become property, and whose livelihoods depend upon the real estate industry. As you can see, the real estate industry encompasses a much wider range of functions, jobs, specialists and workers than are apparent at first glance. In all modern societies, the real estate industry is a major part of the economic framework, involving (either directly or indirectly) a huge workforce, representing a vast amount of the wealth, and producing an enormous proportion of the income (and taxation) of the country or state. In this course, we are primarily concerned with the sales, leasing and management of property and land. This module gives an overview of all sectors of the industry: selling, leasing and managing residential, industrial and rural properties as well as stock and station and business agency. There are many other industries and professions that have a close connection with the real estate industry. Most workers in real estate will engage with, and conduct business with other property professionals and specialist during their working life in order to meet the needs of their clients and customers. Notes_CPPDSM4080A_Version NSW Page 6 of 114

6 Some of those that you will come into contact with on a daily basis include: Solicitors Accountants Finance Brokers Banks and other Finance Companies Property Developers & Builders Asset and Wealth Creation advisors Architects Interior designers Landscapers and Garden designers Local Government Officers Planning officers Investment Advisors Insurance Brokers Marketers and Advertisers Electricians Plumbers and Drainers Roofing specialists Damp Eradication specialists Pest specialists Carpenters and Joiners Air-Conditioning specialists Garden maintenance Other Tradespeople There are many others that may not be on this list, but as you have seen, the real estate industry does not exist in isolation there are many people from all walks of life that you will come into regular contact with. You will get to meet a diverse range of people who will rely on your skill and expertise so it is essential that you have a good understanding of the industry and learn correct and ethical work practices. Real Estate is a dynamic industry and to enjoy what you do in your future career is going to be one of the keys to your success. Honest and ethical real estate people earn respect and can look forward to a long and successful career in the real estate industry, whereas the dishonest or unethical ones do not last long enough to enjoy a the rewards offered in the industry. Two of the key factors that are indicators of personal success in the real estate industry are professional image and your personal attitude: Professional Image Professional Image is not just how you look, it is also how you act, speak, behave and interact with those that you do business with. Image is probable mentioned in your office s policies and procedures manual, so that there is a consistency throughout the agency. It means consistently doing what is best for you, establishing the best personal care / exercise / beauty habits and so on, and taking care of yourself, because you know it matters, because you know you matter and you want the world to know it too! Notes_CPPDSM4080A_Version NSW Page 7 of 114

7 The face mirrors to the outside world the state of health and well being of the body and the mind. That is why we all desire to put forward an attractive face for everyone to see, with a flawless complexion to illustrate that our bodies are healthy and a beautiful expression to manifest the quality of our minds. Wellbeing and beauty are interrelated. Observe the professionals, by observing you learn a lot, the professional people are the ones who have already been through what we are going through. They have already made mistakes and learnt from them, do not be afraid to learn from their mistakes. The leadership of groups is as much an art as a science and the art is learned and improved only through experience. Attitude Attitude is the source of your whole personality, the way you see the world and the way the world sees you. When you have a healthy positive attitude you know how to apply constructive intelligence to your problems as well as your goals, your self-assurance allows you to enjoy being you, your fine-tuned self-awareness both perceives and expresses what you know to be right and good. A positive attitude means having an outgoing involvement in yourself and the people you care about, a day-by-day joy in making the most of whatever life brings you not complaining about what life fails to bring you. A positive attitude comes from your personal enthusiasm, your wholehearted zest for life and people you love. Having a positive attitude means finding joy and delight wherever they exist, and discovering them in unlikely places. It is approaching each day knowing that everything cannot always be perfect but believing that there is good to be found almost everywhere and knowing you have the ability to try to change what you feel is wrong. Optimism is the source of a positive attitude and optimism comes from your own intelligent perspective on your capacity to make things better. When you believe in your own self-worth you also believe in discovering what is worthwhile in everyone around you and you look for the best in others. When you demonstrate your self-worth and professional image to the people you deal with, they too will see those qualities and values in you, which leads to their confidence and belief in you, and the desire to do business with you. Notes_CPPDSM4080A_Version NSW Page 8 of 114

8 Services in the Real Estate Industry Within the real estate industry a wide range of services are offered by specialist agencies and individuals, including: Residential Sales Commercial Sales Industrial Sales Business Sales Residential Property Management Project Management The sale of land, property, homes, apartments, units and townhouses, where people live or erect a home The sale of land and property zoned for commercial or business purposes The sale of land zoned for industrial purposes and factories, warehouses etc. The sale of an actual business or income producing commercial enterprise, such as hotels, shops and other business entities The leasing and management of residential property The sale or leasing of multiple properties on behalf of a developer or builder Commercial, Industrial and Retail Management The leasing and management of property used for retail, business, commercial and industrial enterprises Strata Management & Community Management Stock and station Agency Buyers Agency On-site residential property management Holiday lettings Valuations The management of property developments on behalf of an owner's corporation or neighbourhood association with common property, and shared facilities and amenities such as buildings, lifts, swimming pools, etc The sale, leasing and management of rural land and property, the sale of livestock stock and agistment. Locating and securing property for buyers Leasing and management of property specifically within a development where your office and residence is located Leasing and management of property usually for short term periods to casual occupants. The sworn valuation of land and property. Only qualified and registered valuers may undertake this function. Notes_CPPDSM4080A_Version NSW Page 9 of 114

9 Types of Property Just as the range of services within the industry is wide, so too is the range and scope of property that is managed, bought, sold and negotiated by real estate agents: Residential Property Rural Property Houses Units/Apartments Duplexes Semis /Terraces Townhouses Villas Vacant land Retirement housing Livestock Farms Arable Farms Fruit Farms Broad hectare holdings Hobby Farms In NSW a rural property is defined as one that includes land of over 20 ha [50 acres] Commercial Property (The place of business of the white collar worker) Offices Hotels Motels Shops Industrial Property (The place of business of the bluecollar worker) Factories Warehouses Industrial complexes Heavy Industrial complexes Light Industrial units Careers in the Real Estate Industry Given the wide range of property, there are many career options available to those who wish to work in the real estate industry. The range of occupations or types of jobs, at all career levels is equally diverse. As previously mentioned residential real estate is probably more visible to the general public than some of the other disciplines, but there are a number of different roles that have arisen to cater for the wide divergence in the specialist fields of operation, and the scale of individual businesses. Within a real estate office, there will be a wide range of personnel undertaking different roles In smaller offices, some of these roles may be combined, and larger businesses may well have staff at all levels. In addition, there is the possibility of becoming a specialist in particular fields: Notes_CPPDSM4080A_Version NSW Page 10 of 114

10 Specialist Business Areas: Residential Business Sales Commercial Rural Industrial Livestock Departments: Property Management: Sales: Business Management: Admin & Support: Valuations: Project Management: Job Roles in the department: Property Assistant Property Manager Leasing Specialist Property Officer Sales Cadet Salesperson Sales Manager Buyer Agent Auctioneer Business Owner Sales Director General Manager Reception Personal Assistant Research Assistant Marketing and Promotion Bookkeeper / Accountant Office Administration Certified Valuer Assistant Valuer Project Manager Feasibility researcher Traineeships may be available in many of these specialist fields that can lead to nationally recognised qualifications. Additionally, many larger real estate offices are able to offer opportunities for advancement or promotion, or to gain experience in different departments. Smaller agencies tend to specialise in just one or two real estate disciplines. Notes_CPPDSM4080A_Version NSW Page 11 of 114

11 Clients, Customers and Agency Relationships A Client is someone who: Pays a service provider for goods or services. Enters into a written agreement with a service provider for goods or services Uses the services of an agent or agency. Often known legally as the Principal In the real estate industry, clients are consumers that have entered into a formal contract with an agency who provides services to them and on whose protection they rely. The formal contract is typically the Agency Agreement, and real estate agent, acting on behalf of the client (principal), has been given the right to negotiate and enter the client (principal) into a contract with a third party. Typically in the real estate industry, clients will comprise the following: Vendors Landlords Buyers (Under a buyer agency agreement) Relocation Agencies Government Agencies Clients place their trust in their agent to undertake the role they have been contracted to fulfil to the best of their ability. These responsibilities can be summarised as: Agents must act in the best interests of the client Agents must follow their clients instructions (except where these may be illegal) Agents assume a duty to act in good faith and with due care, skill and attention Agents must act fairly, ethically and appropriately on behalf of their client. The aim of the Sales relationship is to obtain the highest price in the shortest time to meet the specific requirements and instructions of the client. The aim of the Property Management relationship is to secure the best tenant, fair market rent, quickest time to meet the specific requirements and instructions of the client. Notes_CPPDSM4080A_Version NSW Page 12 of 114

12 On the other hand, a Customer is someone who: Makes use of or receives the products or services of an individual or organization or who Buys goods or services without a formal contract In real estate industry terms, customers are consumers that do not have a formal contract with the agent or agency. They are the third party that the agent has the right to negotiate with and enter the clients into contracts with. In the real estate industry our customers typically include Buyers and Tenants To summarise (in terms of a property management scenario): 1. The agent has a legally binding contract with the client (in this scenario, the landlord), known as a Managing Agency Agreement. 2. The agent negotiates with customers (prospective tenants) and finds a suitable tenant for the client. 3. The agent then signs the lease on behalf of the client (the Tenancy Agreement). 4. The Tenancy Agreement is a contract between the client and the tenant. 5. The agent manages the property and the tenancy in accordance with the terms of the Management Agency agreement. Notes_CPPDSM4080A_Version NSW Page 13 of 114

13 What is an Agent? An Agent (in commercial law) is a person who is authorised to act on behalf of another (called the Principal) to create a legal relationship with a third party. An agent can therefore be defined as: A business or person authorised to act for another A person through whom power is exerted or an end is achieved A consensual fiduciary relationship in which one party acts on behalf of and under the control of another in dealing with third parties; The principal must give, or be deemed to give, the agent authority to act, and, when they do so, they effectively transfer some rights to the agent to act on their behalf. Under an agency agreement there are rights and obligations on both parties: The agent's primary duty is to be loyal to the principal. This is known as their Fiduciary Duty. This involves several responsibilities: 1. Not to accept any new obligations that are inconsistent with the duties owed to the principal. Agents can represent the conflicting or potentially conflicting interests of more than one principal, but only on the basis of full disclosure. 2. Not to make a private profit or unjustly enrich himself from the agency relationship. In return, the principal must: 1. Make a full disclosure of all information relevant to the transactions so that the agent is able to negotiate effectively and 2. Pay the agent either the commission or fee as agreed, or a reasonable fee if none was agreed. If the agent reasonably incurs expenses, he or she is also entitled to reimbursement. In the context of the real estate industry, real estate agents are authorised to act on behalf of clients under an agency agreement. In effect, the principal (Owner) has abdicated some (or all) of their right to sell, lease or manage their property to the real estate agent. Agency agreements are discussed in detail in the sales and property management units of competence. Notes_CPPDSM4080A_Version NSW Page 14 of 114

14 Duties of an Agent The relationship between the agent and the principal (property owner) for whom they are acting is known as a fiduciary relationship. Fiduciary means trust. The principal has put the agent in a position of trust to negotiate a sale or lease on their behalf. Under both common law and statutory law, the fiduciary relationship confers specific obligations and responsibilities on the agent. Ethical Conduct The duties and obligations discussed in this section should be considered to be the ethical obligations of those working in the real estate industry. Many of the industry bodies and associations that support the various sectors of the industry publish codes of conduct and codes of ethics that their members have to subscribe to and abide by. In light of the frequent negative portrayals of the real estate industry generally in the media, the responsibility of agents and others engaged in the industry to apply ethical standards to all aspects of their dealing with both customers and clients is of paramount importance. Common Law Obligations Common law is unwritten law that has derived from the traditional laws of England. It relies on precedent, which means that common law has been established by decisions previously made by the courts, whether they are Australian, British courts or from other common-law-based countries such as the USA and Canada. Agents have two types of common law duties and obligations in their relationship with the principal: Fiduciary obligations of trust and confidence, and Contractual duties and obligations Fiduciary Obligations Members of many professions (eg doctors, architects, lawyers, and real estate agents) have received specialised training and possess credentials and expertise in their particular field. In many cases they (including those in the real estate industry) may have a licence to practice a profession from which others are barred. These professionals are often placed in positions of trust with respect to those who avail themselves of their services, and are often deemed to owe fiduciary duties to their clients within the scope of their engagement. Fiduciary obligations are those obligations that are based on trust. Notes_CPPDSM4080A_Version NSW Page 15 of 114

15 Most professions are subject to specific codes of conduct prescribed by authorities and may be subject to additional penalties. A fiduciary duty is the highest standard of care possible. A fiduciary is expected to be extremely loyal to the person to whom they owe the duty (the "principal"): they must not put their personal interests before the duty, and must not profit from their position as a fiduciary, unless the principal consents. The fiduciary relationship is highlighted by good faith, loyalty and trust, requires a strict standard of behaviour. The test, when determining whether someone has met their contractual, or fiduciary duty is: What would a reasonable person expect? Comply with the principal s instructions Perform in accordance with their contractual duties Act in good faith in the principal s best interest Exercise due care, skill and diligence in the performance of duties Preserve confidentiality Act with integrity in regard to the principal s money Never act deceptively Never mislead or misrepresent any party to a transaction Follow the principal s instructions and fulfil obligations under the contract Be responsible personally, even where you have delegated authority Meet legal requirements when acting for the principal. If you, as an agent, don t live up to these expectations and your client suffers loss as a result, he or she can claim compensation from you. Contractual Obligations The rights and obligations of both an agent and a property owner depend, to a large extent, on the terms and conditions of the contract between them. Under the requirements of the PSBA Act, there must be a written agency agreement between the two parties, and it must contain certain terms and conditions. Notes_CPPDSM4080A_Version NSW Page 16 of 114

16 Agency agreements are required for leased and managed properties, and properties for sale. They state clearly what services the agent will provide and what fees and charges the parties have negotiated and agreed. A failure of an agent to fulfil his duties, as expressed in the agency agreement is a breach of contractual duties. The test, when determining whether someone has met their contractual and fiduciary duty is: What was in the contract and what would a reasonable person expect? For example: Real Estate agents are frequently given the keys and alarm codes to client properties so that they can show prospective customers the property. Whilst such detail would not be specified in the contract it would be reasonably expected that the agent would: Take appropriate steps to look after the keys Ensure that the confidentiality of alarm codes is not compromised Ensure that the keys are not readily identifiable to the property Secure the property after each visit Protect the client s personal possessions in the property Return the keys when requested. A failure by the agent to fulfil these obligations would be considered a breach of the agents fiduciary duty, as well as their contractual duties. The Duty to Follow Instructions The precise instructions given to the agent must be followed unless they are illegal. The agency agreement used to engage an agent forms the basis of this instruction, as you will see later in this module You should always make sure you receive any instructions in writing signed by the principal. If your principal phones and asks you to do something which is outside the agency agreement, make sure you receive the instruction in writing as well. To ensure that you obtain your instructions in writing it may be necessary for you to write (or ) to your client with your understanding of the instruction and ask them to confirm their instructions. Notes_CPPDSM4080A_Version NSW Page 17 of 114

17 The Duty to Use Reasonable Skill and Diligence Registered & licensed agents are, in law, considered to be more knowledgeable than their clients and customers. You will be considered by them to be an expert, and legal history has shown that the courts will assume that you have expert skills and knowledge in your role. The term reasonable means that the actions you take would be considered normal to an average person. You are required by law, therefore, to demonstrate a level of competence which an average person would expect of someone who is considered to be a professional. You will be considered to have received the training and education necessary to be a professional. When clients and customers ask questions that you do not know the answer to it is foolhardy to give a quick, incorrect answer. You must answer correctly and with the facts. If you are unsure of an answer you should seek information and answer when the facts are known or refer the question to another authority. Agents must never assume or guess information, nor be misleading or deceiving, even through remaining silent about material facts. The Duty to Act in Person Salespeople have a legal responsibility to their client. In most cases, the agent that lists a property for sale or lease acts on behalf of their principal. What clients want is a personalised service. However, it is important to note that whilst the agent themselves sign the agency agreement with the client, the contract is in fact between the agency and the client, and the agency itself is responsible for the actions of the salesperson or property manager. Real estate agents, salespeople and property managers must understand that they are legally binding their agency (and therefore their licensee or office principal) to their statements and actions. In every agency, different people undertake different functions and jobs to achieve a successful outcome for the client, and whilst that is perfectly acceptable and normal practice, the actions of those to whom you delegate different responsibilities, also have a responsibility to the client and to the agency itself. Notes_CPPDSM4080A_Version NSW Page 18 of 114

18 The Duty to Act in the Principal s Best Interests This area has the potential to create a Conflict of Interest. It is important to note that you are acting for your principal (landlord or vendor). It is an easy trap to fall into thinking that you should act upon the interests of the buyer or tenant they often think that you should be acting on their behalf and lead you in that direction. Unless you have a specific agreement with a buyer (known as a buyer s agency agreement) and they are paying you a fee to locate property for them, you are contracted to the property owner. Your duty is to market the property in accordance with the instructions you have been given, and at the price requested by the seller. You should also note that if you are contracted by a buyer to find a property on their behalf, it is illegal to receive commission from both parties to the transaction. You cannot accept commission from both vendor and purchaser for the same property, and so must decide which client you will act for. For further information on Buyer Agencies see the appropriate section in these notes. The concept of buying listings, where the salesperson quotes an inflated price to a seller to persuade them to list the property with them is a problem throughout the industry, and leads to problems for the salesperson. Imagine a situation where you believe (and your research shows) that a property s value is about $ In order to win the listing against your competition you tell the vendor that you think you will achieve over $ for the property. After listing, your buyer feedback tells you figures in the low mid $600 s. You now have two problems: 1. To convince the vendor their price is too high. They will have relied upon your expert advice and therefore convincing them will be difficult to say the least. 2. You now have to convince buyers that the property is worth more than it really is in order to achieve a sale. This illustrates an agent not acting in the best interests of their client because the chance of selling the property is greatly reduced. Notes_CPPDSM4080A_Version NSW Page 19 of 114

19 The Duty to Act Confidentially Whilst acting on behalf of vendors and landlords, you will learn things about their personal and business affairs during the course of your business with them. This information must remain confidential to you at all times. For instance, you may know that the property transaction has been forced by a separation, divorce, financial difficulties, co-ownership disputes, and that these reasons may require an urgent sale. Whilst it may be beneficial to you to mention these as a selling point to buyers, you must never disclose this information, unless you have received instructions from (all) the principals in writing. Remember, you must act in the best interests of your principal. Duties in Respect of Clients Monies During most property transactions, you will be handling money on behalf of clients and / or customers. You must remember that all money you receive is their money and that you are holding it in trust for them. You may receive money from landlords and vendors for advertising and marketing, or deposits from buyer and tenants. The Property Stock & Business Agents Act in NSW states that all clients monies must be lodged in the agents trust account kept at an approved financial institution before the end of the next banking day or as soon as practical after that day. You must keep accurate and detailed accounts of all financial transactions and it is prudent to accurately record discussions that are in anyway connected with the financial aspects transaction. If your principal wishes to see these accounts at any time you must make them available. Remember your fiduciary duties. You are holding that money on trust for your vendor or purchaser. You must ensure this money goes to a properly constituted trust account. Notes_CPPDSM4080A_Version NSW Page 20 of 114

20 Legal Aspects of the Real Estate Industry Just like many other industries, the real estate industry is regulated by a series of statutes (laws) and administered by statutory bodies. These laws affect the way you carry out your business dealings. There are many traps for the unwary. Real estate industry workers as well as their business owners can find themselves in trouble with government agencies and authorities if the correct procedures are not followed. This section will look at: The laws which regulate the real estate industry Agents obligations when dealing with money Consumer Protection and Trade Practices Law Basic Property Law ConceLA Property, Stock and Business Agents Act 2002 Property, Stock and Business Agents Regulation 2003 This Act (and the regulation) are the primary legislation covering property, stock & station agency, strata management and business agency practice. This Act came into force on 1 September 2003, and has been updated since then. The PSBA Act and regulations cover all aspects of the real estate industry, including: The registration, licensing and on-going professional development of agents Employment of staff, and supervision by licensees in charge Rules of conduct Conflicts of interest Advertising and representations Agency agreements Conduct of real estate sales agents, auctioneers and auctions Selling price estimates and substantiations Leasing and management of real estate Trust account management Availability of sales contracts Record keeping and inspection of records Complaints and disciplinary action Notes_CPPDSM4080A_Version NSW Page 21 of 114

21 The Legislation is produced in two parts The Act itself and the supporting regulations. The purpose of having regulations is that they provide: 1. An interpretation of the act and how it should be applied in day to day real estate practice and 2. A framework for making changes to real estate business practices without having to re-draft and prepare a new Act of Parliament. You should ensure you are familiar with the provisions in both the Act and Regulations. The Act and Regulations, together with the Rules of Conduct can be accessed on the internet via You should now visit this site and download a copy of both the Act and the Regulations to your PC for reference. Further supporting information on the implication and operation of the PSBA is available on the NSW Fair Trading Website at: Regulation of the Real Estate Industry: The Role of the Office of Fair Trading The Office of Fair Trading (OFT) control over agents is absolute and is dictated by the Property, Stock and Business Agents (PSBA) Act The role of the Office of Fair Trading in administering this Act includes: Licensing and Registration Improving the delivery of real estate services Promoting community awareness of real estate services Investigating complaints made by the public and helping resolve disputes Continuing the development of the regulatory framework. Additionally, the OFT administers the Fair Trading Act that also affects the conduct of real estate agents and real estate practice in NSW. Notes_CPPDSM4080A_Version NSW Page 22 of 114

