Review of Regulation of Property Managers PUBLIC CONSULTATION DOCUMENT

Review of Regulation of Property Managers PUBLIC CONSULTATION DOCUMENT

FOREWORD I am pleased to release this public consultation document as part of the Government s review of the regulation of property managers. This consultation document seeks your views on the risks to property owners who choose to use the services of property managers, and your views on the possibility of regulating of the activities of property managers. It is not concerned with property owners who manage their own properties. Services offered by property managers may include: marketing properties and finding tenants collecting rent, lodging the bond for residential properties, and performing rent reviews inspecting properties, and organising maintenance and repairs arranging the payment of insurance and local authority rates. Property managers provide a service for many people who own property, invest in property, or who are temporarily living abroad. Recent surveys indicate that between 20% and 30% of residential property owners use property managers to find tenants and to manage their property. This means that approximately 60,000 to 75,000 residential properties are being managed by property managers. Extrapolating these figures out, it is clear that property managers have responsibility for managing billions of dollars worth of residential property. Many more billions of dollars worth of commercial property is currently managed by property managers. Property managers are also responsible for collecting millions of dollars of rent on behalf of property owners. It is therefore important that property owners who choose to use the services of property managers can have confidence that property managers will carry out their duties appropriately, and that where things do go wrong there are adequate redress mechanisms available. It is recognised that the property management sector may not be an homogeneous one. Property management activities are undertaken in the residential, commercial, and rural property sectors. I consider it important to identify any key differences that exist between these sectors, and whether or not these differences are significant enough to require different approaches to regulation across those sectors. The Government is committed to ensuring that a new regulatory regime is introduced only if necessary. If, as a result of this review, some form of regulation is considered appropriate, it will only be introduced in a way which is not overly burdensome and bureaucratic, and which will adequately address the risks identified in the most efficient and cost effective way. Your views are very important in establishing whether or not regulation is appropriate for the activities of property managers and, if it is deemed appropriate, to establishing the correct form of regulation. Please take the time to read this consultation document and to provide your views. Hon Simon Power Minister of Justice 2

Review of Regulation of Property Managers Public Consultation Document Published February Ministry of Justice PO Box 180 Wellington 6140 New Zealand Corp 383 ISBN 978-0-478-29068-3 2009 Crown Copyright CONTENTS A SEEKING YOUR VIEWS 4 A.1. How to submit your views 5 A.2. What happens to your submissions 5 B PROPERTY MANAGEMENT SERVICES 7 C CURRENT REGULATION OF PROPERTY MANAGERS 9 C.1. Law governing property managers 9 C.2. Resolving disputes and criminal liability for misconduct 10 C.3. International approaches to the regulation of property managers 10 D POTENTIAL PROBLEMS WITH PROPERTY MANAGEMENT SERVICES 12 D.1. Quality of property management services 12 D.2. Resolving disputes 15 D.3. Criminal offences for misconduct by property managers 19 E OPTIONS FOR RESPONDING TO POTENTIAL PROBLEMS 20 E.1. Cost and implementation of regulation 23 E.2. Scope of regulation 25 F APPENDIX ONE: TERMS OF REFERENCE FOR PROPERTY MANAGERS REVIEW 27 G APPENDIX TWO: RELATED GOVERNMENT WORK 28 G.1. Implementation of the Real Estate Agents Act 2008 28 G.2. Review of the Residential Tenancies Act 1986 28 G.3. Review of the Unit Titles Act 1972 28 H APPENDIX THREE: INTERNATIONAL APPROACHES TO THE REGULATION OF PROPERTY MANAGERS 30 H.1. Definitions and regulation of property managers 30 H.2. Overseas developments in the regulation of property managers 31 3