22 Licensing and Registration All agents who carry on activities covered by the PSBA Act must hold a Real Estate Licence or Registration certificate, which is granted by the Office of Fair Trading. In addition, each place of business must be operated by a separate licensee in charge, whether or not the business is owned by an individual (as a sole trader) or by a corporation (Pty Ltd Company). The Licensee in Charge Each place of business must be in the charge of a licensee, who is responsible for the proper supervision of the business carried on there and for the actions of all employees. An individual licensee is responsible for the supervision of their own place of business. A licensee who has more than one place of business must employ a licensee to be the person in charge at each other place of business. A corporation that holds a corporation licence must employ licensees to be in charge of each of the corporation s places of business. A licensee-in-charge of a place of business must hold a licence in the category relevant to the type of business carried on there. For example, a person in charge of a real estate agency business must hold a real estate agent s licence. The licensee-in-charge is responsible for the supervision of the business. Proper supervision entails: Supervision of employees engaged in the business, Establishment of procedures designed to ensure that the provisions of the Act and regulation and other relevant laws are complied with Monitoring the conduct of the business to ensure that those procedures are followed. Ensuring that those employed in the business are suitably qualified and are not disqualified from holding a licence or certificate of registration The Commissioner for Fair Trading has issued guidelines as to what constitutes proper supervision of the business of a licensee. Whilst a licensee who employs anyone at any place of business of the licensee is responsible for anything done or not done by the person, the Act also recognises that some functions of the licensee may be delegated to staff within an agency. Notes_CPPDSM4080A_Version NSW Page 23 of 114

23 The Supervision Guidelines (Summary) 1. A licensee must have written procedures regarding banking practices of the agency with respect to the receipt of trust money. The licensee must be able to provide details of the process to ensure employees comply with the procedures. 2. A licensee must have written procedures about the review of trust account cash flow on a monthly basis. The review must include a process which shows that the amounts banked to the trust account have been verified using the financial institution's records as source documents. 3. A licensee must have written procedures that set out the steps that all relevant staff must take to substantiate any selling price estimates which have been provided to a seller or prospective buyer. They should reference the Estimated Price Guidelines published by the Commissioner. 4. A licensee must maintain and be able to demonstrate that listing agents use a checklist in the property sales process to ensure that the following requirements are met: All advertising material accurately describes the property concerned and that the information provided complies with the requirements of the relevant agency agreement and with the Act and Regulations; Proper disclosures of conflicts of interest as required the Act are made to clients, and where appropriate, any prospective buyer of land; The listing agent engaged to sell the property is aware of the restrictions on obtaining a beneficial interest in property. The completed checklist must be certified in writing by the agent representing the principal and be retained in the Sales File as a record. 5. A licensee must maintain documented complaint handling procedures, including a process to ensure that all complaints about staff behaviour towards consumers, and the agency's response to those complaints, are recorded and retained. The procedure must require that complaints of a financial nature are directed to the licensee in charge or the Manager to be supervised directly by that person. A separate record of the handling of financial complaints must be kept. 6. Where any of the above requirements stipulate the preparation and use of a set of documented procedures a checklist, or a review system; the licensee must be able to produce this documentation to an authorised officer in accordance with the provisions of section 105 of the Act. The licensee must also be able to produce information demonstrating the regular use and maintenance of the required documentation within the agency. A failure to comply with the requirements of the guidelines is deemed to be a failure to properly supervise the business and carries a penalty not exceeding 200 penalty units ($22,000) in the case of a corporation or 100 penalty units ($11,000) in any other case. Notes_CPPDSM4080A_Version NSW Page 24 of 114

24 Corporation Licence Where the proprietor of the business is a company, this company must have a separate Corporation Licence. All applicants for a corporation licence must satisfy the Commissioner for Fair Trading that: The corporation is fit and proper to hold a licence Each director of the corporation is a fit and proper person to hold a licence No director or executive officer is a disqualified person At least one of the directors holds a personal licence for the industry sector in which the corporation proposes to operate The corporation has paid the relevant contribution to the property services compensation fund. One of the directors of the corporation, as well as the licensee-in-charge, must be licensed in all the licence classes in which the corporation wishes to do business. Anyone working in the industry as a real estate agent must hold a Real Estate Licence. In addition, those in the following positions must hold the appropriate additional Licence: Stock and Station Agent Business Agent Strata Managing Agent On-site Residential Property Manager Auctioneer All real estate and stock and station agent licence holders need specific accreditation to act as auctioneers. Those who were granted licences under the pre-2003 regulations are required now to obtain additional accreditation. Since 2003, the Real Estate Licence course has included the relevant auction unit of competence as a mandatory subject, but this still requires separate accreditation on the Real Estate Licence. In order to be eligible for a Licence, applicants must be: At least 18 years of age A fit and proper person to hold a licence, for example not have a criminal record (established by a police check) Hold the qualifications specified in the regulations Notes_CPPDSM4080A_Version NSW Page 25 of 114

25 Not be a disqualified person (people can be disqualified because of convictions for dishonesty and fraud, bankruptcy and a range of other reasons) Have paid the relevant contribution to the Property Services Compensation Fund. Certificate of Registration In order to work in the following positions in NSW, a NSW Certificate of Registration is required: Real Estate Salesperson Stock and Station Salesperson Business Salesperson Property Manager Registered Strata Manager or Registered Community Manager Registered On-site Residential Property Manager Anyone who wants a Certificate of Registration must be: At least 16 years of age A fit and proper person to hold a certificate of registration (established by a police check) Have the qualifications required for the class of certificate of registration concerned Not be a disqualified person. The appropriate qualifications for a licence or certificate of registration involve one or more of the following: Completing a course of study; or Completing of a period of training in a particular activity; or Achieving a standard of competency in a particular activity. The specific education requirements vary according to the category of certificate or licence, for example the requirements for a stock and station agents or buyer s agents are different to those for a real estate certificate of registration. Notes_CPPDSM4080A_Version NSW Page 26 of 114

26 Support staff in a Real Estate Agency Depending on the size of the agency there may be the following staff, who may or may not require Registration Certificates depending on the role they perform, and whether or not they have direct contact with clients and customers or undertake the functions of a real estate agent. Receptionist Bookkeeper Administration staff due to the nature of their role ie supporting salespeople and property managers, it is likely that they will come into contact with the agency s clients and customers. Therefore they should ideally be registered. Marketing staff Deal with and look after both the marketing and advertising of client properties, but also undertake public relations corporate advertising and community involvement initiatives. Business Development staff Larger agencies may have business development staff who could undertake 2 functions: 1. Developing business networks, or 2. Co-ordinating prospecting activities. If support staff undertake any sales or property management roles, or are in a position to provide real estate information to customers and clients they should hold a Certificate. For instance the receptionist may be asked questions about properties on the rental list or in the window. Let s assume that the customer asks how many bedrooms a property has. If the receptionist answers that question, a statement has been made that falls under the act, and a Certificate of Registration would be required. Notes_CPPDSM4080A_Version NSW Page 27 of 114

27 Types of Licences and Certificates The various roles and licence / certificate categories are defined in the PSBA Act as follows: A Real Estate Agent is a person who, for reward, carries on the function of an auctioneer of land or as an agent for; Real estate transactions Inducing or attempting to induce or negotiating with a view to inducing any person to enter into, or to make or accept an offer to enter into a real estate transaction or contract for a real estate transaction The introduction, or arranging for the introduction, of a prospective purchaser, lessee or licensee of land to another licensed agent or to the owner or agent of the owner of land Collecting rents payable in respect of any lease of land and otherwise providing property management services in respect of the leasing of any land. This does not include a person who carries on business as an auctioneer or agent in respect of any parcel of rural land. A Stock and Station Agent is a person who, for reward, carries on business as an auctioneer of rural land or livestock or as an agent for: Carrying out any of the functions of a real estate agent where the land consists of rural land Livestock transactions Inducing or attempting to induce or negotiating with a view to inducing any person to enter into, or to make or accept an offer to enter into a livestock transaction or contract for a livestock transaction Providing agistment for livestock or collecting fees for the agistment of livestock. A Business Agent is a person who, as an agent, carries out the following functions for reward: Selling, buying, exchanging or otherwise dealing with or disposing of a businesses or professional practices Dealing with shares or interest in the business, or the good will of any stocks connected with businesses or professional practices Negotiating for sale, purchase or exchange of any interest or share in the stocks, inventory, fixture and fittings connected with the business or professional practice. Notes_CPPDSM4080A_Version NSW Page 28 of 114

28 A Strata Managing Agent is a person who, for reward, exercises any functions of an owners corporation within the meaning of the Strata Schemes Management Act 1996 or any function that is prescribed by the regulations for the purpose of the definition. This excludes people who: Are owners of a lot in the strata scheme for which the owners corporation is constituted Are lessees of a lot in the leasehold strata scheme for which the owners corporation is constituted Are secretaries or treasurers of the executive committee of the owners corporation Maintain or repair any property which the owners corporation is responsible for maintaining or repairing. A Community Managing Agent is engaged or appointed for reward, to exercise the functions of an association constituted for a scheme under the Community Land Development Act 1989 or any other function that is prescribed by the regulations. This does not include: A proprietor of a lot within the scheme The secretary or treasurer of the association A person who maintains or repairs any property that the association is require to maintain and keep in repair. An On-site Residential Property Manager is a person who, for reward, carries on business as an agent for giving possession of residential premises under a lease, licence or contract and who collects bonds, deposits, rents fees or other charges in connection with any such lease, licence or other contract. It is a condition of an on-site residential property managers licence that the licensee must only act for the principal s place of residence and only if the licensee owns or has a prescribed interest in that principal place of residence. A Buyers Agent is a person who, for reward, acts on behalf of the buyer of property. A Buyers Agent is prohibited from acting on behalf of both the seller and the buyer of the property. Those who hold a Certificate of Registration are required to obtain additional qualifications in order to undertake the functions of a Buyers Agent. Real Estate Licence holders hold the appropriate qualifications within the qualifications required to obtain their licence and are able to act as Buyers Agents. Notes_CPPDSM4080A_Version NSW Page 29 of 114

29 The Role of the Office of Fair Trading (continued) Developing a Regulatory Framework The Department is also responsible for reviewing and, where necessary, updating the rules and regulations under the Act. This is to ensure that they remain consistent with modern business practice and the changing needs of consumers. One example is the deregulation of agents fees. At one time, the PSBA Act set the fees. Nowadays, all selling, leasing and management agreements are required to state that the agent s fee has been negotiated. Another example is the introduction of Continuing Professional Development. Improving Services The Office of Fair Trading is required to help improve real estate services, particularly the handling of money held in trust and the conduct of auctions in order to protect clients and customers. The OFT has the power to inspect a licensee s records and enforce the provisions of the Act. The Commissioner for Fair Trading has the right to disqualify agents who do not follow correct procedures. In such cases, suspension or cancellation of a licence or certificate may occur, and the OFT may seek to prosecute them. Continuing Professional Development Since 1 September 2003, the renewal of Licences or Certificates of Registration is conditional on holders undertaking CPD each year. CPD is mandated under the PSBA Act 2002, and administered by the Office of Fair Trading. The aims of the CPD scheme are to: Improve knowledge and skills of agents, salespeople and property managers Increase levels of consumer protection Promote professionalism across the property agency industry Encourage high standards. CPD provides industry participants with the means for responding effectively to change, adopting new work practices and enriching their knowledge and skills. CPD applies to all categories of licences and certificates of registration. Notes_CPPDSM4080A_Version NSW Page 30 of 114

30 The Office of Fair Trading has determined specific learning activities to be completed by all licence and certificate of registration holders as part of the CPD program. All participants have to complete 12 points of CPD training each year. Promoting Community Awareness The OFT also promotes community awareness about real estate services, especially in relation to consumer protection. It does this mainly through its web site and statutory publications such as the Bidder s Guide (for auctions), the Renting Guide and the Agency Agreements fact sheet. The OFT website is Investigating Complaints and Resolving Disputes Part of the OFT s role is to deal with consumer complaints about agents. The OFT can and does investigate complaints from the public and other agents. Where appropriate, action is taken to resolve the issues. The department also maintains a compensation fund, funded by licensees, to protect the public from unscrupulous agents who might misappropriate funds from trust accounts. Public Register of Licences and Certificates A register of licences and certificates is held by the OFT and available for public inspection via the website. It contains: Any prosecution under the Act and the results of the prosecution Any warning notices issued Any disciplinary action taken or undertakings given. Notes_CPPDSM4080A_Version NSW Page 31 of 114

31 Legislation in Real Estate Besides the Property Stock and Business Agents Act, there are numerous other Acts that affect the daily lives of real estate agents, depending on the discipline and any specialist functions that are undertaken. Many of these acts are also supported by regulations. Residential Tenancies Act & Regulations Agricultural Tenancies Act 1990 Anti Discrimination Act 1977 Business Names Act 2002 Consumer Trader and Tenancy Tribunal Act 2001 Community Land Management Act 1989 Contracts Review Act 1980 Conveyancing Act 1919 and Conveyancers Licensing Act 1995 Crimes Act Dividing Fences Act 1991 Environmental Planning and Assessment Act 1979 Fair Trading Act 1987 (NSW) Land Tax Act 1956 and the Land Tax Management Act 1956 Local Government Act 1993 Landlord and Tenant Act 1899 Landlord and Tenant Act (Rental Bonds) Act 1977 Law of Property Act 1898 Occupational Health and Safety Act 2000 Privacy and Personal Information Protection Act 1998 Property Stock and Business Agents Amendment (Tenant Databases) Regulation 2004 Real Property Act 1900 Retail Leases Act 1994 Retirement Villages Act 1999 Strata Schemes (Freehold Development) Act 1973 Strata Schemes (Leasehold Development) Act 1986 Strata Schemes Management Act 1996 Trade Practices Act 1974 (Commonwealth) Trustee Act 1898 and 1925 Valuers Act 2003 & the Valuation of Land Act 1916 This list is not exhaustive, but it gives an indication of the range and scope of the legal obligations and requirements that apply to agents. 1 Now superseded by RTA & RTR 2010 from 31/01/2011 Notes_CPPDSM4080A_Version NSW Page 32 of 114

32 NSW in particular, has extensive legislation that applies to the conduct of real estate agents and their responsibilities and duty of care to their clients and customers. Of particular importance to the Real Estate industry generally, is Consumer Protection Legislation. However, before we can explore Consumer Protection it is important to define exactly what it is that Real Estate Agents sell, manage, advise, and operate for their clients and what it is that they advise their customers about the concept of Land. Real Estate agents do not, in a legal sense, transact and manage houses and buildings. Legally, they are transacting Land, and the buildings on that land are improvements to the land. Notes_CPPDSM4080A_Version NSW Page 33 of 114

33 What is Land? Land is quite unlike any other commodity or product. It is a limited resource that cannot be lost, stolen or destroyed. If you buy clothes, a vehicle, boat, or furniture, it is completely different from buying land - you pay your money and have your new wardrobe, your car or your new lounge, and you can do with it what you want. It can be lost, stolen or destroyed. Land is defined as the part of the Earth that is not covered by water. It is said to be Real, by definition, as it has a verifiable existence. In terms of Real Estate (which will be defined later) and modern Australian property law, the definition of Land includes: The surface of the land, together with what is: Permanently on the Land such as buildings and other structures Other items permanently attached to the structures on the Land Underneath the Land the soil, minerals and resources, Above the Land the airspace above it, Growing on the Land such as crops & produce Part of the Land other items considered to be part of the land such as trees, shrubs etc. Note: Modern land law places restrictions on ownership of resources in or under land and with regard to the airspace above the land. Land Ownership Tenure Tenure refers to the manner in which property in land is held or owned. The Australian form of tenure has its roots in Medieval England. In 1066 the King (The Crown) became the ultimate owner of all the lands of England. The King then granted his Lords tenure, or the right to use some land. In turn, the Lords granted others certain rights over the land, and became known as Landlords. The rights they granted were known as Estates in Land This concept exists still today Land is effectively owned by the crown (now the Commonwealth and States of Australia), who grant individuals the right to use the land. Notes_CPPDSM4080A_Version NSW Page 34 of 114

34 So, what is Real Estate? Real existing or verifiable Land Estate There are two key forms of Estate today: the right to use it. Freehold (an interest in land unlimited in time) and Leasehold (an interest in land limited in time). A Real Estate Agent can be described as a person who deals in rights or interests in land. Freehold Estates Freehold is the most common form of landholding in Australia today. It is practically the same as full ownership of land, but as mentioned, the crown is effectively the ultimate owner of all land, and is able to define what the freeholder can or cannot do with, or on the land. The power to determine what can be done with the land has been given to local authorities and councils by the commonwealth and state governments. Councils and land authorities have created rules that impose building regulations, zonings, planning systems, development restrictions and heritage orders upon the land which the freeholders are obliged to follow and comply with. Within those rules and regulations freeholders are able to do what they like with the land, and use the land as they wish. Freeholders are able to sell or give away their land if they so choose, and upon their death, pass the land on to anyone they wish to. However, if they do not leave a will, and there are no heirs to claim the land, it will revert to crown land. Crown Land Crown Land is land where the State is the owner of the freehold. About half of all land in NSW is still Crown Land today. Some of this land is allocated to public uses such as national parks, state forests, schools, hospitals, sporting, camping and recreational areas, as well as lands which are managed and protected for their environmental importance. This leaves other significant portions of Crown Land that can be used in a number of ways, including leasing for commercial or agricultural purposes, through to land development and sale. Notes_CPPDSM4080A_Version NSW Page 35 of 114

35 Leasehold Estates A lease is a grant of an interest in land where a freeholder permits a tenant to have possession (or use) of the land for a specified period on payment of rent or some other consideration. Under a lease agreement, a tenant has the right to the use and to have peaceful enjoyment of the property for the time of the lease. A leasehold estate is not strictly speaking real property, but personal property (which will be covered later). However, leasehold is an important area of land law. Compared to freehold its duration is known, that is, a lease for 3 years will end in exactly 3 years time. Most leasehold estates are for a set term (a fixed term), which is automatically renewed (as a periodic estate) if neither party takes steps to terminate it. Think about homes you might have leased as a tenant: as a tenant you have a fixed term lease (typically for 6 or 12 months), which then continues on the same terms as a periodic lease if you stay in the property with the agreement of the landlord. Leases for a period of 3 years or more are known as Registered Leases and have to be registered on the Title Certificate at the Land Titles Office. Stamp Duty is payable. Normally such leases would be prepared by solicitors. If a lease is for a period of three years of less, the lease does not have to be registered, and it is handled in much the same way (broadly speaking) as a standard residential lease, although there are some significant differences. The four main types of lease are: 1. Crown Lease A Crown Lease is a lease over Crown Land, which allows exclusive use of a particular piece of land for a specified term and purpose. Examples are agricultural leases, mining leases, marinas and caravan parks. 2. Residential Lease The New South Wales legislation, the Residential Tenancies Act provides strict procedures for residential property rentals 1 above Now superseded by RTA & RTR 2010 from 31/01/2011 Notes_CPPDSM4080A_Version NSW Page 36 of 114

36 The residential tenancy agreement differs from other forms of lease, especially in respect to: The amount of notice to be given for termination Tenant responsibilities (eg for rent, water usage and other outgoings) Landlord s access to the premises Landlord and tenant responsibilities for the condition of the premises The mechanism for dispute resolution Residential Leases will be discussed in much greater detail in the Units of Competence relating to Property Management. 3. Commercial Lease Long-term commercial leases are taken on shops, offices, warehouses and industrial properties. The terms and conditions that can be included in commercial leases are many there are few standard contracts, just as there are few standard buildings. Commercial leases normally allow tenants to add fittings and fixtures to the property, under the condition that these are removed at the end of the tenancy, and the property is returned in the same condition as it was let. Other alternatives may be that the rent may include or exclude items such as repairs and maintenance, liability for rates, etc. 4. Retail Lease The Retail Leases Act 1994 applies to virtually all retail shops of 1000 square metres or less in area. The terms of retail leases may be from six months to 25 years. This is a specialised area of property management and is not normally handled by agents other than commercial specialists due to the detailed knowledge of the specific legislation that is required. Licences over Land Freeholders (and leaseholders if the lease permits it) can grant others a licence over land. It is a right granted by the owner of the land to another person (the licensee) to occupy and use the land for a specific purpose. It does not grant exclusive possession of the land, as is the case with a lease. Notes_CPPDSM4080A_Version NSW Page 37 of 114

37 Land Titles Verifying Ownership of Land The NSW Department of Lands maintains the land title registry, which holds records of most of the titles in NSW. Nearly all freehold land in NSW is held as Torrens Title, although a small proportion is still owned under the Old System title. These are being converted to Torrens title as they are transferred to new owners. Torrens Title Torrens title is a system of land title where a register of land holdings maintained by the state guarantees title to those included in the register. The system was formulated to combat the problems of uncertainty, complexity and cost associated with old-system title, which depended on proof of an unbroken chain of title back to a good root of title. Under this system all deeds (such as a transfers, a mortgages or other charge on the land) are registered at the Land Titles Office, which administers and records all property related documents. In order for any document or deed to be registered, a stamp duty is payable. The Land Titles Office will refuse to register that document until the duty is paid. Once a name is registered or recorded on the title register under Torrens title that person becomes the owner of the property to the exclusion of all others, by the very fact of registration. Torrens Title therefore provides for title by registration The Registered Title is then considered to be effectively insured by the State, against another person claiming that they have an interest (or estate) in that land. Old System Title Old System Title is land that has never been formally registered at the Land Registry under Torrens Title. Today in NSW there is still land that is registered as Old System Title. When such land is sold or transferred, buyers need to undertake extensive checks to ensure that the seller actually owns and has the right to sell that land. Once that has been proven, the title it can be converted to Torrens Title subject to qualifying conditions. Company Title Company Title ownership developed as a way of allowing apartments in flat buildings to be separately owned. It is more commonly found in older established unit buildings, but this method of title is still used to create ownership in new developments or where an existing block of flats is held under a single title. Notes_CPPDSM4080A_Version NSW Page 38 of 114