A SEEKING YOUR VIEWS The purpose of this public consultation document is to seek your views about the regulation of property managers. There are two key questions: Are there any gaps in the law relating to property managers that are causing problems for property owners? If occupational regulation of property managers is necessary, what form should it take? The Government recently initiated a review to examine how property managers are regulated in New Zealand. The review arose as a result of concerns raised about property managers during consideration of the Real Estate Agents Act 2008 when it was a Bill before Parliament. These concerns mainly related to the potential to misappropriate rent money, and the security and protection of the assets managed by property managers. The terms of reference for the review are set out in Appendix One. The review is being led by the Ministry of Justice and will look at property management in all property sectors (residential, commercial, and rural). The focus of the review is on the relationship between the property manager and the property owner. A property owner performing property management activities for their own property is not captured by the review. The Ministry is mindful of concerns about dual regulation of real estate agents who undertake property management services and the connection of any resulting regulation of property managers with the Real Estate Agents Act 2008. The Ministry of Justice is also aware that property management services are offered in a range of settings, not just in the real estate industry. The aim is to complete the review and pass any resulting legislation by 17 November 2009 so that it comes into force at the same time as the new Real Estate Agents Act 2008. The Ministry is seeking your views. We are particularly interested in the views of those directly affected by any changes, such as property owners, property managers, real estate agents, and property industry organisations. We are also interested in the views of those who interact with property managers, such as tenants and tenancy advocacy organisations, lessees, auditors, accountants, lawyers, education and training providers, and consumer organisations. We encourage you to submit your views on the questions in the public consultation document, and to provide any other comments that you may have about the delivery of property management services. All submissions will be assessed to determine whether there is a need for occupational regulation and, if there is, the extent of that regulation. The general principle is that the Government should only intervene and regulate an occupation where it is necessary to reduce the risk of significant harm and the industry is unable to regulate itself adequately. To help determine what level of occupational regulation may be required, we will be looking at: the probability of significant harm occurring evidence of the scale and magnitude of potential problems such as how much financial loss occurs when things go wrong, how effective current dispute resolution forums are, and whether there are any gaps in the current law the availability of other ways of handling any risks with using property management services the number of people and businesses affected by any problems that do arise 4

any evidence of escalating problems, such as whether things are getting worse or whether there have been recent changes in the sector that are causing greater problems. Significant harm means either significant harm to one person, or moderate harm to a large number of people. Moderate harm to a large number of people might arise from one event or from the combined actions of different providers of a service. This document contains a discussion and questions on the substantive regulatory impact analysis elements including problem definition, the range of feasible options, and the effects of those options. A.1. How to submit your views Written submissions on the issues raised by the public consultation document are invited from all interested parties. The closing date for submissions is 16 March 2009. A submission form setting out all the questions and spaces for your thoughts and views is available: on the Ministry of Justice s website: www.justice.govt.nz/property-managers-review/ by emailing: PropertyManagersReview@justice.govt.nz Submissions can be: posted to: Property Managers Review Ministry of Justice PO Box 180 Wellington 6140 New Zealand delivered to: Property Mangers Review Ministry of Justice Level 1, Vogel Centre 16 Kate Sheppard Place Wellington emailed to: PropertyManagersReview@justice.govt.nz Officials from the Ministry of Justice are available to make a presentation about the public consultation document and the review. We can be available to make presentations in Auckland, Wellington, Christchurch, and Dunedin during the consultation period. If you would like us to make a presentation to your organisation or community, please contact us by emailing: PropertyManagersReview@justice.govt.nz. Information about the review will be posted on the Ministry of Justice s website: www.justice.govt.nz/property-managers-review/. A.2. What happens to your submissions Submissions will be publicly available The Ministry will publicly release a summary of submissions and a list of names of submitters on its website at www.justice.govt.nz/property-managersreview/. By making a submission you consent to a summary of your 5

submission and your name being made publicly available on the Ministry's website, unless you clearly specify otherwise in your submission. If you do not wish your name and any identifying details in your submission to be posted on the Ministry of Justice s website, please clearly state this in your submission. At your request the Ministry will anonymise your submission in the summary of submissions and remove your name from the list of submitters before they are publicly released on the Ministry's website. Your submission may be subject to a request made to the Ministry by a member of the public for information under the Official Information Act 1982. If you object to the release of any information contained in your submission, please state this clearly in your submission and specify why. For example, you may wish for some information to be kept confidential because it is commercially sensitive or personal information. The Ministry will take your views into account when responding to such requests. Privacy The Privacy Act 1993 governs how the Ministry collects, holds, uses, and discloses personal information about you in your submission. You have the right to access and correct this personal information. 6

B PROPERTY MANAGEMENT SERVICES 1. A property manager is someone who carries out property management services as a business on behalf of a property owner someone who owns residential, commercial, or rural property. 2. The purpose of this section of the consultation document is to describe what property managers do. In the options section of the consultation document, we seek your views about what, if any, property management services should be regulated and whether or not all types of property managers need to be regulated. 3. The focus of this review is the relationship between the property owner and the property manager. A property owner performing the following activities in paragraphs 5 and 6 is not captured by the review. The review does not look at the relationship between the landlord and the lessee or tenant. 4. Each arrangement for property management services between a property owner and property manager is likely to differ according to the needs of the property owner and the purposes for which the property is used (for example: residential, commercial, or farming). For instance, a property owner may contract a property manager simply to let the property, or a property owner may expect a broader range of property management services, including rent collection, arranging payment of insurance and rates, and regular property inspections. 5. The types of services a property manager may offer include: performing an initial inspection of a property letting a property, including tenant or lessee vetting lodging the bond for a residential tenancy collecting rent regularly inspecting the property organising maintenance and repairs providing or contracting for building management services regularly reporting to the owner performing rent reviews arranging the payment of local authority rates and insurance, and in some instances organising the insurance in the first place. 6. Depending on the services offered, a property manager may have to: receive and pay out money (for example, collecting rent and bonds, and paying accounts, rates, and insurance) enter the property (for example, to inspect the property, and to ensure that repairs have been carried out properly) enter into agreements (for example, tenancy agreements, and contracts for service delivery) assume legal liability on behalf of the property owner (for example, ensuring that the property, or owner, meets legal requirements and obligations under the likes of the Building Act 2004, Unit Titles Act 1972, or Residential Tenancies Act 1986) 7

provide advice to the property owner (for example, properties are frequently viewed as an asset and a property owner may seek advice about how to maximise returns on that asset). 7. A property manager may carry out services for properties used for different purposes, such as: residential property premises used or intended for occupation as a place of residence commercial property property used for commercial purposes such as retail premises, as offices, or for industrial purposes such as manufacturing rural property property used primarily for farming, agricultural, or horticultural purposes such as grazing livestock, cultivating crops, and bee-keeping. 8. In some instances a property may be used for multiple purposes. For example, a corner dairy may include living quarters above the shop. The purpose for which the property is used changes the types of services that a property manager is likely to perform. The obligations of property managers differ depending on the purpose for which the property is used (for example, rights of entry for residential property may be more limited because of the Residential Tenancies Act 1986). The property manager will need to be familiar with all laws that relate to that type of property. 9. Because there is no uniform occupational regulation for the property management sector, it is difficult to estimate how many businesses offer property management services, and the value of the industry to the economy. Questions Q1: As a property owner, what kinds of services have you sought from a property manager? Q2: As a property manager, what kinds of services do you offer, and in what property sectors? How is your business structured? For example, are you in business on your own or in partnership, or do you run a business with employees? Q3: To what extent do the services delivered vary according to the type of property (for example, residential, commercial, or rural)? Are some services exclusive to particular types of property? Q4: How many people do you estimate operate in the property management industry, and what do you think is the average annual income for the different property sectors? What is your estimate of the value of the property management industry to the economy? 8