38 The Company Title owner does not actually own real estate as such. The Company Title owner owns shares in the company that owns the building. With that shareholding comes the right to occupy a defined area in the company s building (e.g., Unit no. 4). Strata Title "Strata Title" enables a plot of Torrens Title land, and the buildings on that land, to be divided into individual units, where each individual owner holds Strata Title over the space that they occupy. Areas that all unit holders use, such as pathways, staircases, and open space are known as "common property". Strata Title is the most common form of title for owners of units within an apartment building, but it can also be used for town house developments. Within a single Torrens Title block, there are a number of strata title units and common property. Individual units may also have additional land or buildings called "unit subsidiaries", such as car spaces. Each Strata Unit is defined by both horizontal and vertical boundaries, whereas normal freehold is only defined by vertical boundaries. Common property is all the land that is not contained within each strata unit, but still forms part of the Strata Title. In an apartment building this would be the foundations, the external walls, roof, the internal walls between each Strata Title Unit (not the internal walls within a Strata Unit), staircases, lifts and gardens etc. All strata title owners must contribute to the upkeep and maintenance of the common property, through the payment of Strata Levies. The strata plan is a plan of each floor of the property, as well as a plan of the surfaces and cross sections of the property. The plan defines and shows the absolute position of each unit on each floor of the building by reference to horizontal and vertical points of reference. Community Title Community Title is more effective than Strata Title for subdivided developments, such as medium-density residential developments. Community Title Schemes are managed under the Community Land Development Act 1989 Community Title is a method of parcelling land to allow owners to maintain separate ownership of their Torrens Title land, whilst having a shared interest in, and responsibility for, common land and facilities that are housed on separate, but adjacent, Torrens titles. This allows a number of Community Title holders to share common facilities. Some of Sydney s recent developments such as Newington (formerly the Sydney Olympic village), Breakfast Point and Abbotsford Cove, are under the community schemes laws. Notes_CPPDSM4080A_Version NSW Page 39 of 114

39 Native Title When penal colonies were first set up in Australia, British statute and common law applied and the British Crown owned all Australian lands. The British believed that that Australia was an empty country when they arrived, and claimed possession of the land based their concept on terra nullius (empty land). In 1992 the High Court recognised that, under the provisions of common law, native title had a place in modern Australia. Notes_CPPDSM4080A_Version NSW Page 40 of 114

40 Real Property vs Personal Property Real Property and Fixtures Real property is land. Real property is defined as Land plus anything permanently fixed to it, including buildings, sheds, and other items attached to the structure. This definition includes that those items that are part of the land and buildings on it. Generally speaking a fixture is defined as an item which cannot be removed from a property without causing damage either to the item or to the property. For example, a kitchen sink is regarded as fixture because once it has been installed it becomes part of the property. Personal Property The distinguishing factor between personal property and real property is that personal property is movable, unlike real property.. Personal property, also known as movables, chattels or fittings, is pretty much anything that can be legally owned other than real property. Personal property exists physically, for example CD s, vehicles, furniture, boats, etc, or has no physical existence but nevertheless can be legally owned, for example copyright or shares. Leases Leases over land are considered by law to be personal property. A leaseholder does not own the Real Estate (land) as such but merely a right to use the land. It is therefore the leaseholder s personal property only for the period of the lease and is always the freeholder s real property. Fixtures, Fittings and Chattels When homes are sold, disputes can arise as to what is actually part of a property and what is not. In some cases can even be the cause of sales falling through. A fitting is any item which can be removed from a property without causing damage either to it or to the property, such as furniture and personal possessions. Items which often cause confusion as to whether they are a fixture or a fitting include dishwashers, pool equipment, light fittings and air conditioning units, so agents should be quite specific in noting exactly what is and what is not being included in a property transaction. Leverage Academy Pty Ltd. Notes_CPPDSM4080A_Version NSW Page 41 of 114

41 Sellers are not entitled to remove fixtures which have not been specifically excluded from the sale. Doing so is a breach of contract and the purchaser may be able to claim damages. Tenant s Fixtures Tenant's fixtures are those fixtures that tenants have attached to the land under their lease (eg for business, ornament or domestic convenience). Where tenants attach fixtures to the land or property they have the right to remove them at the end of the tenancy, as long as they do not cause damage to the land or property (or restore it to its original condition). This general principle however is always subject to the terms of the lease - Residential leases generally prohibit the attachment of fixtures; commercial, industrial and agricultural leases require the tenant to restore the land. Forms of Joint Ownership Land may be owned by individuals or corporations, single, jointly, or both as a group of multiple co-owners. There are two kinds of co-ownership, ie, where 2 or more people own property jointly, and each has different legal consequences. Joint Tenancy A joint tenancy is the most common form of co-ownership and is typically used between husband and wife for the ownership of the family home, where both parties own the whole property jointly and identically. They are said to own the property jointly and severally. There could be 3 or more co-owners. A joint tenancy means that they all own the whole and the shares cannot be distinguished or separated. All owners are responsible for the whole property and all share equally from the profits generated by the property. In the event of the death of one owner, the remaining owners automatically become the new joint (or sole) owner(s) of the property, as if it had been owned like that from the original date of purchase. This form of ownership would be rare if the owners were corporations. Tenancy in Common Under a Tenancy in Common, the property may be held in either equally or unequal shares. What this means is that the shares could be: 50% / 50% 65% / 35% 60% / 20% / 20% or any other proportion. Notes_CPPDSM4080A_Version NSW Page 42 of 114

42 Under a tenancy in common, the shares are distinct and definable, and is the normal form of ownership for a corporation. There is no limit to the number of joint owners as tenants in common. People holding land as tenants in common should enter into an agreement that sets out their obligations for managing the property and restricts one party s right to dispose of his or her share without first giving the other shareholders the opportunity to buy that share. Encumbrances on Title An encumbrance is a form of restriction on the title of land that can have an effect on the way in which the land is used, or allows another person or corporation to have some form of claim on the property. The five main types of legal encumbrances are: Mortgages Easements Caveats Leases Covenants Mortgages A mortgage is an interest or guarantee offered by the borrower to the lender to obtain a loan. A borrower who takes out a mortgage is the mortgagor; the lender is termed the mortgagee. The mortgagor, under the terms of their loan, grants a number of rights to the mortgagee. The most powerful of these is that, if the mortgagor doesn t repay the loan as agreed, the mortgagee has the right to seize the property, lock out the mortgagor and sell the property under power of sale. Caveats A caveat in Torrens Title warns anyone who might be interested in buying that property that another party is claiming an interest in it. For example, if an owner owed money to a third party, that party could lodge a caveat on the property ensuring that they were repaid when the property was sold. Easements An easement gives one person or body a right to use or gain access through land owned by someone else. An easement may give gas and power authorities access to pipes or cables or may allow someone to drive across another person s land to reach their own property. Notes_CPPDSM4080A_Version NSW Page 43 of 114

43 Where an easement appears on the title, special restrictions exist on the use and development of the land. Since an easement becomes part of the land, subsequent owners of the land are also bound by its terms. Commonly found easements include: Utility easements, such as drainage easements, electrical power line easements and telephone line easements. Rights of way, where someone else has a right to drive on or walk over someone else s land, often shared driveways Leases A lease grants the tenant exclusive occupancy of land and continues even if the property is sold, as long as the lease is current. Leases of 3 years or less usually encumber the Contract for Sale of Land rather than the actual title. Long-term leases (those that are 3 years or more), whether residential, commercial or retail, must be registered on title by law, and are therefore encumber the title. Covenants A covenant is a legal obligation imposed in a deed by the seller upon the buyer (and subsequent owners) of real estate to do or not to do something. Covenants were typically imposed by the original title holder of the land in order to protect the land from excessive or unsuitable development, or to impose minimum acceptable standards within a subdivision such as private estates. A covenant is usually a restriction on the use or development of land. This is called a restrictive covenant. They may restrict the type or size of building allowed on a block, the type of materials used in construction, time frames for building, types of fences or grass to be planted. Examples might be to maintain a property in a reasonable state of repair, to preserve a sight-line for a neighbouring property, not to run a business from a residential home, or not to build on certain parts of the property. Some are very simple and are meant only to protect a neighbourhood from homeowners destroying trees or historic things or otherwise directly harming property values. Some go to an extreme and try to dictate absolutely everything a homeowner can do to the exterior, including needing permission to re-paint the home unless it will be exactly the same colour (e.g. Heritage listed homes). More detailed notes on Land Titles and Property law are incorporated in the Unit of Competence: CPPDSM4008 Identify the legal and ethical requirements of property sales to complete agency work. Notes_CPPDSM4080A_Version NSW Page 44 of 114

44 Consumer Protection Legislation in NSW These two Acts form the basis of Consumer Protection legislation in NSW and across Australia: Trade Practices Act (Commonwealth) Fair Trading Act 1987 (NSW) Consumer protection law an area of law that regulates relationships between individual consumers and the businesses that sell them goods and services. The Trades Practices Act (a Commonwealth Act) mainly covers business to business transactions and transactions across state boundaries; the Fair Trading Act covering mainly personal consumer transactions within NSW. Consumer protection covers a wide range of topics including but not necessarily limited to product liability, privacy rights, unfair business practices, fraud, misrepresentation, and other consumer / business interactions. Every day real estate agents deal with vendors and buyers, landlords and tenants, as well as tradespersons, media companies, suppliers, etc etc. Each of these is either a consumer (in the eyes of the law), or involved in the supply of goods or services to a consumer. Consumer The Act defines a consumer as a person who acquires goods or services from a trader. However, if the goods or services purchased are to be used in manufacturing, for resale or for repairing other goods, the person is not considered to be a consumer for the purposes of the Act. A consumer, therefore, can be described as either an individual or a business who acquires goods or services of a type normally bought for personal, business or household use, whatever they cost. The Trades Practices Act The Trade Practices Act provides protection for consumers against unfair practices by prohibiting anti-competitive or restrictive behaviour that lead to consumer problems. The Trade Practices Act is administered by the Australian Competition and Consumer Commission (ACCC), which also looks at price surveillance. Notes_CPPDSM4080A_Version NSW Page 45 of 114

45 The main parts of the TPA that relate to the real estate industry are: Part IV Restrictive trade practices Part IV A Unconscionable conduct Part V Consumer protection o Division 1 Unfair practices The Australian Competition and Consumer Commission The Australian Competition and Consumer Commission (ACCC) was established to promote competition and fair trade in the market place to benefit consumers, businesses and the community. The primary responsibility of the ACCC is to ensure that individuals and businesses comply with the Commonwealth competition, fair-trading and consumer protection laws. In fair trading and consumer protection the ACCC s role complements that of the state and territory consumer affairs agencies Administration of the Fair Trading Act The Office of Fair Trading administers the Fair Trading Act in the following ways: Promotes appropriate standards of conduct and competency Protects the interests of consumers Conducts public information and guidance programs Facilitates the resolution of disputes Administers licensing and registration Investigates complaints Administers the fidelity guarantee fund (compensation fund) Prosecutes for breaches Recommends policies to the Minister Notes_CPPDSM4080A_Version NSW Page 46 of 114

46 The Consumer, Trader and Tenancy Tribunal The Fair Trading Act established the Consumer, Trader and Tenancy Tribunal (CTTT) as a means of cost effective arbitration and complaints resolution process to manage consumer complaints in quickly and to reduce the number of cases that might otherwise have ended up in the court system. The CTTT is low-cost, accessible and an independent decision-making body, similar to a court, which deals with disputes traders and consumers, landlords, tenants and agents, as well as other consumer disputes. Penalties for Breaches of the Act A breach of Fair Trading Act or Trades Practices Act is a severe offence and has maximum penalties to match: Fair Trading (NSW) Individuals $22,000 $44,000 Business or Corporations $110,000 $220,000 Trades Practices (Cth) Breaches that relate to misleading or deceptive conduct, and / or unconscionable conduct, may also be subject to court orders that require the business to do certain things that will help the consumer e.g. cancel the contract, pay compensation, offer refunds etc. Where consumers believe that there has been a breach of the acts, their first line of complaint is normally through the Office of Fair Trading in their state. Where appropriate the OFT will seek to prosecute, or will advise the consumer to take action in the Consumer, Trader and Tenancy Tribunal or the Civil Courts. Publicity of Breaches of the Acts The Courts can order that the person involved in the breach to give information to the public, a person or a group of people. The Court may also order that the person or organisation publish advertisements about the breach. Civil Court Actions The outcomes of cases in civil courts are determined by probability. That is if litigants (those bringing the action against a trader or service provider) provide sufficient evidence and the trader has either a history of misconduct or insufficient defence evidence the probability increases for the litigant. Notes_CPPDSM4080A_Version NSW Page 47 of 114

47 This is why class actions (where groups of litigants with the same case collectively bring an action in court) improve the chances of success in civil court actions. Stopping Unfair Trading Practices The Act allows the Courts to grant injunctions to prevent a person from doing something that may be a breach of the Act. The Court can grant the injunction regardless of whether the behaviour has happened before or not. Either the NSW Office of Fair Trading, a consumer or any other person may obtain an injunction The Scope of the Fair Trading and Trades Practices Acts The Acts are far-reaching in their application and regulate practices including: Future representations Misleading and deceptive conduct Misleading or deceptive advertising Unconscionable conduct False representations Offensive conduct in relation to land Cash prices Falsely offering prizes Bait advertising Referral selling Harassment and coercion Future Representations Agents are often asked questions relating to the potential of property. When responding to these questions agents must be aware that the consumer may be influenced by the information. Therefore agents can only ever give the history of the property and the current selling potential that is within the agreement term (typically three months). Notes_CPPDSM4080A_Version NSW Page 48 of 114

48 Future representations are unlawful if the representations or predictions cannot be substantiated. Examples of future representation include: The price payable for the land The location The income expected The future potential of the land The characteristics of the land The future use of the land (rezoning) The existence or viability of facilities associated with the land Misleading and Deceptive Conduct Misleading or deceptive conduct is untruthful. At law traders are assumed to be more knowledgeable of their product or service than their consumers. Therefore courts apply a test called the reasonable person test, which, as the name suggests, examines whether a normal, average adult, with unimpaired mental capacity would have willingly and freely considered the situation to be reasonable. This tests the courts apply will examine how a reasonable person would normally have behaved in the transaction. For example if an agent gives real estate advice to a consumer a reasonable person would think that the real estate agent knew what he was talking about. Therefore if the information is unchecked or cannot be substantiated the onus is on the agent. Often when an outcome harms or impairs the consumer it is due to misleading and deceptive conduct. Real estate agents complete registration and licensing courses that explain inappropriate conduct therefore the defence that no harm was meant is unacceptable. Disclaimers or terms and conditions contained in fine print will NOT always correct a false or misleading representation. Agents have a duty of care to ensure that the information they provide is accurate and correct. So, what does this mean for you in your work? Most importantly, it means you must check all the facts carefully. Very often, agents rely upon statements made by their clients in respect of the details of the property. Even though your client is the one who is responsible for providing the information, it is likely that any action taken by a dissatisfied customer would involve you and your agency. Your responsibility therefore, is to check everything that you think requires verification yourself. Notes_CPPDSM4080A_Version NSW Page 49 of 114

49 Unconscionable Conduct Unconscionable conduct refers to conduct where one person (the trader) unfairly takes advantage of another (the consumer). The following elements and factors are typically present in unconscionable conduct: One party to a transaction suffered from a disadvantage in dealing with the other party. There was a material difference in the bargaining powers of the parties and the difference was evident to the stronger party The stronger party took unfair advantage of its superior position to obtain a benefit. The stronger party used undue influence, pressure or unfair tactics The consumer did not, or could not, understand the language or documentation used The concept of unconscionable conduct means conduct contrary to good conscience, and courts will make a decisions based upon the facts and circumstances of each individual situation. Examples of Unconscionable Conduct: Applying pressure or using unfair tactics to induce a person to sign a contract. Taking advantage of a person s lack of education or English language skills. Harassment Use of standard form contracts which leave no room for negotiation Placing unnecessary onerous conditions on clients, such as excessive penalties for late payments. Requiring clients to sign blank contracts and filling them in with details which do not reflect the pre-contractual negotiations. Notes_CPPDSM4080A_Version NSW Page 50 of 114

50 Misleading Advertising of Land It is acceptable for an agent to emphasise the quality points of the land, but no communications can be misleading - it is OK (to a point) to exclude negative characteristics, but if asked by a client or customer, these must be admitted. An agent is permitted to express statements or opinions that no reasonable person would be likely to believe when advertising or promoting real estate. This practice is known as puffery. Statements such as: Million dollar views Views to New Zealand Bigger that Ben Hur etc etc are permitted and will not contravene the Act as long as they are not misleading. However, statements such as: Can never be built out Rural Views forever Would be considered misleading unless they can be proven or substantiated. The Fair Trading and Trades Practices Acts do not seek to limit imaginative or amusing advertising, nor do they limit the use of slogans, logos, etc to attract attention, but that they do not lead consumers into erroneous actions by being misleading or deceptive. False or Misleading Representations Every day, agents use many forms of media to communicate with their clients and customers and all of these methods of communication are considered to be representations. Agents use many forms of media to communicate with their clients and customers and all of these media are considered representation. Verbal communication Diagrams Written communication Photographs Advertising Brochures & Flyers Other promotional material etc etc. Notes_CPPDSM4080A_Version NSW Page 51 of 114

51 Consider the following scenario: A property is advertised with a series of photographs, one of which shows a harbour view. A reasonable person would assume that the photo is a view from that property. If the photo had been taken from a local lookout, not the property itself, and not identified as a location shot then an offence of false representation has been committed. Additionally, the conduct of the agent, either by doing something or not doing something, could easily be considered to have been a representation. It is possible for an agent to be in breach of the Act for the things that they don't say, as well as for the things they do say. The ways this may occur are: Someone has got the wrong idea or makes a wrong assumption, which is not corrected for them, when you know it is not correct. e.g. they remark about the magic view and the agent forgets to mention the D.A. approval for the multi-storey building opposite, which will block it completely out. An agent provides information which is true, but it has the effect of creating a false impression because of something that wasn t mentioned, i.e. a 'half' truth. e.g. "Great for transport, the express bus goes right past your front door!" The fact that the next stop for the Express Bus route is 2 kilometres away means that it really does go right past your front door! The agent is considered to be the 'expert' and should divulge or disclose anything relevant, but does not, e.g. the agent knows that the planned new freeway off-ramp runs right behind the back fence, but neglects to say anything about it. The agent says nothing in order to prevent someone making enquiries or finding out the truth, e.g. the prospective buyer mentions the quiet location, noting that instead of noisy neighbours the nature reserve behind the property. The agent knows about Council considering plans for the reserve to be developed into community facilities, including building a community hall, but says nothing. When it comes to the Fair Trading Act: Silence is definitely NOT Golden. Notes_CPPDSM4080A_Version NSW Page 52 of 114

52 False Representation or Other Misleading Conduct in Relation to Land Misleading Conduct has been covered above, but can be taken to include advertising standards. This section deals specifically with the sale of land. It deals not just with the sale itself, but with the possible sale and the promotion of sale. This means advertising as well. The act applies equally to corporations and to individuals. Agents may not make false or misleading representations in respect of: i. The nature of the interest in the land, ii. iii. iv. The price payable for the land, The location of the land, The characteristics of the land, v. The use to which the land is capable of being put vi. The existence or availability of facilities associated with the land; Characteristics of Land Care should be taken when making statements about features and characteristics, because they may be of special importance to a purchaser. Representations about the character of land include: The suitability of land for particular types of rural production Suitability for residential development Profitability of a business associated with the land Drainage, water supply and topographical features Area dimensions of the land or buildings Physical condition or state of repair of buildings or other improvements. Notes_CPPDSM4080A_Version NSW Page 53 of 114

53 Location Vague statements about the location of land are likely to be misleading. It is important to use factual information about the location of the land or property to avoid the risk of breaching the Act. Examples Forty km to the city centre is preferable to commuting distance to the city. Schools within 1.5 kilometres is preferable to within walking distance. Statements such as: 5 minutes from... A stones throw to... Moments from And others similar have potential to be misleading. The shops may well be 5 minutes away, but how? By car? Bus? Walking? And if it is 5 minutes walk? Is that 5 minutes for a fit 30yr old or a 75yr old with a walking stick? What about the stone s throw? How big a stone who is it to be thrown by? The fit 30yr old or the 75yr old? Use of Land Statements about the potential or permitted use of land or buildings must take into account any legal restrictions which may affect the property. These may include: Town and country planning requirements Restrictive covenants Easements and rights of way. Statements about the permitted use of land under anticipated regulation should not mislead potential purchasers into believing that the regulation has already been enacted or is a foregone conclusion. Facilities Claims that services such as sewage, gas and electricity will be connected to land, should be made only after approval for the connection has been given by relevant authorities and funds have been made available to connect the services. Notes_CPPDSM4080A_Version NSW Page 54 of 114

54 It is also important not to make misleading references to the progress of proposed facilities such as: Shopping centres Transport and other infrastructure Sports grounds or facilities Golf courses etc. Facilities pictured in advertisements and signs should actually exist. Otherwise, reference should be made to the fact that they are proposed and suitably qualified as to how much progress has been made towards their completion. Full Cash Price Real estate agents must take great care not to mislead potential purchasers in relation to: The full price Finance available The price payable for land What is included in that price. When advertising the price of goods or services, the total cash price, including GST (where applicable), must be revealed to the consumer. GST applies to fees and commissions payable under agency agreements, as well as certain commercial leases, land transactions and Land and Building contracts The full price payable, including any commissions, charges, or postage and handling must be shown. It is not enough just to show initial deposit and instalment payment amounts, which may result in consumer confusion. Statements or representations about price is a matter about which there must be no misinformation. Real estate advertisements that feature price, should state prices in clear and unambiguous terms. The full price, including any fees, commissions and other charges (such as for extras etc.) must be shown. Falsely Offering Gifts or Prizes Business are prohibited from offering gifts, prizes or other free items in connection with the supply of goods or services if it does not intend to provide them as offered. Notes_CPPDSM4080A_Version NSW Page 55 of 114

55 Offensive Conduct in Relation to Land Offensive conduct is conduct that demeans the profession and attracts public ridicule. For example a real estate agency cannot claim a sponsorship, approval, affiliation or association that it does not have. Bait Advertising Goods or services must not be advertised at a specified (not necessarily a 'special') price if the trader cannot provide the goods in reasonable quantities for a reasonable time. Reasonable is dependant upon foreseen circumstances including: Season Economic variables Targeted market The expected life of the advertisement Statements or representations of price in relation to a number of units or blocks of land should not mislead as to the average price of the units or blocks. Example: Advertising 26 blocks from $230,000 when only one block is available at that price and the next lowest for example, $270,000 - would be considered Bait Advertising enticing consumers to enquire at the lower price. Blocks from $230,000 to $340,000 most around $280,000 would be more acceptable. Real estate agents advertising a price range will need to make sure that the advertising is updated as sales occur. It would be misleading to continue to advertise as above after all the cheaper blocks had sold. Harassment or Coercion A corporation (or its servants or agents) in relation to the supply of goods or services cannot use physical force, harass or coerce consumers. This extends to the account receivable practices. An example of harassment might be phoning a vendor every day to try to persuade them to accept an offer that they have rejected. Also, repeatedly threatening a customer with force if they do not pay their bills or rent is considered harassment. Notes_CPPDSM4080A_Version NSW Page 56 of 114

56 Referral Selling Referral selling means providing a rebate, commission or other benefit in return for the consumer giving the corporation (or person) the names of prospective customers or otherwise assisting the corporation to supply goods or services to other consumers. This is prohibited both by the Trade Practices Act and Fair Trading Act, but also by Section 47 of the Property Stock and Business Agents Act. This practice is anti competitive and has serious implications for small businesses. All work that a service provider refers to another, that may result in a benefit or reward being paid (however small) must be disclosed, preventing complaints such as collusion, incorrect advice or unfair practices. Other examples are situations where real estate agent makes referrals to solicitors, finance companies, tradespersons etc etc, where they may receive a kickback fee or a share of the profit. Secret Commissions A secret commission is any financial or beneficial gain made by an agent to which they are not entitled such as a gift or consideration given or promised by a third party (eg. purchaser) which may influence the agent from acting in the best interests of the vendor. Only one contract (whether written or verbal) can be entered into at a time for one transaction - hence the term conflict of interest. An agent is only entitled to one fee from one transaction. A secret commission is also a fee or commission received outside of the original contract, which is illegal under the Secret Commissions Act 1905 (Cth). At state or territory level, the law is usually included in the relevant Real Estate Agents Acts and Codes of Conduct. Examples of secret commissions could include: A purchaser wanting to avoid an auction pays the selling agent a fee to negotiate a private treaty sale on their behalf. A managing agent paying tradespersons through a subsidiary company (owned by the agent) where that company earns a profit through the system. Notes_CPPDSM4080A_Version NSW Page 57 of 114

57 Property Stock and Business Agents Act 2002 Many of the provisions in the Property, Stock and Business Agents Act correspond or complement sections in the Fair Trading legislation. The most significant areas of the Act in terms of consumer protection include: Division 4 Conflicts of Interest These sections are provided in brief. The full sections are contained within the Act and should be read in full to ensure a full understanding of the obligations of the agent. Failure to comply with these sections creates a liability to penalties of up to $ and/or 2 years imprisonment. s.46 Financial and investment advice by real estate agents Under this section agents are required to advise clients and customers that if any advice given is general advice only, and that people should make their own enquiries as to the suitability or otherwise of the financial implications of their purchase or sale, and /or financial arrangements with regard to the property. s.47 Duty of disclosure to client and prospective buyer of land Agents must disclose to their clients any relationship (whether personal or commercial), the agent has with anyone to whom the agent refers the client or a prospective buyer for professional services associated with the sale or purchase. Agents must also disclose whether they expect to receive any benefit (whether monetary or otherwise) as a result of the referral, and if so, the amount, value or nature of any benefit the agent has, or expects to receive For the purposes of this section, the following are considered to be relationships : (a) a family relationship, (b) a business relationship, other than a casual business relationship, (c) a fiduciary relationship, The following are examples of persons who may receive a benefit: (a) seller, (b) finance broker, (c) financial adviser, (d) financier, (e) property valuer, (f) legal practitioner, (g) real estate agent. Where a benefit may be received as a result of a referral, a Section 47 certificate must be completed, and the person on who s behalf the referral is being made must agree to the agent receiving the benefit. s.48 Duty not act for the buyer and seller of land An agent (or salesperson) can not act on behalf of both the buyer and the seller of land at the same time, eg, can not act as a Buyers Agent for a buyer and introduce the buyer to a property which is under a sales agency agreement with the same agency. s.49 Restrictions on licensee obtaining beneficial interest in property An agent (or salesperson) who is retained by a person (the client ) as an agent for the sale of property must not obtain or be in any way concerned in obtaining a beneficial interest in the property. Nor may a close relative of the agent or salesperson obtain any beneficial interest in a property. Notes_CPPDSM4080A_Version NSW Page 58 of 114

58 A beneficial interest may be obtained with the consent of the client (on the appropriate Section 49 certificate). A beneficial interest is considered to be purchasing property, or obtaining an option to purchase property. For the purposes of this section, the following are considered to be close relatives: The agent or salesperson together with their spouse, de facto partner, child, grandchild, sibling, parent or grandparent of the person and any other person who has a relationship with the person that is prescribed by the regulations as constituting the relationship of close relative. Additionally, those connected with the real estate corporation, whether as a shareholder, employee, or anyone else who benefits from the proceeds of the corporation and their close relatives are also required to obtain the clients consent. s.51 Publishing false or misleading advertisements s.52 Misrepresentation by licensee or registered person These two sections effectively mirror provisions that are already contained within the Trades Practices and Fair Trading Acts. PSBA Regulations 2003 Schedule 1: Rule 2 - Fiduciary obligations An agent must comply with the fiduciary obligations arising as an agent. Rule 3 - Honesty, fairness and professionalism (1) An agent must act honestly, fairly and professionally with all parties in a transaction. (2) An agent must not mislead or deceive any parties in negotiations or a transaction. Rule 4 - Skill, care and diligence An agent must exercise reasonable skill, care and diligence. Rule 5 - High pressure tactics, harassment or unconscionable conduct An agent must not engage in high pressure tactics, harassment or harsh or unconscionable conduct. Rule 6 - To act in client's best interests An agent must act in the client's best interest at all times unless it would be contrary to the Act or regulations under the Act or otherwise unlawful to do so. Rule 11 - Conflicts of interest An agent must not accept an appointment to act, or continue to act, as an agent if doing so would place the agent's interests in conflict with the client's interests. Rule 15 - Soliciting through false or misleading advertisements or communications An agent must not solicit clients or customers through advertisements or other communications that the agent knows or should know are false or misleading. These are just a few examples of how the Property Stock and Business Agents Act dovetails into Fair Trading Legislation The General Rules of Conduct applying to licensees and registered persons closely mirror the Fair Trading Act. Notes_CPPDSM4080A_Version NSW Page 59 of 114

59 Ethical Conduct in Real Estate The PSBA Act and Consumer Protection legislation basically outline the rules under which Real Estate agents operate on a daily basis. The reputation of agents is CRITICAL to their career success, and real estate agents deal with what is for most people, their most valuable asset. Are consumers likely to trust this asset to a person they do not see as being trustworthy and ethical? A good reputation is hard to build, but easy to destroy. In extreme cases, bad publicity can destroy a business or individual almost overnight. There are thousand of definitions of what is ethics here is just one of them: Principles of right or good conduct, or a body of such principles, that affect good and bad business practices The key to this definition are the words right or good conduct you see, unethical does not mean unlawful. Something can be within the law, but that does not necessarily make it morally right. It is difficult to determine exactly what conduct is ethical and what conduct is not. At the end of the day it is the agent s customer or client who interprets the actions, words and conduct of the agent and determines for themselves whether or not the conduct was ethical. It is a sad fact that bad publicity can often be caused by untruths. Given the perceived reputation and the media portrayal of the real estate industry, it can generally be assumed that any statement made, or any action conducted that does not meet the approval of the client or customer could be considered by them to be unethical. What is Ethics? A set of principles of right conduct. A theory or a system of moral values The moral quality of a course of action The study of the general nature of morals and of the specific moral choices to be made by a person; moral philosophy. The rules or standards governing the conduct of a person or the members of a profession Notes_CPPDSM4080A_Version NSW Page 60 of 114

60 The following quotes illustrate some approaches to the question of professional ethics. Howard Hughes Company: Professionalism begins to emerge when one approaches a client in an atmosphere of trust, rather than "buyer beware." Such professionalism has difficulty emerging if the business community as a whole does not support it. Alon Ben-Meir (Political scientist): Do unto others as you would have them do unto you. Eileen Spinola (Senior VP, The Real Estate Board of New York): Ethics and business are not mutually exclusive." The principles of ethics apply to the relationship we have with our vendors and landlords (who, after all pay us our fees, commissions and wages) just as they apply to our relationships with real estate buyers and tenants (without whom we would not have the ability to earn our fees, commissions and wages). Consumers Ethical Concerns There are a number of areas that are repeatedly the subject of negative media exposure for real estate agents. Whether or not the practices are unethical or not is not always the issue it is the perception that is left in the minds of consumers that result in the activity or conduct being labelled as unethical. Unfortunately, as always, it is a small minority of agents that create problems for the majority to have to overcome. The following issues represent some of those that are expressed by consumers as being perceived as being unethical practices that occur in the real estate industry. Dummy Bidding at Auctions is false bidding, done to fool genuine buyers into thinking real buyers are bidding. It can happen two ways It could be the auctioneer calls out false bids, pretending someone in the crowd has made the bids, or having dummy bidders in the crowd who bids in order to raise the stakes. The practice of dummy bidding at auctions is still believed to occur, despite the introduction of the PSBA Act in The penalties for dummy bidding, collusive practices and non-identification of bidders are severe. Vendor Paid Advertising Many clients do not understand the concept of investing in the marketing of their property in order to place us in the position of being able to negotiate with buyer to achieve the best possible outcome for Notes_CPPDSM4080A_Version NSW Page 61 of 114

61 them. However, these same people are prepared to pay a fee to E-bay to list an item for auction whether or not it sells, or to advertise their 2 nd hand car for sale on a web-site or in a newspaper, whether or not it sells. Payment in advance for marketing and advertising. Agents often ask sellers to pay for their marketing and advertising in advance? It is probably because we are concerned about not being able to collect these expenses in the event that the property is withdrawn or does not sell. Is it ethical to collect money up front before we spend it? Think about the duties of agents, and the trust accounting requirements under the PSBA. We have safeguards built in to ensure that the funds are protected. Media publisher kickbacks. This activity is covered in Section 47 of the PSBA and is explicit in its requirements for the disclosure of relationships, referral fees, kickbacks etc. The penalties for non compliance are severe 200 penalty units for a corporation 100 for an individual. Anyone who does benefit in this way is leaving themselves wide open. Buying Listings (Overquoting): The concept of buying listings, where the salesperson quotes an inflated price to a vendor to persuade them to list the property with them is a problem that despite legislation, is still prevalent in the industry. It leads to problems for both the salesperson and the vendor, and does lead to dissatisfaction. This again, is considered in the PSBA: Section 72 provides penalties for misrepresenting the true estimate of the selling price to the vendor or prospective vendor (200 penalty units). Section 74 requires agents to be able to substantiate their estimate of the selling price (again 200 penalty units). Price Estimates given to Buyers The Commissioner of Fair Trading has the power to ask Agents to justify any estimated selling price given to prospective purchasers. This is to ensure that agents do not deliberately under estimate the selling price to prospective buyers in order to elicit offers or bids at auction. Whether the representation regarding price is oral or written does not matter it is the act of providing a price lower than the true estimate that triggers the offence. Likely scenarios where an estimated selling price could be given orally would include open house inspections; at auctions, prior to the commencement of the auction. This section of the act also prevents written estimates of price statements such as Bidding from Buyers in the range Buyer enquiry range etc, unless they can be substantiated. False Offers: You receive an offer of $625,000 for the property you overquoted to the vendor in order to win the listing. However, in order to make this offer look good you in fact tell the vendor that the offer received was $610,000 which is, of course, rejected. Minutes later, miraculously, you have negotiated a higher offer of $625,000, which you present to the vendor saying: There s not much left in the buyers they are all out at this figure. I really think you should accept. Is it Misleading? Is this Ethical? Notes_CPPDSM4080A_Version NSW Page 62 of 114

62 Gazumping: Buyers often believe that once their offer to buy a property has been accepted that they have bought the property. However, an agent is obliged to continue to offer a property for sale until contracts have been exchanged unless the vendor has given written instructions that the property is to be withdrawn from the market in favour of the buyer Lack of Interest Apathy: Some agents treat potential buyers as mere nuisances, and interruptions to the day, especially when they want to have a private property inspection and are not prepared to wait for the Open Home. Whilst this may not strictly speaking an ethical concern, nevertheless, it is a major cause of concern amongst consumers, and demonstrates a lack of integrity, courtesy and consideration in the conduct of the agent, as well as a potentially lost business opportunity for the agent. Overcoming Ethical Concerns Looking back at the examples above, many of the potentially ethical issues can be overcome through: 1. Knowledge and understanding of: a. The Property Stock and Business Agents Act b. The Regulations and Rules of Conduct c. Other legislation that affects the Real Estate Sector d. Standard business practices and operating procedures 2. Effective communication skills. If we do not have sufficient knowledge of the rules that surround our industry, the ability to understand and interpret them, or have the communication skills to be able to share that knowledge with our clients and customers in a userfriendly way, we are, in reality, making life difficult for ourselves. Most of the practices that concern consumers are covered in these Rules of Conduct: Rule 2: Fiduciary Obligations Rule 3: Honesty Fairness and Professionalism Rule 5: High pressure tactics, harassment and unconscionable conduct Rule 6: To act in the clients best interests. Certainly this sort of activity is a breach of those rules, with appropriate fines and penalties. Notes_CPPDSM4080A_Version NSW Page 63 of 114

63 Ethical Conduct Communication Skills As we all know in most businesses, but especially in real estate, we deal with a broad range of clients and customers. Duty of care is perhaps the most important in the agency : client relationship and we must have a focus on this at all times, as well as the others mentioned. The initial aim with a new client is to establish a good relationship. The ultimate aim, of course, should be to build it into a great one and maintain it long term. Another quote: Conducting business in an ethical manner will lead to a good reputation in the industry and will lead to referrals, which are the mainstay of the real estate. Unethical behaviour will tarnish a broker's reputation and follow him through his career. (Alon Ben-Meir) To start the process it is essential to communicate effectively with them so we can have a successful outcome, whether they are selling, buying or renting property. Some of the keys to developing an ethical perspective on business relationships are: Communicate effectively in terms of What we say How we say it Body language. Accurately interpret client and customer instructions Recording of information / instructions Maintaining quality service levels Communicate those standards to clients and customers Practice active listening and maintain a client focus Resolve issues of client dissatisfaction quickly Eliminate any potential conflicts of interest Maintenance accurate records Develop an ethical culture in the office. Notes_CPPDSM4080A_Version NSW Page 64 of 114

64 Other Significant Legislation in Real Estate Real Property Act 1900 This Act consolidated previous Acts relating to the declaration of titles to land and the facilitation of its transfer. It defines, considers and outlines the various forms of land ownership in NSW, the manner and conditions under which it can be transferred between parties and procedures for dealings, such as mortgages. Also discussed and defined are charges, and encumbrances, such as covenants, caveats and trusts. Boundary determinations and the establishment of the Torrens Assurance fund, which compensates owners in the event of a Torrens title being defective are other considerations in this act. Residential Tenancies Act 2010 The Residential Tenancies Act (RTA) relates to the rights and obligations of landlords and tenants under residential tenancy agreements, and makes provisions with respect to excessive rent increases and rents. Additionally, it confers functions on the Consumer, Trader and Tenancy Tribunal of New South Wales with respect to landlords and tenants. The Residential Tenancies Act applies to residential tenancy agreements made on or after 31 January 2011, and is administered by the Office of Fair Trading. Disputes between owners and tenants, owners and the managing agent or agents and tenants that cannot be solved by the agent, can be taken to the Consumer, Trader and Tenancy Tribunal (CTTT). The implications of the Residential Tenancies Act is discussed in greater detail in the Property Management units of competence. Agents are obliged to deposit all residential rental bonds with the Rental Bond Board (administered by of the Office of Fair Trading) within 10 working days after the end of the month in which the bond is paid. The Bond Board holds these bonds as security. The interest received by the Bond Board on amounts held by them is used in part to fund public education programs and support the operation of the CTTT in respect of landlord and tenant disputes. Tenants who have rental bonds held by the Bond Board receive nominal interest on their bond amount. In situations where a tenant is in breach of their tenancy agreement, the bond may be used at the end of the tenancy by the landlord to settle claims against the tenant. Notes_CPPDSM4080A_Version NSW Page 65 of 114

65 Strata Schemes Management Act 1996 The Strata Schemes Management Act 1996 allows for the administration of strata title schemes of property ownership. This Act is important for licensees involved in strata management, real estate and on-site property management. This Act provides a system of financial management and decision-making that defines the rights and responsibilities of the owners corporation and each owner and occupier in a strata scheme. It includes a system for settling disputes, using an adjudicator who can make binding orders. Agricultural Tenancies Act The conduct of tenancies that involve agricultural property and lands in NSW is controlled by two pieces of legislation: Agricultural Tenancies Act 1990 Agricultural Tenancies Amendment Act 2001 These Acts regulate the rights of agricultural landowners, tenant farmers and other agricultural land occupation. They provide a process for resolving disputes between these parties by mediation or arbitration Privacy Acts (NSW & Commonwealth) The Privacy Acts regulate the way in which organisations can deal with personal information. Workers in the real estate industry, deal with their clients and customers personal information every day. All businesses (and their employees, contractors and associates) MUST work within the terms and provisions of the Privacy Acts. An agent must act in the client's best interest at all times unless it would be contrary to the Act or Regulations under the Act or otherwise unlawful to do so. This extends to the collection and use of personal and private information. Several provisions and extensions to privacy legislation are contained within the Rules of Conduct. The main provisions within the Privacy Acts are: Confidentiality An agent must not, at any time, use or disclose any confidential information, and must not divulge to another person any information of a confidential nature obtained unless the client or customer authorises disclosure, or the agent is permitted or compelled by law to disclose the information. Notes_CPPDSM4080A_Version NSW Page 66 of 114

66 Consent When you are collecting personal information from it is important that you have their consent. Consent involves telling the person why you need the information, what you plan to do with it and the person must be able to understand what they are agreeing to. Consent can be express (ie written, or as a signature on a document) or implied (ie through action or behaviour). For example, a visitor to an Open Home who provides their name and contact details at the door without prompting has effectively given their implied consent to the collection of those details. Security Security of data is important for an agency, which has sensitive personal information and also holds details regarding the security arrangements. Agencies must take appropriate steps to ensure that confidential information is protected in agency files and computer records. Please read this section of the Act in your own time. Information regarding privacy legislation can be found via the following websites: and Anti-Discrimination Legislation Federal and State Anti-Discrimination legislation prohibits the discrimination against any person on the basis of: Gender, Religion, Marital status, National or ethnic origin, Pregnancy, Political beliefs, Race, Mental or physical impairments, Colour, Sexual preference Age Employment Anti-discrimination legislation applies to dealing with other businesses, clients, customers and employees, as well as covering sexual harassment. Care must be taken not to discriminate against any person for any of the reasons covered in the legislation. Also, you cannot accept instructions from a third party to discriminate against another person. It is also illegal to discriminate against someone because they have a personal association (as a relative or otherwise) with a person in one of the groups above. Discrimination is illegal even if you don t intend to discriminate against certain groups, but your actions result in discrimination. Notes_CPPDSM4080A_Version NSW Page 67 of 114