C CURRENT REGULATION OF PROPERTY MANAGERS 10. Property managers, like others, are bound by general laws. For example, the laws of contract, agency, and negligence, and consumer protection laws such as the Fair Trading Act 1986, which is concerned with misleading and deceptive conduct, all apply to property managers. Additional information about other Government reviews concerning the property industry is set out in Appendix Two. C.1. Law governing property managers 11. There is no set of laws that specifically regulates the conduct of property managers or prescribes the standards, obligations, or requirements for delivering property management services. The exception to this is that, under the Real Estate Agents Act 1976, if a person acts as an agent for reward in respect of letting and leasing of land, they must be licensed. 12. If a property owner authorises a property manager to act as an agent on their behalf with respect to the owner s property, this gives rise to a relationship which is subject to the general law, including agency law. Under agency law: The property manager is the agent. An agent is a person who acts on behalf of another person (or company) in the ordinary course of their profession or trade. Other examples of agents include: brokers, stock agents, insurance agents, and real estate agents. The property owner is the principal. A principal is a person who authorises an agent to act on their behalf in certain matters. As a general rule, a principal is bound by their agent s actions, although there are exceptions to that rule. 13. A relationship of trust exists between an agent and a principal, and each has certain duties towards the other. This means, amongst other things, that a property manager has a special duty, known as a fiduciary duty, to act lawfully in the property owner s best interests and with skill, care, and diligence. Agents also have a duty to keep accounts and not use information acquired through their relationship with their principal for their own personal gain. 14. A property manager also has a duty to disclose situations that may bring the interests of the property manager and the property owner into conflict. If there is a conflict, the property manager has an obligation not to enter into a transaction unless they have disclosed the nature and extent of their interest to the property owner, and obtained the owner s consent to the transaction. Conflicts of interest need to be disclosed at the beginning of the agency relationship between the property owner and property manager, and as they arise during the relationship. 15. The property owner may be able to pursue a civil claim through the courts if the property manager breaches these duties. 9

C.2. Resolving disputes and criminal liability for misconduct 16. If a property manager breaches the duties owed to the property owner, the property owner may pursue a civil claim against a property manager in the Disputes Tribunal or the courts. Information about the sorts of civil claims that may be made is set out in the section called Potential problems with property management services. Examples of the grounds on which a property owner could take action against a property manager include: breach of contract negligence breach of the Fair Trading Act 1986. 17. In addition, a range of criminal offences, such as theft, may apply depending on the circumstances of the case. If a property manager is convicted of an offence, the court may order them to pay reparation to the property owner. However, reparation is at the court s discretion and may depend on the personal circumstances of the offender, including whether they are able to afford reparation payments. 18. The above examples are concerned with the property owner making a claim against the property manager for loss caused by them in the course of providing property management services. However, depending on the circumstances of a particular case, a property owner could also be found legally and financially liable for the actions or omissions of a property manager acting as an agent on their behalf. The property owner could, for example, be liable either on their own or jointly with the property manager for penalties or fines under the Residential Tenancies Act 1986, Resource Management Act 1991, Fencing Act 1978, Unit Titles Act 1972, and Building Act 2004 if any of those Acts are breached. C.3. International approaches to the regulation of property managers 19. There are many different approaches to how property managers are regulated overseas. Underlying most of the international approaches, however, are the same basic features: Licensing or accreditation most regulatory regimes will set criteria for obtaining a licence such as a minimum age, good character, and, in some instances, minimum educational qualifications. Activities the activities that are regulated vary. In some situations regulation is limited to the activity of letting properties, while in other cases regulation will also cover the collection of rent, bonds, deposits, and other monies. Professional responsibilities some regimes impose professional obligations on licensees, such as ongoing education, contributions to professional funds, and disclosure regimes. Disciplinary body many regimes have a disciplinary body to investigate and adjudicate complaints about the conduct of its members, which may include, but not be limited to, property managers. Additional information about different international approaches can be found in Appendix Three. 10

20. The method of regulating property managers generally takes one of three approaches: Regulating property managers with real estate agents a person performing property management services is regulated as a real estate agent in most Australian states, and many states in the United States of America define some property management services as real estate agency work. Regulating all property service providers Ireland has draft legislation that seeks to regulate all property service providers, including auctioneers, estate agents, and property management agents through a new Regulatory Authority. A review in England and Wales proposed a similar approach. Regulating property managers as a separate profession property managers are regulated separately in New South Wales in Australia and South Dakota in the United States, with South Dakota having a separate licensing regime for residential rental agents. Question Q5: The regulatory regimes in Australia, the United States of America, England and Wales, Scotland, and Ireland have been looked at. Are you aware of any other useful overseas examples of regulation or controls imposed on property managers? 11