67 An act of discrimination (whether direct or indirect) could be seen to be either Unconscionable Conduct or a case of Misconduct, and could end up in court. Direct discrimination involves treating someone less favourably because of the possession of a prohibited attribute (e.g., sex, age, race, religion, national origin, disability, etc.) than they would treat someone without the prohibited attribute who was in the same circumstances. An example of direct discrimination would be not giving a women a job because she was more likely to take maternity leave. Indirect discrimination involves setting a condition or requirement that a smaller proportion of those with the prohibited attribute can comply with than those who do not have the prohibited attribute without reasonable justification. Notes_CPPDSM4080A_Version NSW Page 68 of 114

68 Professional Indemnity Insurance The owner of a business can be held liable if any member of the staff is negligent or makes an error which breaches their duties and obligations. Consumers these days are far more likely to want to sue than in years gone by - the increased awareness of consumer protection legislation encourages legal action. Occasionally, real estate agents do make a genuine mistake that may result in a loss for the consumer. Some actions against agents arise as the consumer believes that they have been wronged and demands compensation. Professional indemnity insurance protects business owners, their business and members of their staff in the event of a successful damages award against the business and for the legal costs incurred in defending claims. Examples of where Professional Indemnity Insurance can protect the business: A Property Manager overlooks the payment of house insurance for a landlord. Subsequently, the house is damaged in a fire, and the landlord sues the agency. During an Open Home, the salesperson returns from the rear yard after talking to interested parties to find that other people s children (who have now disappeared with their parents) have caused damage. It proves impossible to trace who caused the damage and the owner sues the agency for restoration of the damage. Notes_CPPDSM4080A_Version NSW Page 69 of 114

69 Trust Accounts Agents frequently handle other people s money. Monies are received from Buyers Deposits for properties they are contracting to purchase Tenants Rent and bond monies Vendors Advertising and marketing funds paid in advance. This money is not the agents own funds, and they are required to Hold it in Trust until instructed or authorised to release it to the legal owners. Trust money cannot be held in the agent s general operating bank account, but must be kept separate. Every agency that is likely to receive or hold client funds is required to operate at least one Trust Account, set up specifically for the purpose of holding client funds. The estate agent is required to open and maintain a trust account in the name of the estate agent (if a sole trader) or the corporation which holds the real estate licence. Agency Trust accounts can only be held with a prescribed financial institution, an authorised deposit taking institution. Interest is not payable on Trust accounts, but the amount that would be interest is paid to the Property Services Statutory Interest Account which is used to fund education and administer compliance with the PSBA and Fair Trading Acts. In order to effectively operate a Real Estate Office that is involved in handling other people s money, a licensee needs to:- 1. Understand the legislative requirements underpinning trust accounts 2. Apply the requirements to their day to day operations 3. Demonstrate compliance with the legislation through developing and applying office policies and procedures to effectively fulfil requirements that are monitored and information verified on on-going basis. Managing a trust account includes Common Law principles and the fiduciary duties and responsibilities between the agent / agency and the principal (client), whereby an agent/ agency is required to: Take such care in keeping safe the money of the principal as a reasonably prudent person would take in caring for their own property or money. Keep all the monies and property of their principal separate from their own. Keep separate accounts of all dealings on behalf of their principal and to be ready to account to the principal at any time. Notes_CPPDSM4080A_Version NSW Page 70 of 114

70 Each time money is received to the trust account, a receipt must be prepared. The original must be issued to the person from whom the money is received (if cheque or cash) or upon demand (electronic receila). ReceiLA must be in duplicate and the agency must keep the copy. In order to comply with the Act receila must show: The date of issue, A receipt number (receila must be issued in numerical order) The name of the licensee and the words Trust Account The name and reference of the person on whose behalf the payment was made Whether the monies were received by cash, cheque or electronic transfer. If the payment is for rent it must also show the dates applicable for the payment as well as the position of the rental account as at that date. All trust account receila must be banked by the end of the next business banking day after receipt. Agents may keep more than one trust account; generally they have separate Sales and Property Management trust accounts. All payments out of the trust account must be authorised by the beneficial owner (legal owner) of the funds. Upon the sale of a property, the buyers deposit is held in trust until an Order on the Agent is received from the solicitors at settlement. The Order on the Agent is an instruction to release the funds held in trust to the vendor. The agent may then also claim their fees and other charges from these funds. In the Property Management department, agents collect rent from tenants and at the end of each month, transfer these monies to the landlord (again less their fees and charges). The landlord may also have instructed the agent to pay their authorised disbursements (such as rates, insurance and repairs) from the rent money held in trust. Normally the management agency agreement will be sufficient instruction to make regular payments such as these as well as repairs etc. The Property Stock and Business Agents Act regulate the management of agents trust accounts, and the NSW Department of Fair Trading has a team of inspectors to ensure agents comply with their legal obligations. The licensee s supervision guidelines also include a requirement to have written instructions regarding the reconciliation of the trust account and to implement adequate supervision. This would normally include restricting access to trust accounts to fully trained personnel. Agents are required to have independent accountants audit their trust accounts annually and prepare an audit certificate which must be sent to the Department of Fair Trading by the 30th September each year. Notes_CPPDSM4080A_Version NSW Page 71 of 114

71 Contracts in Real Estate Every time we enter into an agency agreement with a client we are entering into a contract. Every time we complete a tenancy agreement we are facilitating the formation of a contract. Each sale involves a Contract for the Sale of Land. Contracts are an important aspect of working in the real estate industry, and an understanding of the legal aspects of contracts and areas of risk for the parties involved is an essential part of the knowledge of agents. A contract is an agreement between two or more parties under which all parties make promises and which they intend to be legally binding, and which confer particular rights and obligations on both parties Every day people engage in contracts, usually several times a day, but most people do not think about them as contracts, unless something goes wrong. Getting on a bus, buying a drink from a vending machine, parking your car in a car park, taking a suit to be dry cleaned, going to the movies, buying your groceries, ordering fire wood - all these involve contracts, but are usually verbal, or conducted through actions rather than written. Agency agreements, however, are contracts that have specific written terms clauses and conditions, all in the interests of clarity and openness. The law of contracts is vital as it affects consumers each and every day. It is an extremely complex area of law, governed both by common law and legislation or statute law. Some of the legislation that has a bearing on contracts in NSW include: Sale of Goods Act, Trade Practices Act, Fair Trading Act, Credit Act, and the Contracts Review Act. To be valid, all contracts, whether written or verbal, must include certain elements such as offer and acceptance; and consideration. The parties must have the legal capacity to enter into the contract and the contract must be legal. We will look at each of these elements. Notes_CPPDSM4080A_Version NSW Page 72 of 114

72 Offer, Acceptance and Agreement In the real estate industry, we are not (in the eyes of the law) offering a property for sale or lease, but inviting potential buyers or tenants to make an offer. An advertisement, catalogue, brochure or a window display is an Invitation to Treat. An invitation to treat is not strictly an offer but expressing a willingness to trade, negotiate, or invite an offer. So, legally, it is the BUYER or TENANT who makes the offer to purchase or lease. (This concept applies in most sales situations and not only in the real estate industry). Similarly, an auction subject to reserve is not an offer by the vendor to sell to the highest bidder. It is only an invitation to buyers to bid or make offers. Acceptance, in general terms, is the moment when a contract comes into being. In some situations, it may also be necessary to determine where a contract comes into being. Acceptance may be in writing, oral, or by conduct, unless the offer requires a specific form of acceptance. Agreement The agreement arises from a formal offer made by a buyer of the goods or services and an acceptance from the person or organisation selling those goods or services. Under an agency agreement, the agent may, or may not, have the right to accept an offer on behalf of his client. However, in the real estate industry other laws now override the fact that under common law a contract has been made. Under the Property Stock and Business Agents Act all agency agreements must be in writing (and that they contain particular clauses) to be valid contracts (and enable the agent to earn a fee). It is also a requirement that all contracts for land are in written form in a formal agreement. Consideration Consideration is something of value that changes hands between the parties at the date of the contract. Typically, consideration is in the form of money, which changes hands but it need not be. It could be in the form of an act of value, or a reciprocal exchange of goods or services. Notes_CPPDSM4080A_Version NSW Page 73 of 114

73 Consideration must be sufficient to meet the needs of the parties, but need not be adequate. For instance I could offer to buy your car for $10, and you could accept. This would be a valid contract, even though the vehicle may have a considerably higher commercial value. What it means is that consideration must be sufficient in law but need not be adequate as a matter of commercial exchange. However, if there is no consideration there is, technically, no contract. Legal Capacity Who can make a contract? In New South Wales a person is able to make a contract when they reach 18 years of age. However, there are some circumstances when a person who is younger than 18 will be bound by a contract into which he or she has entered, eg. purchasing goods in shops etc. Additionally, the person making the contract must be of sound mind, and not affected by matters such as: Mental impairment Drugs or alcohol Language Skills Where people (and some corporations) are not considered to have the full legal capacity to enter into contracts, it may result in a contract being voidable, ie, no effective or valid contact was formed. Basically, it depends on the type of contract and the degree of understanding that the person had about the contract. Legality The contract must be legal in terms of other common law or other statute legislation. A contract to wilfully injure or kill another is obviously illegal! Notes_CPPDSM4080A_Version NSW Page 74 of 114

74 In the real estate industry contracts are formed as follows: 1. Agency Agreements (A Sales scenario is used to illustrate the concept, but this applies equally to property management) The contract is between a principal (client) and the agency to undertake the sale of a property for a determined period (60, 90 or 120 days) Invitation: Offer: Acceptance: Consideration: Capacity: Legality: The agent invites the seller to offer to use his services and enter into a contract The property seller offers to use the agent s services. The agent (on behalf of the agency) accela that offer and prepares a written contract (agency agreement) The agency fee (normally the fee is payable upon successful completion of the contract ie the property is sold) The property owner is over the age of 18 (persons must be over the age of 18 to own an interest in land). The agent may be under 18 (must be over 16 in NSW) but is acting on behalf of and with the authority of) the agency licensee who must be over 18. Agency Agreements are legal contracts as long as they comply with the Property Stock and Business Agents Act. 2. Sale of a property The contract is between a seller and a buyer of land. Invitation: Offer: Acceptance: Consideration: Capacity: Legality: The seller appoints an agent to invite buyers to offer to buy the property. The buyer offers to buy the property, subject to a written contract. The seller (or agency on behalf of the seller if authorised) accela the buyers offer, subject to a written contract. The purchase price for the property (payable in 2 instalments 10% deposit and 90% balance on settlement of the contract). The property seller and buyer must be over the age of 18 or a corporation (where the directors must be over 18). Assuming the solicitors are doing their job right, the contract is a legal contract. Bear in mind that within this scenario, there are other contracts that are involved. There may be contracts between the buyers and their solicitor, sellers and their solicitors, mortgage contracts, a building and pest inspection contract, valuation contract etc. All of these are mutually interdependent and all need to be valid legal contracts to ensure that the transaction the property sale proceeds to settlement, which it does (in most cases), without problems. Notes_CPPDSM4080A_Version NSW Page 75 of 114

75 Duties and Obligations under Contract Law Contractual Duties These duties that are written into the contract are known as express terms. However, there are other matters that might be expected by one party or another, but which aren t written into the contract. These are known as Implied Terms. Some terms may be implied in certain contracts because the relevant points are covered by other statutory legislation (usually consumer protection legislation). This is known as implied in law. On the other hand, a contract may simply not state a certain point, but it has been implied as a result of a verbal statement made, an assumption made by one or other party, or common practice in a particular area. This is known as implied in fact. This is an area where property professionals need to be particularly careful. Their statements could be construed as Promises, Representations or simply as opinions etc, so the language used is particularly important to avoid any confusion in the minds of clients and customers. The risk of being sued, or a contract not completing due to misrepresentation or misleading conduct is high. Fiduciary Obligations: Fiduciary obligations are those obligations that are based on trust, and have already been discussed in terms of the responsibilities of agents. A fiduciary duty is the highest standard of care possible. A fiduciary is expected to be extremely loyal to the person to whom they owe the duty (the "principal"): they must not put their personal interests before the duty, and must not profit from their position as a fiduciary, unless the principal consents. The fiduciary relationship is highlighted by good faith, loyalty and trust. Requires a stricter standard of behaviour. What happens if the terms of a contract are broken? Once a contract is made, a breach is committed if one or other party does not fulfil their duties or obligations; or if one party changes their mind and decides not to perform their side of the contract. If a party breaches a contract there are a number of remedies available, including: Damages (a sum of money) to compensate the innocent party for any loss suffered A Court Order requiring the party who has breached the contract to carry out his / her obligations. (Specific Performance) Notes_CPPDSM4080A_Version NSW Page 76 of 114

76 Injunction; an Order from the Court forbidding the party from breaching the contract. An Order from the Court declaring that the contract is at an end and requiring the party who has breached the contract to put the innocent party in the position he/she was in before the contract was entered into (Restitution). The type of remedy and its availability would depend very much on the type of contract and the type of breach. The Contracts Review Act, 1980 The Contracts Review Act describes an unjust contract as one that is unconscionable, harsh or oppressive. However, the circumstances that lead to the creation of such a contract may fall under the Fair Trading Act. It applies to contracts in connection with land, goods or services for personal use but not if the contract was entered into by the person in the course of a trade, business or profession. For instance, an unjust contract could be one where one party has been tricked or pressured by the other, or where a person has been encouraged to enter a contract by another party who was aware of the person s inability to understand the terms of the contract. Some of the things a court will look at when deciding if a contract is unjust or harsh include unequal bargaining positions of the parties; unreasonable or difficult-to-comply-with conditions in the contract; and the opportunity the parties had to obtain independent legal advice. Under the NSW Contracts Review Act the terms of a contract may be altered or disregarded if they are unjust or result from duress or unequal bargaining power. However, the courts do not try to draw up contracts for parties. The Court may: Refuse to enforce any or all of the provisions of a contract Declare the contract void, in whole or in part Vary any provisions Vary or terminate a contract over land The Court may also make orders for payment of money, compensation and transfer of real or personal property. In the event of a dispute the court may use any of the powers available as described above. Notes_CPPDSM4080A_Version NSW Page 77 of 114

77 Risk Management in Real Estate Risk management is the assessment of an organisation s resources and activities, and is an essential part of business. Risk can mean different things to different people. A risk that is unacceptable to one person may not be to another. The difference is in the perception of that risk - how worried are people about a certain event happening? Risk can be defined as: The chance of something happening that will have an impact upon objectives. It is measured in terms of likelihood and consequences. In its severest form, agency risk can be defined as:- Any activity or the outcome of any activity, which is carried out by the agency or representative of the agency, whereby the effect on the agency would: Have a high probability of occurring Be extremely expensive to fix Result in the loss of a critical service Result in substantial negative publicity Cause injury to a person physical or emotional Almost everybody that an agency comes into contact with, or has dealings with in the normal course of business has the potential to be affected by a risk. No individual, company or organisation is immune from the effects of risk. Those people are collectively known as the stakeholders, and include: Landlords Principals Tenants Agency Staff Vendors Licensees Purchasers Tradespeople Business Partners Other Offices in a Franchise Group Financial institutions which may have an interest in the Agency Notes_CPPDSM4080A_Version NSW Page 78 of 114

78 Neglecting to assess, manage and monitor risks may result in: Breaches of the relevant Acts Loss of income Loss of reputation Litigation Fines Increases in insurance premiums for the business Risk Management is a 4 part process: a. Identification of Risks What could go wrong that could affect the smooth running of the business? b. Risk Analysis If anything does go wrong what impact will it have on the business? Risks are typically analysed in terms of: Likelihood: How likely is this to happen? and Severity: What could the consequences be? c. Control of Risks How can the risks be controlled or minimised? How can the likelihood of a risk occurring be reduced? How can the severity or the consequences be minimised? d. Monitoring Risks Monitoring risk involves being aware of the risk environment by: Re-evaluating existing risks Using information to build awareness of new potential risks and acting upon that information. One major areas of risk in the real estate industry are the resources. These include human, physical, technical and financial resources. The other key risk area is that of compliance. Compliance involves (amongst others) ensuring that the legal requirements outlined in the various acts of parliament are adhered to, that personnel have the appropriate training relative to the level of responsibility (and area of work) Notes_CPPDSM4080A_Version NSW Page 79 of 114

79 An identification and analysis of risk would consider: What the risk could be? How it might occur? When it could occur? Who might the risk affect? Where could risks occur? Why the risk exists. By plotting these into a matrix, the control or minimisation measures start to become apparent and provide opportunity for effective solutions. In a real estate agency, may risks can be minimised by the use of good office systems and procedures, staff training and development. Risks can be significantly reduced if adherence to procedures via a policy, procedures and practices manual, is maintained. Specialist advice Part of managing risks in real estate is to be able to recognise when the agent has reached the limit of his or her knowledge, and specialist advice may be required. Very often, agents get themselves into trouble because they feel that they need to have an answer for everything, and start to make assumptions. Developing a network of professionals in other property related fields (as listed on page 7 of these notes) is an important part of building your reputation in the local area, and provides you with access to specialist advice should you need to call on it. Remember, every time you speak to one of your network about their specialist professional, it represents a business opportunity for them. From a risk management perspective, it is far preferable to acknowledge that you do not know the answer to a question or the solution to a problem and seek specialist help. Not only are you doing the right thing for your client, you are minimising the risk of a mis-statement, and building your skills and knowledge at the same time. Notes_CPPDSM4080A_Version NSW Page 80 of 114

80 Forms of Business Ownership Business Names and Entities Every Real Estate business trades under a particular name, whether it is Bob Jones Real Estate, Ray White Real Estate or Paragon Real Estate. Whatever the business name, it needs to be registered in NSW. Under the Business Names Act 2002, if you choose a name for your business that is not your own name then you must register the name with the Office of Fair Trading. For example, if your name is Julie Smith and you are trading as Julie Smith Real Estate, registration of that name is compulsory. The Business Names Act imposes obligations and prevents multiple organisations using the same name (passing off), and places business names and ownership of that name on the public record, so individuals can see who they are dealing with. For full details of the requirements regarding business names you should refer to the following site: This web page provides details of: Acceptability of business names Registration of a business name Requirement to display a business name Change of particulars of a registered business name Renewal of registration of a business name Cessation of business under a registered business name Many agencies are corporations, and the corporation name may well be John Smith Pty Ltd. The agency may trade as Oakville Realty, and legislation is in place to create a transparent link between the owner of the business, John Smith Pty Ltd and the trading name. Notes_CPPDSM4080A_Version NSW Page 81 of 114

81 Types of Business Organisation There are 3 main types of business organisation used by real estate agencies: Sole trader - as the name implies this is a person who chooses to operate their business by themselves. Partnership - where two or more people (up to twenty) choose to operate a business with each other as partners. Company - has directors and is a separate identity from those people who operate the business. The best form of ownership will depend on scale or size of the business, income factors, exposure to risk, how much control is required over the business and the type of business. It is always advisable to seek professional advice from solicitor or accountant before deciding on the best form of ownership of your business and it s implications for you personally. Sole Trader A sole trader is a type of business entity which legally has no separate existence from its owner. The business is a "sole" trader in the sense that the owner has no partners (partnership), and does not have the limitations of liability enjoyed by a corporation. A sole trader essentially refers to a natural person (individual) doing business in his or her own name (or registered trading name) and in which there is only one owner. All debts of the business are debts of the owner. Advantages for a sole trader: The main advantages of sole trader are ease to start up, relatively less regulation, full control over the business, easy to discontinue. A sole trader does not pay corporate taxes, but rather the person who organised the business pays personal taxes on the profits made, making accounting much simpler. A sole trader also does not have to be concerned with double taxation, as a corporate entity would. Disadvantages for a sole trader: A business organised as a sole trader will likely have a hard time raising capital since shares of the business cannot be sold, and there is a smaller sense of legitimacy relative to a business organised as a corporation. It can also sometimes be more difficult to raise bank finance, as sole traders cannot always offer the security that banks require. This form of business will have unlimited liability, so that if the business is sued, the owner is personally liable. The life span of the business is also uncertain. As soon as the owner decides not to have the business anymore, or the owner Notes_CPPDSM4080A_Version NSW Page 82 of 114

82 dies, the business ceases to exist. The business owner must also be well rounded, as he or she will take charge of all aspects of business. Another disadvantage of a sole proprietorship is that as a business becomes successful, the risks accompanying the business tend to grow. To minimise those risks, a sole trader has the option of forming a corporation at a later date. Partnership A partnership is a type of business entity in which partners (owners) share with each other the profits or losses of the business. Partnerships are often favoured over corporations for taxation purposes, as the partnership structure does not generally incur a tax on profits before it is distributed to the partners (i.e. there is no dividend tax levied). However owners of a partnership may be exposed to greater personal liability than they would as shareholders of a corporation. The partnership system is more popular amongst professionals than the sole trader. For a partnership to exist in Australia, four main criteria must be satisfied. Between the parties there must be: 1. A valid agreement; 2. To carry on a business (defined as "any trade, occupation or profession ) 3. In common (there must be some mutual rights, interests & obligations) with a 4. View to profit The basic form of partnership is a general partnership, in which all partners manage the business and are personally liable for its debts. The other forms which exist are limited liability partnerships (LP), in which certain partners relinquish their ability to manage the business in exchange for limited liability for the partnership's debts. Disadvantages of a partnership: There is unlimited liability for partners Reliance on other partners Potential responsibility for other partner s mistakes Profits are shared equally between partners Notes_CPPDSM4080A_Version NSW Page 83 of 114