D POTENTIAL PROBLEMS WITH PROPERTY MANAGEMENT SERVICES 21. This section is concerned with whether there are any gaps in the law relating to property managers that are causing problems for property owners. 22. The initial phase of the review has identified three types of potential problems with property management services in New Zealand: a lack of professionalism and inconsistent standards of knowledge and training of property managers that lower the quality of property management services varying standards for money handling, sometimes resulting in misuse of property owners money failure to inspect properties properly. 23. Given these potential problems, another important question is whether there are sufficient ways for property owners to seek redress when things go wrong. 24. To determine how significant these potential problems are and whether further regulation is required we are interested in whether: you agree with the concerns summarised in paragraphs 26 to 37 you consider that there are other concerns that should also be canvassed. 25. We also welcome any additional information you can provide about these matters so that we can get an appreciation of the size, significance, and reversibility of these problems. In the absence of evidence of significant harm or the potential for significant harm, no new occupational regulation would be introduced for property managers. D.1. Quality of property management services Lack of professionalism and knowledge 26. The quality of property management services provided by property managers appears to vary. There are two key things that affect the quality of a property manager s performance: professionalism in terms of performing the job to a high standard, including good communication skills, people skills, organisational skills, and honesty knowledge of the industry and legal requirements, or when to seek advice about legal requirements. 27. A property manager authorised to act as an agent for a property owner has a duty to ensure that they have sufficient skill, knowledge, and expertise to carry out the property management services, including being aware of the relevant law. 28. Knowledge of the relevant law is important because, depending on the agreement between the property manager and the property owner, a property manager can, as an agent, legally bind the property owner. The property manager may also be responsible for ensuring that the 12

property and the property owner are complying with any relevant laws. For example, the property manager may sign a tenancy agreement for a property, or be responsible for insuring a property and paying the rates to the relevant local authority. 29. During initial discussions with various industry organisations and property managers, the following matters were identified as being important for the delivery of quality property management services: basic consumer protection practices of: avoiding deceptive and misleading behaviour (in accordance, for example, with the Fair Trading Act 1986) acting with integrity, honesty, and fairness complying with advertising standards such as those set by the New Zealand Advertising Standards Authority maintaining client confidentiality avoiding and disclosing conflicts of interest, and acting in the property owner s best interests acting in accordance with the law avoiding undue influence, particularly of vulnerable property owners no discrimination against tenants or property owners. 30. The following concerns about property managers were raised during the initial phase of the review: poor communication with, or lying to, property owners failing to act in accordance with the property owner s instructions, or acting outside the agreed authority failing to communicate a conflict of interest failing to inspect a property thoroughly or at all returning bond money to a tenant even though there is property damage failing to issue a timely eviction notice bad repairs or failing to do repairs failing to chase up non-payment of rent and allowing rent arrears to grow failing to lodge a bond for a residential property with the Department of Building and Housing failing to pass rent on to the property owner. Questions Q6: As a property owner, what qualities do you look for in a property manager? Q7: As a property owner, have you experienced the sorts of problems identified in paragraph 30 above? What was the nature, frequency, and effect of these problems for you? 13

Q8: Does the occurrence of these problems vary depending on the type of property concerned (for example residential, commercial, or rural)? Q9: Are there any problems that are peculiar to unit title, company share, or cross-lease properties? Misuse of money 31. Property managers often handle money for property owners. This money may be held: on behalf of the property owner (for example, rent or money paid by a tenant for damage to the property) for the purpose of paying a third party on the property owner s behalf (for example, bond money paid by a residential tenant for lodging with the Department of Building and Housing, or money for repairs, rates, or insurance). 32. During the initial phase of this review, anecdotes were given of property managers misusing or stealing money from property owners. Some concern was also expressed that the volume of transactions and lack of external oversight meant that there was greater potential for fraud, especially where a property manager looks after multiple properties for different owners and a small amount can be regularly skimmed from each. 33. Theft is a criminal offence that attracts significant penalties, including imprisonment. If a property manager were to be prosecuted and convicted, the court would also have the discretion to order them to pay reparation to the property owner. 34. The property owner might also be able to seek civil redress from the property manager through the Disputes Tribunal or the courts, for, amongst other things, breach of contract, breach of the Fair Trading Act 1986 or Consumer Guarantees Act 1993, and breach of duties owed as an agent. Questions Q10: As a property owner deciding whether to engage a property manager, do you take into consideration how money will be handled on your behalf (for example using trust accounts or audits)? Q11: As a property owner, have you experienced problems with money handling by a property manager? If so, what were those problems and how did you resolve them? Q12: As a property owner, what do you do to ensure that money collected by a property manager on your behalf is either paid to you or paid to a third party in accordance with your instructions? Q13: What are the risks associated with property managers collecting and holding property owners money? In your experience, how much money would a property manager typically hold and pay on to a property owner or third parties in respect of each property? Q14: As a property manager, what systems do you put in place to manage the collection and distribution of money, and to detect fraud or theft? 14