83 Advantages of a partnership: Relatively easy to set up Reasonably low establishment costs Adding additional members to the partnership allows for the introduction of additional capital Tax advantages for partners Allows for a broader management base and shared decision making Partners can share the business workload. Potential for a reduction in tax liability as the tax rate is split between the two partners. This is a common reason for husband/wife partnerships. Joint and Several Liability in Partnerships People who are partners are jointly and severally liable for a debt to a third party. This means that it does not matter which partner borrowed the money they are all liable to repay the debt. If only one partner can be found then the person is liable by themselves. In NSW, the Partnership Act 1892 regulates partnerships. Before entering into a partnership there are many questions that need to be answered, such as: Drafting a Partnership Agreement Legal Questions about responsibilities and obligations Financial Questions about investments, loans, drawings etc. Dissolution of Partnership and partnership disputes. Death or disability of a partner. Notes_CPPDSM4080A_Version NSW Page 84 of 114

84 Corporations Proprietary Limited Company A corporation is a completely separate legal entity to the individuals that own the company. Unlike operating as a sole trader, there are many regulations come with operating a company and a thorough understanding of the rights and responsibilities involved in running a corporation is crucial. There are two main forms of corporation, a public company and a proprietary company which is the preferred structure for small businesses owners, and the most common form of real estate operation in NSW. The corporation as a separate legal entity A company is a separate legal entity or virtual person in the eyes of the law, and is controlled, by one or more directors, who must act in the best interests of the company. The duty to act in the best interests of the company is fundamental to corporation law. It does not matter whether the company is owned by a single shareholder and controlled by a single director, or the purpose for which the corporation was formed, ie., personal, taxation or business reasons. The Duties of directors to the company Directors have a fiduciary responsibility to the company: Must act with the utmost good faith Act honestly, and in the company s best interest Exercise care, diligence and skill Not to use inside information, make secret profits and make full disclosure, ie., not to make improper use of information or their positions. Act in the interest of creditors and beneficiaries (if the company is a trustee. Must exercise the degree of care and diligence that a reasonable person in a similar position in a company would exercise in similar circumstances Must disclose conflicts of interest (eg. personal interests) at directors meetings. Ensure that specific individuals take responsibility for the management and direction of the company, eg making sure that the accounts are properly maintained. Notes_CPPDSM4080A_Version NSW Page 85 of 114

85 In addition, directors should Obtain and act upon ongoing information about their company s operations Take an active part in board meetings Question the impact on their company s business performance of any proposal (particularly financial commitments) Seek professional advice to allow them to make informed decisions about any matter that comes before the board of directors for decision. Notify changes to directors to ASIC for inclusion on the public database when there are changes of directors. The Proprietary Limited Company A company has a separate legal existence, distinct from its owners, managers and operators. It also has its own income tax liability, separate to the owners and directors personal income tax. Effectively, a company has the powers of an individual and can: Own and dispose of property and other assets Enter into contracts Sue and be sued. A proprietary company would normally have the following features: Be limited by shares, meaning that shareholders are protected (to an extent) when it comes to the level of liability they face for company debts. Have at least one shareholder and no more than 50 non-employee shareholders. Cannot sell shares to the public, but can offer its shares to: Existing shareholders of the company; or Employees of the company or a subsidiary of the company. Must have at least one director who must live in Australia. Must also have an appointed secretary. The company secretary and directors must be at least 18 & one person may hold both positions. Must have a registered office and must inform ASIC of the office location. Must keep certain books and registers: A register of its shareholders and option holders, if any A register of charges (loans, creditors etc) and debenture holders Minutes of all general meetings and meetings of its directors Notes_CPPDSM4080A_Version NSW Page 86 of 114

86 Accounting and other records that correctly explain the transactions and financial position of the company and enable true and fair accounts to be prepared Must prepare accounts (audited depending on the size of the company and requirements of the shareholders). Must lodge an annual return with ASIC The company secretary and directors are officers of the company and as such are subject to requirements under the Corporations Act. They have specific responsibilities, including making sure the company notifies ASIC about changes to the identities, names and addresses of the company's directors and secretaries and that the company lodges its annual return. As with any business structure, there are certain advantages and disadvantages and the benefits of a proprietary limited set-up will depend on individual circumstances. Advantages of operating as a Pty Ltd Company can include: The liability of shareholders is limited to the share capital they have subscribed and any debts which they may have personally guaranteed. Shareholders and directors can be employed by the company under normal salary and wage conditions and their income taxed at personal rates Shareholder's personal assets are not under threat if the company incurs financial loss and debts, ie they have limited liability Flexibility Perpetual succession The company s shares can be transferred Imputation of taxation The company has power to acquire, hold and dispose of property The company is capable of suing and being sued Separate legal entity - upon incorporation the company becomes a new and independent legal entity. Company taxation is at a fixed rate. A company's income tax is calculated as a percentage of the taxable income earned by the company during the financial year. The current rate is 30 percent. The transfer of company ownership can be relatively simple Compared with other business structures. The company does not have to be wound up in the event of the death, disability or retirement of any on the persons involved. Notes_CPPDSM4080A_Version NSW Page 87 of 114

87 Disadvantages of operating as a Pty Ltd Company can include: Forming a proprietary company can be a complicated task and with the level of legal paperwork required, can take up to six weeks. There are greater regulations to adhere to under the Corporations Act and through the Australian Securities and Investment Commission. Increased record-keeping is required. Procedural difficulties for shareholders to bring a court action on their own behalf and on behalf of their company Loss of control that shareholders have in company management Penalty provisions applying to the defaulting officers and directors Fees of compliance with the Corporations Law. The paperwork eg. special resolutions and Annual General Meetings The need for auditors or accountants. Procedural difficulties for shareholders to bring a court action on their own behalf and on behalf of their company The duties of the directors company are more onerous than the other two forms of ownership. Notes_CPPDSM4080A_Version NSW Page 88 of 114

88 Industry Associations and Representative Bodies There are numerous associations and other bodies that represent the interests of Real Estate Agents in NSW. The key bodies are outlined below: Real Estate Institute of Australia (REIA) The Real Estate Institute of Australia (established in 1924) is the national professional association for the real estate industry in Australia. The REIA represents real estate industry interests by providing research and advice to Governments, the Opposition, media, the Real Estate industry and the public on a range of issues affecting the property market, including ethical and professional conduct. REIA also represents Australian real estate internationally as a founding member of the International Consortium of Real Estate Associations (ICREA), a principal member of the International Real Estate Federation (FIABCI) and as a co-operating association with the National Association of Realtors (NAR) in the USA. REIA has an excellent reputation as the most credible source of knowledge and considered opinion regarding the commercial and residential property markets in Australia. The REIA Also publishes a number of guidelines, which have been developed in consultation with the ACCC. These address issues identified by the ACCC and provide a consistent nation-wide approach for real estate agents to comply with the Trade Practices Act. The guidelines can be downloaded at: Subjects covered in the guides are: Auctions Description of property Misleading and deceptive conduct Photographic representations Price offering Price ranges for properties Rebates on advertising Two-tier marketing Notes_CPPDSM4080A_Version NSW Page 89 of 114

89 Real Estate Institute of NSW (REINSW) The Real Estate Institute of NSW was established in 1910 to protect the interests of those directly involved in the real estate industry, and to represent and support the Real Estate Industry in NSW Members of the REINSW are bound by a strict Code of Conduct which governs relationships with their clients, customers and with other members. Once a company is a member, all staff is bound by the Code of Conduct and also receives the benefits of membership. The REINSW, which has approximately 1,500 member firms, offers members numerous services including: Agency practice support Publications Member Hotline Sales & Supply Centre Compliance support GST resources Education & Training Commercial benefits Forums & events Standards Government, industry & professional advocacy Research & Policy Online agency/agent directory Professional recognition Members can also join one or more of the REI chapters, such as: The Property Management Chapter The Strata Management Chapter The Residential Sales Chapter The Auctioneers Chapter The Business Agency Chapter The Valuers Chapter. Each chapter has a committee that meets regularly to discuss important issues. These might include planned changes to legislation, or complaints from members regarding matters pertaining to the industry. Notes_CPPDSM4080A_Version NSW Page 90 of 114

90 Property Council of Australia (PCA) The Property Council of Australia represents owners and managers of commercial, industrial and retail properties, providing members with: Forums for developing markets, contacts and doing business. Representations and recommendations to government when considering new regulations, laws or standards. Provision of information & basic market research such as commercial rentals and vacancy levels, as well as cost-effective management. Specialised training & professional development Stock & Station Agents Association of NSW (SSA) The Stock and Station Agents Association (est. 1910) represents the stock and station agency profession, and establish sound ethical standards of practice in the profession. The Association represents the industry in legal, economic and political matters. It is a strong forum for its members in determining policy and protecting practitioners as well as those who use their services. It is the major contributor to the national body, the Australian Council of Livestock Agents Ltd. The SSA supports its members and their businesses by providing information and representation on: Industry developments, Ethical Business Practices Changes in legislation affecting rural and country agency and business practice Practical training, education and professional development Membership of the Association is open to firms, corporations and sole traders. Stock and station agents are generally professionals in the sale or purchase of livestock as well as land used for pastoral or agricultural purposes. The large majority of stock and station agents are also real estate agents. They generally operate businesses in the country areas. Notes_CPPDSM4080A_Version NSW Page 91 of 114

91 The Auctioneers and Valuers Association of Australia The Auctioneers and Valuers Association of Australia represents the interests of chattel auctioneers, who sell personal property, furniture, fine arts and machinery. Australian Property Institute (API) The Australian Property Institute represents the interests of valuers, land economists and other professionals in the land administration field. Valuers play an important role in real estate because they are able to give sworn valuations of property. The valuation of a property is not always the same as the selling price because so many different factors are taken into account. Sworn valuations are required by: Banks issuing mortgages over property Executors of wills Courts in the event of property disputes or settlements Property trusts Partnerships The Australian Society of Real Estate Agents and Valuers The Australian Society of Real Estate Agents and Valuers represents the interests of a variety of members who are involved in both real estate and valuation practice. Real Estate Employers Federation (REEF) The Real Estate Employers Federation of NSW is a State registered industrial organisation of employers. As a member based association it has been providing guidance to real estate employers for over 30 years on a wide range of employment related issues. REEF assists employers in the Real Estate Industry through the maze of everchanging employment regulations. REEF members receive the following services: Unlimited access to our telephone advisory service; Updates of all changes to relevant industrial awards and employment legislation; Regular newsletters and information services; Access to our bulletin service; Notes_CPPDSM4080A_Version NSW Page 92 of 114

92 Institute of Strata Title Management (ISTM) The Institute of Strata Title Management formed in 1980 to provide education and fellowship for strata managing agents. Its membership is made up of Strata Managers who hold either a licence or a certificate of registration, Employees of strata businesses, and Suppliers of products & services to the Strata Industry and Owners Corporations. The ISTM offers conferences, seminars and educational courses for members as well as representing the industry with government and being involved in the operation and regulation of the industry. National Real Estate Franchise Association (NREFA) NREFA was formed in August 1996 to develop the specialist needs of real estate franchising and to represent these needs to government and other bodies. The core business activities of NREFA are: 1. Preparation of best practice resource material and training activity research. 2. Meetings and conference organisation, and networking facilitation. In most instances, activities undertaken by NREFA result in benefit to all real estate agents and the real estate industry as a whole, not just real estate franchising. The Real Estate Association of NSW (REA) The Real Estate Association is a trade union of employees registered under the Industrial Relations Act. It represents employees in industrial relations matters such as the negotiating of award payments. Marketing Groups Marketing groups use the same marketing name and similar business systems to project a larger corporate image. Usually there is a lower level of cost and commitment than a franchise group arrangement. Joining a Marketing Group is seen as a cost effective way for local businesses to enjoy the benefits of being seen as part of a recognised brand, whilst maintaining their local name and strength. Members also enjoy the benefits of group purchasing power and wider exposure on a corporate website. Examples of marketing groups are First National and The Professionals. Notes_CPPDSM4080A_Version NSW Page 93 of 114

93 Franchise Groups Franchising is business system where a franchisor licenses a tried and proven method of doing business to a franchisee in exchange for a royalty payment based on sales or profits, as well as recurring fees. Franchisors generally provide branding, a corporate image and advertising, business systems, training, goodwill and other support services. In return for the royalty fee paid, the franchisee also has access to the systems, trademark and name of the franchisor. Examples of franchise groups are Raine & Horne, Richardson & Wrench, Ray White, L.J. Hooker and Century 21. Many real estate companies join a recognised brand name in the market place which can provide access to more listings. Another advantage is the ready made referral networks available to members of both franchise groups and marketing groups. Industrial Relations Salaries and Allowances Salaries and wages in the NSW Real estate industry are governed by the NSW Real Estate Award (details on page 98) The Award outlines remuneration and minimum rates of pay and allowances. Employers can pay above the minimum in practice, few do. Normally only licensed agents can be paid on a commission only basis. Some employers have negotiated individual Australian Workplace Agreements (AWA) for salespeople, though these are rare. Most salespeople and property managers are paid some form of incentive payment in addition to their wages and allowances. The two most common systems are: 1. Debit / Credit The award wages and allowances are debited to the employee's wages account, and commission payments at the agreed rate (commonly 25% - 40% of the total agency commission) are credited to the employee's wages account. When the account is in credit, ie the commissions earned by the employee exceed the wages and allowances paid out the employee receives the difference. Notes_CPPDSM4080A_Version NSW Page 94 of 114

94 2. Target The employer and the employee agree on a target value of total agency commissions to be achieved by the employee during a period, usually a quarter. Once the target has been exceeded, the employee is paid a proportion of the excess, usually on a sliding scale upwards. i.e. the more the target has been exceeded, the higher the proportion of commission is paid to the employee. Working Hours and Leave The award specifies that the normal working week in the Industry is a 5 day, 38 hour week. However, in practice, the fact that the majority of Real Estate industry employees are driven by commission, working hours often exceed those in the award. The award also specified the amount of sick leave, holidays (4 weeks), long service leave, maternity/paternity leave and special leave for illness/death of close relatives. Superannuation Under the Federal Government's national superannuation legislation if is compulsory for employers to pay a superannuation contribution on behalf of the employee. This contribution is currently 9% of the weekly wage (excluding allowances). The employee can also contribute to the fund at any rate they choose. Workers compensation The Workers Compensation Act makes it mandatory for the employer to take out insurance to cover the employee in the event of sickness or accident that occurs at work or as a result of a workplace incident. This cover extends to include the employee being involved in an accident if coming to or returning home from the place of employment. Basically it ensures that an employee who may be involved in a workplace accident, e.g. breaks a hand failing at work, will receive fair financial compensation whilst recuperating at home. Notes_CPPDSM4080A_Version NSW Page 95 of 114

95 Occupational Health and Safety The employer must ensure the workplace environment is safe and without risk to the health of employees. To do this they need to: Provide and maintain a safe and healthy workplace Maintain all equipment in a safe, secure and sound operational condition Provide adequate facilities to cater for the welfare of all employees Provide information and training for employees on OHS issues Maintain information and records relating to OHS issues Encourage employee participation in the promotion of OHS issues. Employment Agreement Under the Award, an Employment Agreement is compulsory (with some exceptions), and the content is prescribed under the Award. The agreement must set out pay and employment conditions. The agreement must be registered with REEF. Real Estate award information may be accessed through the internet. website: Notes_CPPDSM4080A_Version NSW Page 96 of 114

96 Conclusion This unit of Competence has covered many facets of the real estate industry, and has provided an overview of the legislative and ethical framework under which real estate agents work. Whilst you may be surprised at he amount of knowledge you need to be a real estate agent, salesperson or property manager, this is just an introduction, the start of the learning process successful agents are those that can provide a better service to their clients than their peers and competitors, and who can demonstrate the depth of their knowledge and value to their clients time and time again. Success is dependent upon agents continually developing their knowledge of the industry, the legislative requirements and ethical best practice. However, knowledge is not everything the skill of the agent is a critical factor in their success. The most successful sportspeople in the world do not just learn a skill, or gain the knowledge to be better and then not practice it. They all practice and train to perfect their skills not once, but over and over. They have a determination to be better than all the others in their chosen sport. Real Estate is the same to be successful you have to practice over and over again. Every time you re-visit the basics you will learn something new something that will help you set yourself apart from the pack help you become a winner. Successfully completing this unit is just the start. Notes_CPPDSM4080A_Version NSW Page 97 of 114

97 Appendix Property, Stock and Business Agents Regulation 2003: Rules of Conduct Schedule 1 General rules of conduct applying to all licensees and registered persons 1 Knowledge of Act and regulations An agent must have a knowledge and understanding of the Act and the regulations under the Act, and such other laws relevant to the category of licence or certificate of registration held (including, laws relating to residential tenancy, fair trading, trade practices, anti-discrimination and privacy) as may be necessary to enable the agent to exercise his or her functions as agent lawfully. 2 Fiduciary obligations An agent must comply with the fiduciary obligations arising as an agent. 3 Honesty, fairness and professionalism (1) An agent must act honestly, fairly and professionally with all parties in a transaction. (2) An agent must not mislead or deceive any parties in negotiations or a transaction. 4 Skill, care and diligence An agent must exercise reasonable skill, care and diligence. 5 High pressure tactics, harassment or unconscionable conduct An agent must not engage in high pressure tactics, harassment or harsh or unconscionable conduct. 6 To act in client's best interests An agent must act in the client's best interest at all times unless it would be contrary to the Act or regulations under the Act or otherwise unlawful to do so. 7 Confidentiality An agent must not, at any time, use or disclose any confidential information obtained while acting on behalf of a client or dealing with a customer, unless: (a) the client or customer authorises disclosure, or (b) the agent is permitted or compelled by law to disclose. 8 To act in accordance with client authority An agent must not act as an agent or represent himself or herself as acting as an agent on behalf of a person without written authority. 9 To act in accordance with client's instructions An agent must act in accordance with a client's instructions unless it would be contrary to the Act or regulations under the Act or otherwise unlawful to do so. 10 Licensee must ensure employees comply with the Act and regulations An agent who is the licensee-in-charge at a place of business of a licensee must take reasonable steps to ensure other licensees or registered persons employed in the business conducted there comply with the Act and regulations under the Act. 11 Conflicts of interest An agent must not accept an appointment to act, or continue to act, as an agent if doing so would place the agent's interests in conflict with the client's interests. 12 Referral to service provider (1) An agent who refers a principal or prospect to a service provider must not falsely represent to the principal or prospect that the service provider is independent of the agent. (2) A service provider is considered to be "independent" of an agent if: a. the agent receives no rebate, discount, commission or benefit for referring a client or customer to the service provider, and b. the agent does not have a personal or commercial relationship with the service provider. Notes_CPPDSM4080A_Version NSW Page 98 of 114

98 (3) The following are examples of a personal or commercial relationship: a. a family relationship, b. a business relationship, c. a fiduciary relationship, d. a relationship in which one person is accustomed, or obliged, to act in accordance with the directions, instructions or wishes of the other person. (4) If the service provider is not independent of the agent, the agent must disclose to the principal or prospect: a. the nature of any relationship, whether personal or commercial, the agent has with the service provider, and b. the nature and value of any rebate, discount, commission or benefit the agent may receive, or expects to receive, by referring the client or customer to the service provider. 13 Licensee not to recommend engagement of services of solicitor or licensed conveyancer acting for other party (1) An agent must not recommend that a principal or prospect engage the services of a solicitor or licensed conveyancer, or firm of solicitors or licensed conveyancers, if the agent knows that the solicitor or licensed conveyancer, or the firm of solicitors or licensed conveyancers, acts or will be acting for the other party to the agreement concerned. (2) Subclause (1) does not prevent an agent recommending that a principal or prospect engage the services of a solicitor or licensed conveyancer if no other solicitor or licensed conveyancer is available (for example, in a remote location). (3) If no other solicitor or licensed conveyancer is available, the agent must, in recommending their engagement, advise the principal or prospect that the solicitor or licensed conveyancer is or will be acting for the other party. 14 Inducements An agent must not offer to provide to any other person any gift, favour or benefit, whether monetary or otherwise, in order to induce a third person to engage the services of the agent as agent in respect of any matter. 15 Soliciting through false or misleading advertisements or communications An agent must not solicit clients or customers through advertisements or other communications that the agent knows or should know are false or misleading. 16 Insertion of material particulars in documents An agent must not submit or tender to any person for signature a document, or cause or permit any document to be submitted or tendered to any person for signature, unless at the time of submission or tendering of the document all material particulars have been inserted in the document. 17 Duty to provide copy of signed documents An agent who submits or tenders a document to any person for signature, or who causes or permits a document to be submitted or tendered to any person for signature, must immediately after the person has signed the document give a copy of the document to the person. 18 Representations about the Act or regulations (1) An agent must not falsely represent to a person the nature or effect of a provision of the Act or any regulation under the Act. (2) An agent must not, either expressly or impliedly, falsely represent, whether in writing or otherwise, to a person that a particular form of agency agreement or any term of such an agreement is required by the Act or a regulation under the Act. 19 Agency agreements must comply with regulations An agent must not enter into an agency agreement unless the agreement complies with any applicable requirements of this Regulation, as required by section 55 of the Act. Notes_CPPDSM4080A_Version NSW Page 99 of 114

99 Schedule 2 Rules specific to real estate agents, real estate salespersons and on-site residential property managers Part 1 Sales 1 Preliminary physical inspection of property for sale to be conducted by agent An agent must not act on behalf of a principal in respect of the sale of a property unless the agent has conducted a preliminary physical inspection of the property. 2 Sales inspection report required for property On completion of the inspection required by clause 1, an agent must prepare and give to the principal a sales inspection report for the property. The report must specify the following and be signed by the agent: (a) the principal's name and address, (b) the date of preparation of the report, (c) the agent's name, business address and telephone number, (d) a description of the property, including the address of the property and such other details as may be necessary to enable the property to be readily identified, (e) a description of any fittings and fixtures that are to be included in the sale of the property, (f) any terms and conditions of sale known to the agent (for example, whether or not vacant possession is to be given), (g) the agent's recommendation as to the most suitable method of sale of the property, (h) the agent's estimate of the selling price (or price range) for the property, (i) details of any covenants, easements, defects, local government notices or orders affecting the property that are known to the agent, (j) details of any special instructions about the marketing and showing of the property, (k) the name, business address, telephone number and address for service of documents of the principal's solicitor. 3 Principal to be informed of an offer (1) The agent must, unless the principal has instructed to the contrary in writing, inform the principal of all offers of purchase as soon as practicable after receiving the offer up until exchange of contracts has taken place. (2) If the agent is not going to inform the principal of an offer, the agent must inform the person who made the offer that the offer will not be submitted to the principal. (3) The agent may inform the principal of an offer orally or in writing and must identify the party by whom the offer is made. If the principal is informed orally, the agent must confirm the information in writing. (4) This clause does not apply to bids made in the course of an auction. 4 Setting aside minimum or reserve price at auction When the bidding at an auction does not reach the minimum or reserve price fixed for the property by the principal, the licensee conducting the auction must not set aside that price without the express permission of the principal or a person authorised to give that permission by the principal. 5 Information to be given when expression of interest deposit paid (1) When an agent issues a receipt for an expression of interest deposit made prior to exchange of contracts, the agent must inform the person who paid the deposit that the principal has no obligation to sell the property or the purchaser to buy the property and the deposit is refundable if a contract for the sale of the property is not entered into. The information must be provided in writing and may be provided on the receipt. (2) The agent must promptly inform the principal when an expression of interest deposit has been paid. (3) The agent must promptly inform the person who paid the deposit when the agent becomes aware of any subsequent offer to purchase the property received from any other person. The agent must also advise the person who paid the deposit that they have the right to make further offers up until exchange of contracts has taken place. 6 Notifying managing agent of appointment to sell residential property If an agent accela an appointment to sell residential property that is tenanted, the agent must immediately give written notice of the appointment to any agent responsible for managing the property. 7 Licensee must not accept payment for a referral An agent must not demand or accept a fee or other valuable consideration for referring the principal to a buyers agent. Notes_CPPDSM4080A_Version NSW Page 100 of 114

100 8 Bidding on behalf of telephone bidder An agent must not bid at an auction on behalf of a person who is giving instructions to the agent by telephone unless: (a) the written authority on the basis of which the agent bids on behalf of the person contains an acknowledgement that the person has been given a copy of the conditions that are applicable in respect of the sale, and (b) the agent is satisfied that the person has been given a copy of those conditions. 9 Agent participating in exchange of contracts for residential property If an agent participates in the exchange or making of a contract for the sale of residential property, the agent must serve a copy of the contract within 2 business days on: (a) each party to the contract, unless paragraph (b) requires the agent to serve a copy of the contract on a solicitor or conveyancer acting for the party, or (b) the solicitor or conveyancer acting for a party to the contract if the party has notified the agent, or it is apparent from the contract, that a solicitor or conveyancer is acting for the party. Part 2 - Property management Note: These rules apply to real estate agents, registered persons they employ and on-site residential property managers. 10 Inspection report An agent must, as soon as practicable after entering into an agency agreement in respect of the management of property, prepare and give to the principal an inspection report for the property. The inspection report must include the following and be signed by the agent: (a) the name and address of the principal, (b) the address of the property, (c) the date of preparation of the report, (d) the agent's name, licence number and business address, (e) a description of the exterior and interior condition of the property, including fittings, fixtures, improvements and anything provided with the property, (f) details of any work still to be completed by the principal on the property. 11 Inspection of property for rent (1) An agent must accompany a prospective tenant on an inspection of the property. (2) An agent must not give the keys to a property to a prospective tenant, even for a short time. (3) Subclauses (1) and (2) do not apply if the principal, and, if the property is currently let, the tenant, have authorised otherwise in writing. 12 Use of collection agent to collect rent (1) A licensee must not use the services of a collection agent to collect rent on behalf of a principal unless the arrangements for the collection and holding of that rent pending its payment to the agent or the principal comply with such guidelines as the Director-General may issue from time to time under this clause (including guidelines requiring rent collected by a collection agent to be paid into and retained in a trust account). (2) In this clause: collection agent means a person who collects rent as agent for and on behalf of a licensee. 13 Maintenance or repairs of rental property (1) An agent managing a rental property must promptly respond to and, subject to the principal's instructions, attend to all requests by a tenant, for maintenance of, or repairs to, the property. (2) If the principal has instructed that a repair not be carried out, the agent must inform the principal if the principal's failure to carry out the repair would constitute a breach of any tenancy agreement in force in relation to the property. 14 Breach of tenancy agreement An agent managing a rental property must immediately notify the principal in writing if the agent becomes aware of a tenant's breach of the tenancy agreement. 15 Notifying tenant of appointment to sell (1) This clause applies if an agent managing a rental property is aware that: (a) the property is listed for sale, or (b) a real estate agent has been appointed to act on the sale of the property. (2) The agent must immediately give the tenant written notice of: (a) the intended sale of the property, or Notes_CPPDSM4080A_Version NSW Page 101 of 114

101 (b) the appointment of the real estate agent for the sale of the property (together with the name and contact details of the agent). 16 Final inspection of property An agent must take all reasonable steps to ensure that any final inspection of the property, on vacation of the property, is conducted in the presence of the tenant (unless otherwise authorised by the tenant). Note: "Reasonable steps" by an agent would comprise contacting the tenant to discuss suitable times for the inspection, arranging to meet at a particular time and place and proceeding to meet the tenant at the arranged time and place. 17 Obtaining tenant's signature for rental bond refund An agent must not solicit or obtain the signature of a tenant to any document relating to the refund of a rental bond prior to the termination of the tenancy, unless the document directs the bond to be repaid in full to the tenant or transferred to another tenancy in accordance with the tenant's directions. Schedule 3 Rules specific to stock and station agents and registered persons they employ Part 1 - Sales 1 Preliminary physical inspection of the property to be conducted by agent An agent must not act on behalf of a principal in respect of the sale of any property, including livestock included in the sale, unless the agent has conducted a preliminary physical inspection of the property. This clause does not apply to a sale solely of livestock. 2 Sales inspection report required for the property On completion of the inspection required by clause 1, an agent must prepare and give to the principal a sales inspection report for the property. The report must specify the following and be signed by the agent: (a) the principal's name and address, (b) the date of preparation of the report, (c) the agent's name, business address and telephone number, (d) a description of the property, including the address of the property and such other details as may be necessary to enable the property to be readily identified, and the size of the property in hectares, (e) a description of the services provided to the property (for example, power, phone, airstrip, closest schools, mail service, closest rail service), (f) information about the type of country (topography, soils, timber, arable area, pasture development), water (irrigation, dams, rainfall) and production capacity, (g) a description of any fittings and fixtures that are to be included in the sale of the property, (h) a description of items included in the sale such as house, other accommodation, grain storage, woolshed, sheep/cattle yards or plant equipment, (i) a description of other items to be included in the sale, such as livestock, (j) any terms and conditions of sale known to the agent (for example, whether or not vacant possession is to be given), (k) the agent's recommendation as to the most suitable method of sale of the property, (l) the agent's estimate of the selling price (or price range) for the property, (m) details of any covenants, easements, defects, local government notices or orders affecting the property that are known to the agent, (n) details of any special instructions about the marketing and showing of the property, (o) the name, business address, telephone number and address for service of documents of the principal's solicitor. 3 Principal to be informed of an offer (1) The agent must, unless the principal has instructed to the contrary in writing, inform the principal of all offers of purchase as soon as practicable after receiving the offer up until exchange of contracts has taken place. (2) If the agent is not going to inform the principal of an offer, the agent must inform the person who made the offer that the offer will not be submitted to the principal. (3) The agent may inform the principal of an offer orally or in writing and must identify the party by whom the offer is made. If the principal is informed orally, the agent must confirm the information in writing. (4) This clause does not apply to bids made in the course of an auction. Notes_CPPDSM4080A_Version NSW Page 102 of 114

102 4 Information to be given when expression of interest deposit paid (1) When an agent issues a receipt for an expression of interest deposit made prior to exchange of contracts, the agent must inform the person who paid the deposit that the principal has no obligation to sell the property or the purchaser to buy the property and the deposit is refundable if a contract for the sale of the property is not entered into. The information must be provided in writing and may be provided on the receipt. (2) The agent must promptly inform the principal when an expression of interest deposit has been paid. (3) The agent must promptly inform the person who paid the deposit when the agent becomes aware of any subsequent offers to purchase the property received from any other person. The agent must also advise the person who paid the deposit that they have the right to make further offers up until exchange of contracts has taken place. 5 Agent must not accept payment for a referral An agent must not demand or accept a fee or other valuable consideration for referring the principal to a buyers agent. 6 Bidding on behalf of telephone bidder An agent must not bid at an auction on behalf of a person who is giving instructions to the agent by telephone unless: (a) the written authority on the basis of which the agent bids on behalf of the person contains an acknowledgement that the person has been given a copy of the conditions that are applicable in respect of the sale, and (b) the agent is satisfied that the person has been given a copy of those conditions. 7 Setting aside minimum or reserve price at auction When the bidding at an auction does not reach the minimum or reserve price fixed for the property by the principal, the licensee conducting the auction must not set aside that price without the express permission of the principal or a person authorised to give that permission by the principal. Part 2 - Property management 8 Inspection report An agent must, as soon as practicable after entering into an agency agreement in respect of the management of property, prepare and give to the principal an inspection report for the property. The inspection report must include the following and be signed by the agent: (a) the name and address of the principal, (b) the address of the property, (c) the date of preparation of the report, (d) the agent's name, licence number and business address, (e) a description of the exterior and interior condition of the property, including fittings, fixtures, improvements and anything provided with the property, (f) details of any work still to be completed by the principal on the property. 9 Inspection of property for rent (a) An agent must accompany a prospective tenant on an inspection of the property. (b) An agent must not give the keys to a property to a prospective tenant, even for a short time. (c) Subclauses (1) and (2) do not apply if the principal, and, if the property is currently let, the tenant, have authorised otherwise in writing. 10 Use of collection agent to collect rent (1) A licensee must not use the services of a collection agent to collect rent on behalf of a principal unless the arrangements for the collection and holding of that rent pending its payment to the agent or the principal comply with such guidelines as the Director-General may issue from time to time under this clause (including guidelines requiring rent collected by a collection agent to be paid into and retained in a trust account). (2) In this clause: collection agent means a person who collects rent as agent for and on behalf of a licensee. 11 Maintenance or repairs of rental property (1) An agent managing a rental property must promptly respond to and, subject to the principal's instructions, attend to all requests by a tenant, for maintenance of, or repairs to, the property. (2) If the principal has instructed that a repair not be carried out, the agent must inform the principal if the principal's failure to carry out the repair would constitute a breach of any tenancy agreement in force in relation to the property. Notes_CPPDSM4080A_Version NSW Page 103 of 114

103 12 Breach of tenancy agreement An agent managing a rental property must immediately notify the principal in writing if the agent becomes aware of a tenant's breach of the tenancy agreement. 13 Notifying tenant of appointment to sell (1) This clause applies if an agent managing a rental property is aware that: (a) the property is listed for sale, or (b) an agent has been appointed to act on the sale of the property. (2) The agent must immediately give the tenant written notice of: (a) the intended sale of the property, or (b) the appointment of the agent for the sale of the property (together with the name and contact details of the agent). 14 Final inspection of property An agent must take all reasonable steps to ensure that any final inspection of the property, on vacation of the property, is conducted in the presence of the tenant (unless otherwise authorised by the tenant). Note: "Reasonable steps" by an agent would comprise contacting the tenant to discuss suitable times for the inspection, arranging to meet at a particular time and place and proceeding to meet them at the arranged time and place. Schedule 4 Rules specific to business agents and registered persons they employ 1 Preliminary physical inspection of the business to be conducted by agent An agent must not act on behalf of a principal in respect of the sale of a business unless the agent has conducted a preliminary physical inspection of the business or has the principal's written instructions that such an inspection is not required by the principal. 2 Sales inspection report required for business On completion of the inspection required by clause 1, an agent must prepare and give to the principal a sales inspection report for the business. The report must specify the following and be signed by the agent: (a) the principal's name and address, (b) the date of preparation of the report, (c) the agent's name, business address and telephone number, (d) a description of the business, including the address of the business and such other details as may be necessary to enable the business to be readily identified, the business name and its ABN, (e) a description of inclusions to be included in the sale such as goodwill, plant, fittings and stock in inventory, together with details of any encumbrances affecting those inclusions, (f) any terms and conditions of sale known to the agent, (g) the agent's recommendation as to the most suitable method of sale of the business, (h) the agent's estimate of the selling price (or price range) for the business, (i) details of any defects, local government notices or orders affecting the business that are known to the agent. 3 Confirmation of specific instructions (1) Before or at the time of entering into an agency agreement under which the agent will act for the seller on the sale of a business, the agent must prepare for inclusion in the agency agreement written confirmation of any specific instructions given to the agent by the principal before the agreement is entered into about any of the following: (a) arrangements for the transfer to the purchaser of any liability for the leasing or hire purchase of goodwill, plant, fittings or stock in inventory included in the sale, (b) the marketing of the business, (c) the entitlement of prospective purchasers to inspect the premises of the business and the circumstances under which such an inspection can be made, (d) the entitlement of prospective purchasers to inspect records, books of account and other documents concerning the business and the circumstances under which such an inspection can be made. (2) The written confirmation may be prepared and be included as part of the agency agreement. Notes_CPPDSM4080A_Version NSW Page 104 of 114

104 4 Principal to be informed of an offer (1) The agent must, unless the principal has instructed to the contrary in writing, inform the principal of all offers of purchase as soon as practicable after receiving the offer up until exchange of contracts has taken place. (2) If the agent is not going to inform the principal of an offer, the agent must inform the person who made the offer that the offer will not be submitted to the principal. (3) The agent may inform the principal of an offer orally or in writing and must identify the party by whom the offer is made. If the principal is informed orally, the agent must confirm the information in writing. (4) This clause does not apply to bids made in the course of an auction. 5 Information to be given when expression of interest deposit paid (1) When an agent issues a receipt for an expression of interest deposit made prior to exchange of contracts, the agent must inform the person who paid the deposit that the principal has no obligation to sell the business or the purchaser to buy the business and the deposit is refundable if a contract for the sale of the business is not entered into. The information must be provided in writing and may be provided on the receipt. (2) The agent must promptly inform the principal when an expression of interest deposit has been paid. (3) The agent must promptly inform the person who paid the deposit when the agent becomes aware of any subsequent offers to purchase the business received from any other person. The agent must also advise the person who paid the deposit that they have the right to make further offers up until exchange of contracts has taken place. 6 Agent must not accept payment for a referral An agent must not demand or accept a fee or other valuable consideration for referring the principal to a buyers agent. Schedule 5 Rules specific to buyers agents 1 Statement of property details At the time of entering into an agency agreement with a principal to act as buyer's agent for the principal, an agent must prepare and give the principal a statement of property details that is signed by the agent and specifies the following: (a) details known to the agent of the type of property to be purchased, (b) details of any special instructions about the property to be purchased (for example, an instruction that vacant possession is required in the case of a rented property). Note: These details can be changed by agreement between the parties or as provided by the agency agreement. 2 Principal to be informed of negotiations The agent must keep the principal informed of each stage of the negotiation of a purchase price, as instructed by the principal. This clause does not apply to bids made in the course of an auction. 3 Licensee to obtain best possible purchase price An agent is to use his or her best efforts to obtain the best possible purchase price, without breaching standards of ethical conduct or engaging in conduct that is contrary to good agency practice. 4 Licensee not to exceed agreed purchase price in negotiations or at auction (1) In negotiations for the purchase of a property, the agent must not exceed the maximum or agreed price fixed by the principal without the express written authorisation of the principal or a person authorised by the principal. (2) When the bidding at an auction exceeds the maximum or agreed price fixed by the principal, the agent must not continue bidding without the express authorisation of the principal or a person authorised by the principal. 5 Information to be given when expression of interest deposit paid (1) When the principal pays an expression of interest deposit in respect of the proposed purchase of a property prior to exchange of contracts, the agent must inform the principal that the vendor has no obligation to sell the property or the purchaser to buy the property and the deposit is refundable if a contract for the sale of the property is not entered into. The information must be provided in writing and may be provided on the receipt issued by the vendor or their agent. (2) An agent must promptly inform the principal when the agent becomes aware of any subsequent offers to purchase the property. Notes_CPPDSM4080A_Version NSW Page 105 of 114

105 6 Licensee must not accept payment for a referral An agent must not demand or accept a fee or other valuable consideration for referring the principal to a selling agent. Schedule 6 Rules specific to strata, community, residential and other property managers 1 Co-operation about records, access and transfer If an agent is acting on behalf of a principal in the management of property and is advised by another agent that the other agent ( the new agent ) has been engaged to act on behalf of that principal in the management of that property, the agent must co-operate with the new agent in regards to access to the records of the principal, including but not limited to making the records reasonably available (according to law), and facilitating the transfer of management functions between the agent and the new agent. 2 Disclosure of potential agency If an agent intends to act (or offers to act) for a principal in the management of property and is aware that another agent is or other agents are managing that property for the principal, the agent must, unless the principal otherwise directs in writing, disclose their intention to act or offer to act to the current agent or agents. 3 Use of collection agent to collect rent (1) A licensee must not use the services of a collection agent to collect rent or levies on behalf of a principal unless the arrangements for the collection and holding of the rent or levies pending payment to the agent or the principal comply with such guidelines as the Director-General may issue from time to time under this clause (including guidelines requiring rent or levies collected by a collection agent to be paid into and retained in a trust account). (2) In this clause: collection agent means a person who collects rent or levies as agent for and on behalf of a licensee. 4 Confirmation of specific instructions--property management services (1) Before or at the time of entering into an agency agreement under which the agent will provide property management services in respect of the leasing of residential property or rural land, the agent must prepare for inclusion in the agency agreement written confirmation of the extent of the agent's authority to undertake the following duties in connection with the management of the property and any limitations on the agent's authority to undertake those duties: (a) obtaining references from prospective tenants, arranging inspections of the property by prospective tenants and choosing a tenant, (b) entering into and signing a tenancy agreement (specifying the term for which the property may be let), (c) undertaking inspections of the property, (d) effecting repairs to and maintaining the property or engaging tradespersons to do so and limitations on expenditure that may be incurred by the agent without obtaining the principal's approval, (e) paying disbursements and expenses incurred in connection with the agent's management of the property, (f) collecting rent, (g) receiving, claiming and disbursing rental bond money, (h) serving notices for breach of the tenancy agreement or to terminate the tenancy agreement, (i) undertaking the necessary steps to obtain vacant possession and recover any money owing to the principal in relation to the tenancy of the property, (j) representing the principal in any tribunal or court proceedings in respect of the tenancy of the property, (k) paying accounts for amounts owing in relation to the property (for example, water rates and charges, council rates, maintenance expenses, and owners corporation levies), (l) advertising the property for letting or re-letting, (m) reviewing the rent at the end of a tenancy. (2) (Repealed) 5 Confirmation of specific instructions--leasing of property (1) Before or at the time of entering into an agency agreement under which the agent will act for the owner of residential property or rural land in relation to the entering into a lease of the residential property or rural land, the agent must prepare for inclusion in the agency agreement written confirmation of the extent of the agent's authority to undertake the following duties in connection with the entering into of the lease and any limitations on the agent's authority to undertake those duties: (a) obtaining references from prospective tenants, arranging inspections of the property by prospective tenants and choosing a tenant, (b) entering into and signing a tenancy agreement, (c) undertaking an initial inspection of the property, Notes_CPPDSM4080A_Version NSW Page 106 of 114

106 (d) collecting initial rent payment, (e) receiving and disbursing rental bond money, (f) advertising the property for letting. (2) (Repealed) 6 Confirmation of specific instructions--strata managing agent or community managing agent (1) Before or at the time of entering into an agency agreement under which the agent will exercise the functions of a strata managing agent or community managing agent, the agent must prepare for inclusion in the agency agreement written confirmation of the extent of the agent's authority to undertake the following duties in connection with the exercise of those functions and any limitations on the agent's authority to undertake those duties: (a) undertaking the financial management of funds and books of account, (b) holding documents and maintaining records relating to the scheme (for example, the strata roll, notices, and minutes of meetings), (c) arranging building inspections and reports, (d) effecting repairs to and maintaining common property or engaging appropriately qualified tradespersons to do so and limitations on expenditure that may be incurred by the agent without obtaining the principal's approval, (e) paying disbursements and expenses incurred in connection with the agent's management of the scheme, (f) arranging insurance cover for the scheme, (g) serving notices to comply with a by-law, (h) managing the sinking fund and the administrative fund, (i) undertaking steps necessary to recover any money owing in relation to levies, (j) representing the owners corporation or association in tribunal or court proceedings, (k) paying accounts in relation to the scheme (for example, accounts for water charges, council rates and maintenance), (l) arranging and undertaking administrative duties in relation to annual general meetings and other general meetings. (2) (Repealed) Schedule 6A Rules specific to residential property managers 1 Definitions In this Schedule: database operator means the person who operates a tenant database. list a person on a tenant database means give personal information about the person to the database operator for entry on the database. listed person means a person whose personal information is listed on a tenant database. personal information means: (a) the name of a natural person, and (b) any information (including an opinion) about the person that relates to, or arises from, the occupation of residential premises by the person under a residential tenancy agreement. residential tenancy agreement has the same meaning as in the Residential Tenancies Act tenant database means a database containing personal information, but does not include any such database kept by an agent for use only by that agent. Tribunal means the Consumer, Trader and Tenancy Tribunal. 2 Application of Schedule This Schedule does not apply in relation to the listing of a person on a tenant database if the listing occurred before the commencement of this Schedule. 3 Disclosure by agents of collection and use of personal information for listing on tenant database An agent must, at the time the agent enters into a residential tenancy agreement with any person, advise the person that personal information about the person may, if the person is to be listed by the agent on a tenant database in accordance with clause 4, be used and disclosed by the agent for the purposes of that listing. Notes_CPPDSM4080A_Version NSW Page 107 of 114