Failure to inspect property properly 35. Failure of a property manager to inspect a property properly, and in accordance with the property owner s instructions, was a major concern raised during the initial stages of the review. For example, a property manager may fail to inspect the property regularly or may not have sufficient expertise to detect problems during that inspection. This failure has the potential to lead to other issues with property management services, such as: failing to complete necessary repairs returning bond money even though the property is damaged allowing a property to fall into an illegal or unsafe state. 36. All of these issues have the potential to create significant costs for the property owner and devalue the property. 37. If a property manager fails to inspect a property properly, the property owner might, depending on the circumstances of the case, be able to seek redress for this and for any loss arising as a consequence of this failure through the Disputes Tribunal or the courts. Such a claim might be based, amongst other things, on breach of contract, breach of the Fair Trading Act 1986, or breach of duties owed by the property manager as an agent. Questions Q15: As a property owner, have you experienced problems with property managers failing to inspect your property properly? If so, what damage occurred and how did you resolve the situation with the property manager? Q16: What are the consequences and risks associated with failing to inspect property? Q17: As a property manager, what practices do you put in place to ensure properties are properly inspected? D.2. Resolving disputes 38. A property owner may suffer financial loss or incur criminal liability because, for example: the property owner is legally liable for the actions or omissions of the property manager performed on behalf of the property owner the property manager has failed to perform their services to an appropriate standard, resulting in financial loss to the property owner. 39. Very few cases relating to property management services have been taken to the courts in the past five years. We understand that property owners are likely to try and resolve problems with their property manager by: talking to the property manager and their supervisor getting advice from other property owners and assistance from lawyers taking a case to the Disputes Tribunal. 15

40. If the property manager is a member of Real Estate Institute of New Zealand or the Independent Property Managers Association, then a property owner can lay a complaint with that industry organisation about the property manager s conduct. 41. A range of civil remedies is available through the Disputes Tribunal and the courts if a property manager fails to observe their legal obligations to a property owner. 42. The aim of such remedies is to restore the property owner to the same position, or as close to it as possible, as if the breach had not occurred. Damages and other remedies may also be awarded depending on the nature of the claims made by the property owner and whether the claim is being dealt with in the Disputes Tribunal or the courts. 43. As noted earlier, in some situations a property owner may be legally and financially liable for actions performed on their behalf by the property manager. This may result in a property owner being held liable, either on their own or together with the property manager, for breaching the law, such as requirements under the Residential Tenancies Act 1986, Unit Titles Act 1972, Resource Management Act 1991, Fencing Act 1978 or Building Act 2004. 44. The table below summarises the types of civil claims a property owner could use to challenge the conduct of a property manager and recoup any financial loss from the property manager. A property owner may take the claims listed below to the Disputes Tribunal, District Court, or High Court, depending on the circumstances of the case. Type of claim Breach of contract Negligence Breach of the Consumer Guarantees Act 1993 Breach of the Fair Trading Act 1986 Breach of fiduciary duty Claim for money had and received Claim for account of profits Examples of remedies Where there is a contractual relationship between the property owner and agent, certain contractual remedies may be available if something goes wrong with the delivery of the property management services, for example failing to carry out regular property inspections in accordance with the terms of the contract. The Contractual Remedies Act 1979 applies to all contracts and provides remedies for misrepresentation, repudiation and breach of contract, but the Act s application to a particular case depends on the terms in the contract. If the actions or inactions of a property manager have caused or partly caused destruction or loss of property or damage to any property, the property owner may have a claim in negligence. The Consumer Guarantees Act applies to property owners who have acquired property management services for personal, domestic, or household use, such as where a property owner is overseas and uses a property manager to look after their family home. The Fair Trading Act prohibits misleading conduct, false representations, and unfair practices in relation to the provision of services. A breach of fiduciary duty could include failing to notify a property owner if rent has not been paid or if the property manager has a conflict of interest (see the discussion in paragraphs 12 to 15) If the property manager has received rent but not passed it on to the property owner, the property owner may have a claim for money received. Where a property manager has profited from a breach of a duty owed to the property owner, the property owner may be able to seek an account for profits from the property manager. 45. In addition, a property owner may take a complaint about the breach of the Privacy Act 1993 to the Privacy Commissioner. For example, if a property manager makes an unauthorised disclosure of personal information about a property owner, and that causes loss to the owner. 16