107 4 Restrictions on listing persons on tenant database (1) An agent must not list a person on a tenant database unless: (a) the person was a tenant under a residential tenancy agreement in respect of which the agent provided property management services, and (b) the residential tenancy agreement has been terminated in accordance with section 53 of the Residential Tenancies Act , and (c) the person is listed on the database for a reason referred to in subclause (2), and (d) the agent has given the person written notice of the agent's intention to list the person and the reason for doing so, and (e) the person has been given a reasonable opportunity: (i) to make submissions to the agent in respect of the proposed listing, and 1 above Now superseded by RTA & RTR 2010 from 31/01/2011 (ii) to review or correct any personal information that is proposed to be listed on the tenant database, and (f) if the agent and the person disagree about the personal information to be listed--any objection by the person in relation to the information is noted on the database. (2) For the purposes of subclause (1) (c), any one of the following is a reason for listing a person on a tenant database: (a) the person owes the landlord an amount of money as a result of either or both of the following: (i) failing to pay rent under the residential tenancy agreement, (ii) any damage to the residential premises intentionally or recklessly caused by the person, (b) the person has failed to pay an amount of money to the landlord in accordance with an order of the Tribunal, (c) the Tribunal has, on application by the landlord, terminated the residential tenancy agreement by order under section 64 of the Residential Tenancies Act on the grounds referred to in subsection (2) (a) (ii) or (b) of that section, (d) the Tribunal has made an order terminating the residential tenancy agreement under section 68 of the Residential Tenancies Act (3) If the Rental Bond Board is holding a rental bond in relation to the residential tenancy agreement concerned, a person must not be listed for the reason referred to in subclause (2) (a) unless the amount owing to the landlord is more than the amount of the rental bond. (4) A person must not be listed on a tenant database for the reason referred to in subclause (2) (a) (ii) unless: (a) the landlord has completed a condition report in accordance with clause 8 of the Residential Tenancies (Residential Premises) Regulation 1995, and (b) the damage has been noted in that condition report, and (c) the agent has reported the damage to the police and has been given an incident number in relation to that report, and (d) if the person has made an application to the Tribunal under section 16 of the Residential Tenancies Act for an order in relation to the tenancy--the Tribunal has determined the application. (5) Subclause (1) (d) and (e) do not apply if the agent cannot locate the person concerned after making reasonable enquiries. (6) An agent must record the details of the matters referred to in subclause (1) (d) and (e), or of the agent's attemla to locate the person concerned, and keep the record for at least 5 years. 5 Requirement for agent to notify database operator when debt paid An agent must, within 7 days of becoming aware that any debt specified on a tenant database in relation to a listed person has been paid, notify the database operator that the debt has been paid. 6 Other requirements in relation to tenant databases An agent must not use the services of a database operator for the purposes of listing any person on a tenant database unless the database is operated in accordance with the following requirements: (a) any person who is listed on the database must be given free access to the personal information entered on the database in relation to the person, (b) if the listed person claims that the personal information is inaccurate, out of date or incomplete: (i) the information must be amended, without charge, in accordance with the person's claim (unless the claim is disputed by the agent), or (ii) if the claim is disputed by the agent--any objection by the person in relation to the information must be noted on the database, (c) if a listed person pays any debt specified on the database in relation to the person within 3 months of the date on which the debt was incurred, the personal information relating to the person must, within 7 days of the database operator being notified by the agent that the debt has been paid: (i) be amended to delete any reference to the debt, and (ii) be deleted entirely from the database (unless the person has also been listed for a reason other than for non-payment of the debt), 1 above Now superseded by RTA & RTR 2010 from 31/01/2011 Notes_CPPDSM4080A_Version NSW Page 108 of 114

108 (d) if a listed person pays any debt specified on the database in relation to the person after the period of 3 months following the date on which the debt was incurred, the personal information relating to the person must: (i) within 7 days of the database operator being notified by the agent that the debt has been paid--be amended to indicate that the debt has been paid, and (ii) on the third anniversary of the date of the listing: (A) be amended to delete any reference to the debt, and (B) be deleted entirely from the database (unless the person has also been listed for a reason other than for non-payment of the debt), (e) if a person has been listed on the database for a reason other than for non-payment of a debt, the personal information relating to the listed person must, on the third anniversary of the date of the listing: (i) be amended to delete any reference to the reason for the listing, and (ii) be deleted entirely from the database (unless the person has also been listed for any one of the reasons referred to in clause 4 (2) for less than 3 years). Schedule 7 Terms applying to all agency agreements 1 Identification of property, business or professional practice The agreement must specify the address of the property, business or professional practice to which the agreement applies or must contain such other description of the property, business or professional practice as clearly identifies it. This clause does not apply to an agency agreement to act for the buyer of land. 2 Names of parties to agreement The agreement must specify the names of each of the parties to the agreement (including the licensee). 3 Information identifying parties The agreement must specify the principal's address, the licensee's licence number and any business name under which the licensee conducts business. 4 Principal's authority to enter into agreement The agreement must contain a statement to the effect that the principal warrants that the principal has authority to enter into the agreement. 5 Authorisation for licensee to act on behalf of principal The agreement must contain a term containing particulars of the extent of the authority of the licensee to act as agent on behalf of the principal in providing services under the agreement. 6 Period of duration of the agreement The agreement must contain a term indicating the period for which the agreement remains in force or indicating that the agreement remains in force until terminated. 7 Termination of the agreement If the agreement provides for its termination by a party to the agreement, the agreement must indicate how and when it can be terminated. 8 Reimbursement of licensee (1) If the licensee is to be entitled to any sum or reimbursement for expenses or charges incurred by the licensee in connection with services provided under the agency agreement, the agreement must include a term that: (a) states that the licensee is so entitled, (b) describes those services, (c) specifies the amount that the licensee is so entitled to and when it is payable, (d) states that those services and amounts cannot be varied except with the agreement in writing of the principal. (2) Subclause (1) (d) does not apply to an agency agreement for the exercise of the functions of a strata managing agent or community managing agent. Notes_CPPDSM4080A_Version NSW Page 109 of 114

109 9 Remuneration (1) The agreement must include a term specifying: (a) the circumstances in which the licensee is entitled to remuneration (by way of commission or otherwise) for services performed under the agreement, and (b) the amount of the remuneration or the way in which it is to be calculated, and (c) when the remuneration is payable. (2) If the agreement relates to the sale or purchase of residential property and provides for payment of commission to the agent calculated as a percentage of the sale or purchase price, the term must also specify the amount of the remuneration to which the licensee will be entitled calculated on the basis of a specified estimated sale or purchase price for the property. Schedule 8 Terms specific to agency agreement for sale of residential property 1 Exclusive agency and sole agency agreements (1) If the agency agreement is an exclusive agency agreement the agreement must include the following statement: IMPORTANT: This is an exclusive agency agreement. This means you may have to pay the agent commission even if another agent (or you) sell the property or introduce a buyer who later buys the property. (2) If the agency agreement is a sole agency agreement the agreement must include the following statement: IMPORTANT: This is a sole agency agreement. This means you may have to pay the agent commission even if another agent sells the property or introduces a buyer who later buys the property. (3) An agency agreement is an exclusive agency agreement if the agreement provides for the agent to be entitled to commission on the happening of an event whether or not the agent is the effective cause of the happening of the event and whether or not the client is the effective cause of the happening of the event. (4) An agency agreement is a sole agency agreement if the agreement provides for the agent to be entitled to commission on the happening of an event (whether or not the agent is the effective cause of the happening of the event) unless the client is the effective cause of the happening of the event. (5) A statement that an agency agreement is required to include by this clause must be included in the agreement immediately following the term required by clause 9 (Remuneration) of Schedule 7 and must be no less prominent than that term. 2 Warning about other agency agreements (1) The agency agreement must include the following statement: WARNING: Have you signed an agency agreement for the sale of this property with another agent? If you have you may have to pay 2 commissions (if this agreement or the other agreement you have signed is a sole or exclusive agency agreement). (2) A statement that an agency agreement is required to include by this clause must be included in the agreement immediately following the term required by clause 9 (Remuneration) of Schedule 7 or immediately following the statement required by clause 1 of this Schedule, and must be no less prominent than that term or statement. 3 Fixed term agency agreements (1) If the agreement is for a fixed term that exceeds 90 days, the agreement must include a term that entitles the principal to terminate the agreement (without penalty) by giving 30 days notice in writing to the agent at any time after the end of the first 90 days of the term. (2) This clause does not apply to an agency agreement in respect of the sale of residential property where the contract for sale provides for the construction by the seller of a dwelling on the land. 4 Price at which property is to be offered If the agreement provides for the property to be offered for sale by private treaty, the agreement must specify the price at which the property is to be offered. 5 Providing principal with consumer guide The agreement must include a provision that states whether or not the agent provided the principal with a copy of the approved guide entitled "Agency Agreements for the Sale of Residential Property" (being the approved guide mentioned in section 56 of the Act) before the agreement was entered into and (if the guide was provided) specifies the date it was provided. Notes_CPPDSM4080A_Version NSW Page 110 of 114

110 6 Cooling-off period (1) The agency agreement must include the following statement: COOLING-OFF PERIOD: You (the principal) have a cooling-off period for this agreement. If you do not wish to continue with this agreement you can cancel it until 5 pm on the next business day or Saturday. (2) A statement that this clause requires an agency agreement to include must be included in the agreement in close proximity to the place where the principal signs the agreement and must be no less prominent than any other term of the agreement. 7 A sales inspection report to form part of the agreement The agreement must include a copy of any sales inspection report prepared by the agent and given to the principal under clause 2 of Schedule 2. Schedule 9 Terms specific to a buyers agent agency agreement 1 Property details The agreement must include a copy of the statement prepared and given to the principal by the agent for the purposes of clause 1 (Statement of property details) of Schedule 5. 2 Purchase price range The agreement must specify a price or price range as the maximum price or the price range that the principal is prepared to pay for a property. Schedule 10 Terms specific to agency agreement for sale of rural land 1 Exclusive agency and sole agency agreements (1) If the agency agreement is an exclusive agency agreement the agreement must include the following statement: IMPORTANT: This is an exclusive agency agreement. This means you may have to pay the agent commission even if another agent (or you) sell the property or introduce a buyer who later buys the property. (2) If the agency agreement is a sole agency agreement the agreement must include the following statement: IMPORTANT: This is a sole agency agreement. This means you may have to pay the agent commission even if another agent sells the property or introduces a buyer who later buys the property. (3) An agency agreement is an exclusive agency agreement if the agreement provides for the agent to be entitled to commission on the happening of an event whether or not the agent is the effective cause of the happening of the event and whether or not the client is the effective cause of the happening of the event. (4) An agency agreement is a sole agency agreement if the agreement provides for the agent to be entitled to commission on the happening of an event (whether or not the agent is the effective cause of the happening of the event) unless the client is the effective cause of the happening of the event. (5) A statement that an agency agreement is required to include by this clause must be included in the agreement immediately following the term required by clause 9 (Remuneration) of Schedule 7 and must be no less prominent than that term. 2 Warning about other agency agreements (1) The agency agreement must include the following statement: WARNING: Have you signed an agency agreement for the sale of this property with another agent? If you have you may have to pay 2 commissions (if this agreement or the other agreement you have signed is a sole or exclusive agency agreement). (2) A statement that an agency agreement is required to include by this clause must be included in the agreement immediately following the term required by clause 9 (Remuneration) of Schedule 7 or immediately following the statement required by clause 1 of this Schedule, and must be no less prominent than that term or statement. 3 Price at which property is to be offered If the agreement provides for the property to be offered for sale by private treaty, the agreement must specify the price at which the property is to be offered. 4 Cooling-off period (1) The agency agreement must include the following statement: COOLING-OFF PERIOD: You (the principal) have a cooling-off period for this agreement. If you do not wish to continue with this agreement you can cancel it until 5 pm on the next business day or Saturday. Notes_CPPDSM4080A_Version NSW Page 111 of 114

111 (2) A statement that this clause requires an agency agreement to include must be included in the agreement in close proximity to the place where the principal signs the agreement and must be no less prominent than any other term of the agreement. 5 A sales inspection report to form part of the agreement The agreement must include a copy of any sales inspection report prepared by the agent and given to the principal under clause 2 of Schedule 3. Schedule 11 Terms specific to agency agreement for sale of business 1 Exclusive agency and sole agency agreements (1) If the agency agreement is an exclusive agency agreement the agreement must include the following statement: IMPORTANT: This is an exclusive agency agreement. This means you may have to pay the agent commission even if another agent (or you) sell the business or introduce a buyer who later buys the business. (2) If the agency agreement is a sole agency agreement the agreement must include the following statement: IMPORTANT: This is a sole agency agreement. This means you may have to pay the agent commission even if another agent sells the business or introduces a buyer who later buys the business. (3) An agency agreement is an exclusive agency agreement if the agreement provides for the agent to be entitled to commission on the happening of an event whether or not the agent is the effective cause of the happening of the event and whether or not the client is the effective cause of the happening of the event. (4) An agency agreement is a sole agency agreement if the agreement provides for the agent to be entitled to commission on the happening of an event (whether or not the agent is the effective cause of the happening of the event) unless the client is the effective cause of the happening of the event. (5) A statement that an agency agreement is required to include by this clause must be included in the agreement immediately following the term required by clause 9 (Remuneration) of Schedule 7 and must be no less prominent than that term. 2 Warning about other agency agreements (1) The agency agreement must include the following statement: WARNING: Have you signed an agency agreement for the sale of this business with another agent? If you have you may have to pay 2 commissions (if this agreement or the other agreement you have signed is a sole or exclusive agency agreement). (2) A statement that an agency agreement is required to include by this clause must be included in the agreement immediately following the term required by clause 9 (Remuneration) of Schedule 7 or immediately following the statement required by clause 1 of this Schedule, and must be no less prominent than that term or statement. 3 Transfer of liability for the leasing or hire purchase of inclusions The agreement must include any written confirmation prepared for the purposes of clause 3 of Schedule 4 of any specific instructions given to the agent by the principal before the agreement is entered into about arrangements for the transfer to the purchaser of any liability for the leasing or hire purchase of goodwill, plant, fittings or stock in inventory included in the sale. 4 Specific instructions about marketing and inspections The agreement must include any written confirmation prepared for the purposes of clause 3 of Schedule 4 of any specific instructions given to the agent by the principal before the agreement is entered into about any of the following: (a) the marketing of the business, (b) the entitlement of prospective purchasers to inspect the premises of the business and the circumstances under which such an inspection can be made, (c) the entitlement of prospective purchasers to inspect records, books of account and other documents concerning the business and the circumstances under which such an inspection can be made. 5 Sales inspection report to form part of the agreement The agreement must include a copy of any sales inspection report prepared by the agent and given to the principal under clause 2 of Schedule 4. Notes_CPPDSM4080A_Version NSW Page 112 of 114

112 Schedule 12 Terms specific to agency agreement for management of residential property or rural land 1 Extent of agent's authority The agreement must include any written confirmation prepared for the purposes of clause 4 of Schedule 6 of the extent of the agent's authority to undertake the following duties in connection with the management of the property and any limitations on the agent's authority to undertake those duties: (a) obtaining references from prospective tenants, arranging inspections of the property by prospective tenants and choosing a tenant, (b) entering into and signing a tenancy agreement (specifying the term for which the property may be let), (c) undertaking inspections of the property, (d) effecting repairs to and maintaining the property or engaging tradespersons to do so and limitations on expenditure that may be incurred by the agent without obtaining the principal's approval, (e) paying disbursements and expenses incurred in connection with the agent's management of the property, (f) collecting rent, (g) receiving, claiming and disbursing rental bond money, (h) serving notices for breach of the tenancy agreement or to terminate the tenancy agreement, (i) undertaking the necessary steps to obtain vacant possession and recover any money owing to the principal in relation to the tenancy of the property, (j) representing the principal in any tribunal or court proceedings in respect of the tenancy of the property, (k) paying accounts for amounts owing in relation to the property (for example, water rates and charges, council rates, maintenance expenses, and owners corporation levies), (l) advertising the property for letting or re-letting, (m) reviewing the rent at the end of a tenancy. 2 Accounting to the principal in respect of money received The agreement must specify the manner in which and the frequency with which the agent is required to account to the principal in respect of money received by the agent on behalf of the principal. Schedule 13 Terms specific to agency agreement for the leasing of residential property or rural land 1 Extent of agent's authority The agreement must include any written confirmation prepared for the purposes of clause 5 of Schedule 6 of the extent of the agent's authority to undertake the following duties in relation to the entering into of the lease and any limitations on the agent's authority to undertake those duties: (a) obtaining references from prospective tenants, arranging inspections of the property by prospective tenants and choosing a tenant, (b) entering into and signing a tenancy agreement, (c) undertaking an initial inspection of the property, (d) collecting initial rent payment, (e) receiving and disbursing rental bond money, (f) advertising the property for letting. 2 Details about the period of the tenancy, rent and bond The agreement must specify the period of the tenancy, the amount of the rent to be paid, the rent payment period and the amount of the bond to be paid. Schedule 14 Terms specific to agency agreement for the management of strata or community title land 1 Authorisation for the licensee to undertake certain duties relating to management of strata or community title land The agreement must include any written confirmation prepared for the purposes of clause 6 of Schedule 6 of the extent of the agent's authority to undertake the following duties in connection with the exercise of the functions of a strata managing agent or community managing agent and any limitations on the agent's authority to undertake those duties: (a) undertaking the financial management of funds and books of account, (b) holding documents and maintaining records relating to the scheme (for example, the strata roll, notices, and minutes of meetings), (c) arranging building inspections and reports, (d) effecting repairs to and maintaining common property or engaging appropriately qualified tradespersons to do so and limitations on expenditure that may be incurred by the agent without obtaining the principal's approval, Notes_CPPDSM4080A_Version NSW Page 113 of 114

113 (e) paying disbursements and expenses incurred in connection with the agent's management of the scheme, (f) arranging insurance cover for the scheme, (g) serving notices to comply with a by-law, (h) managing the sinking fund and the administrative fund, (i) undertaking steps necessary to recover any money owing in relation to levies, (j) representing the owners corporation or association in tribunal or court proceedings, (k) paying accounts in relation to the scheme (for example, accounts for water charges, council rates and maintenance), (l) arranging and undertaking administrative duties in relation to annual general meeting and any other general meetings. 2 Effect of statutory appointment of managing agent The agreement must include a term or terms to the effect of the following provisions: (a) The agent does not have and may not exercise any of the powers, authorities, duties or functions of the owners corporation, association or strata corporation that are conferred on another strata managing agent or managing agent appointed for the owners corporation, association or strata corporation for the time being under section 162 of the Strata Schemes Management Act 1996 or section 85 of the Community Land Management Act (b) The agency agreement is terminated on the appointment of a strata managing agent or managing agent under section 162 of the Strata Schemes Management Act 1996 or section 85 of the Community Land Management Act 1989 to exercise or perform all the functions of the owners corporation, association or strata corporation. (c) The agent is not entitled to any remuneration by way of commission or otherwise in respect of any period after termination of the agency agreement as referred to in paragraph (b). (d) The agent is not entitled to any payment (in the nature of a penalty or otherwise) by reason of the early termination of the agency agreement as referred to in paragraph (b). 3 Renewal of agreement for fixed term If the agreement is for a fixed term, it must not contain a provision that operates (without the further agreement in writing of the principal) to renew the agreement for a subsequent fixed term of more than 3 months unless the agreement also provides for the principal to be able to terminate the agreement (without penalty) by giving 3 months' notice of termination at any time during that subsequent fixed term. Note: This does not prevent the principal from agreeing in writing to the renewal of the agreement for a further fixed term. 4 Accounting to the principal in respect of money received The agreement must specify the manner in which and the frequency with which the agent is required to account to the principal in respect of money received by the agent on behalf of the principal. 5 Indemnification of strata managing agent prohibited An agency agreement under which the agent will exercise the functions of a strata managing agent must not contain a term that indemnifies the agent against any liability to pay a fine that arises by virtue of section 30 of the Strata Schemes Management Act Note: Section 30 of the Strata Schemes Management Act 1996 provides that if a strata managing agent has been delegated a duty by an owners corporation and a breach of the duty by the owners corporation would constitute an offence under a provision of the Strata Schemes Management Act 1996, the agent is guilty of an offence under that provision (instead of the owners' corporation) for any breach of the duty by the agent occurring while the delegation remains in force. Notes_CPPDSM4080A_Version NSW Page 114 of 114