46. The table below summarises the jurisdiction and costs of accessing the different forums for dispute resolution. As noted above, whether or not a claim can be heard by the Disputes Tribunal or a particular court depends on the circumstances of the case. In some cases, legislation may specify which forum should be used. Forum Description Direct costs Disputes Tribunal District Court High Court The Disputes Tribunals Act 1988 provides a low cost and efficient way to settle disputes. Disputes can only be heard by a Disputes Tribunal if the value of the claim does not exceed $7,500, or $12,000 if both parties agree. The Government has recently announced an intention to increase the civil claims threshold for the Disputes Tribunal to $15,000, or $20,000 if both parties agree. Civil claims involve arguments over money and property and can include complex commercial transactions. The District Courts' civil jurisdiction allows them to hear any matter where the amount in dispute is $200,000 or less, or $500,000 or less in proceedings for the recovery of land. As with the District Courts, civil claims involve arguments over money and property and can include complex commercial transactions. The High Court s civil jurisdiction allows the Court to hear any matter where the amount in dispute is over $200,000. It costs $30 to $100 to apply to the Disputes Tribunal. The amount varies according to the value of the claim. Parties cannot usually have legal representation, but parties may still incur legal costs if they decide to get legal advice before appearing before the Disputes Tribunal. There are minimum costs associated with filing Court documents and using Court resources. Examples of fees in the District Courts: the filing fee for a statement of claim and notice of proceeding is $140 the fee for an interlocutory application such as an application for summary judgment is $185 after the first half-day, the hearing fee for each half-day or part of a half-day is $750. Parties to court proceedings usually choose to be represented by a lawyer. The cost of the legal fees will vary depending on the nature of the case and the lawyer. Legal aid is available for some civil claims in the District Courts, such as recovering a debt and breach of contract. However, legal aid is means-tested, and even a person who is eligible for legal aid may still have to repay some or all of the money. There are minimum costs associated with filing Court documents and using Court resources. Examples of High Court fees: it costs $1,100 to file a statement of claim and notice of proceeding the fee for an interlocutory application such as an application for summary judgment is $600 after the first half-day, the hearing fee for each half-day or part of a half-day is $1,300 See the note on legal fees above. 47. In addition to an individual being able to bring a claim under the Fair Trading Act 1986, the Commerce Commission is responsible for enforcing the Fair Trading Act 1986 and could prosecute a property manager for certain breaches of the Fair Trading Act. A number of penalties can be imposed following a conviction under that Act including: a fine of up to $60,000 per offence for individuals 17

an order to pay compensation to consumers who have suffered loss an order to publish advertisements correcting false or misleading statements. The Commission does not tend to take action regarding individuals disputes with traders. The Commission could take a property management firm to court if there was a systemic issue. 48. Currently, property managers who are licensed under the Real Estate Agents Act 1976 are subject to the disciplinary regime in that Act. The Real Estate Agents Act 2008 repeals the Real Estate Agents Act 1976 and sets up a new independent Real Estate Agents Authority and Real Estate Agents Disciplinary Tribunal. The Authority will provide independent oversight of the real estate industry. The new regulatory regime created by the Real Estate Agents Act 2008 will begin operating on 17 November 2009. 49. There are other indirect costs associated with pursuing a claim before the Disputes Tribunal or a court. In particular, pursing a claim can require a significant input of time from the claimant and others to prepare evidence and meet with advisors, although there will also be other costs such as transport to and from the dispute resolution forum. 50. While there may only be a couple of hours or days in which the parties appear at the forum, the time taken between initiating proceedings and resolution varies according to the nature of the claim, and the forum. Proceedings before the District Court, for example, are generally longer than those before the Disputes Tribunal and are therefore likely to result in taking more time off work (and potentially loss of income). 51. It usually takes between 28 and 42 weeks 1 for a case to be resolved through the District Court, as opposed to six to eight weeks generally to resolve a dispute before the Disputes Tribunal. 2 52. Non-financial costs may include the stress of waiting for a hearing and appearing in the proceedings. The formality of proceedings in a court, as opposed to the Disputes Tribunal, may heighten the anxiety experienced. 53. The costs of pursuing a formal claim against a property manager can be reduced if the parties reach a settlement, go to mediation, or if the court grants costs. An award of costs by a court is discretionary and is usually limited to two-thirds of a reasonable amount of costs. Questions Q18: As a property owner or a property manager, how have you resolved problems and approximately what did it cost? Q19: When would you, as a property owner, consider taking a dispute to a Disputes Tribunal or to court? What other approaches have you used to resolve disputes? Q20: As a property owner, have you experienced any problems with 1 2 This is calculated according to the median time for disposal of civil cases filed in the District Court during 2004-2007 (inclusive). Disposal may include ending proceedings because there is no case or defence, the parties have reached a settlement, or judgment has been given. Tribunal User Survey (2008). 18

using dispute resolution services like the Disputes Tribunal or the courts to resolve disputes over property management services? If so, what were they and were you able to resolve them? Q21: Do you think there are any gaps in the dispute resolution services that are currently available? Are there other methods of dispute resolution that we have not identified above? Q22: Are there any other types of costs not identified above that would be associated with these dispute resolution options? D.3. Criminal offences for misconduct by property managers 54. Misconduct by a property manager may, in some circumstances, also constitute criminal offending. The focus of criminal penalties is to hold offenders accountable for their illegal activities, and to deter them and others from committing similar offences. Reparation from offenders to victims can only be granted upon conviction and is at the discretion of the judge. In some circumstances, a property owner may be liable for the acts and omissions of the property manager and be subject to penalties, such as fines and, in exceptional circumstances, imprisonment. 55. The Crimes Act 1961 contains several serious offences that may be applicable in the context of property management services. For example: making a false declaration (up to 3 years imprisonment) theft by person in a special relationship (up to 7 years imprisonment) dishonestly taking, using, or copying a trade secret intending to obtain financial advantage, or loss for someone else (up to 5 years imprisonment) false accounting with intent to deceive or cause loss (up to 10 years imprisonment). 56. A property manager will also commit an offence under the Secret Commissions Act 1910 and be liable for a fine of up to $2,000 or up to 2 years imprisonment if they: accept a gift or other inducement from another person contrary to the property owner s interests obtain a financial benefit from an arrangement without disclosing it to the property owner give a false receipt to the property owner. 57. Property managers also need to be aware of restrictions and controls in other areas of the law where a breach may lead to criminal fines. For example, the Residential Tenancies Act 1986, Resource Management Act 1991, Fencing Act 1978, and Building Act 2004 impose sanctions for failing to comply with the provisions of those Acts. 19

E OPTIONS FOR RESPONDING TO POTENTIAL PROBLEMS 58. Paragraphs 38 to 53 above describe property owners current options for remedying problems caused by the inadequate delivery of property management services. In the absence of evidence of significant harm or the potential for significant harm, no new occupational regulation would be introduced for property managers. Property owners would continue to rely on the existing law and forums for resolving problems. 59. This section is concerned with what will happen if the evidence suggests regulation is required and asks: if occupational regulation is necessary, what form should it take? 60. Occupational regulation of property managers would impose additional and specific rules or obligations on property managers and could take a number of forms. Occupational regulation is intended to protect the interests of consumers by applying controls to a particular occupation which may be prone to unfair trade practices or where there is a case for giving consumers special protection. A range of government agencies and industry organisations currently have a role in licensing and registration of certain occupations and may also administer complaints and dispute resolution services for consumers. 61. There are four broad types of occupational regulation: Disclosure a disclosure regime would require property managers to disclose specific information to a property owner. This type of regulation is often used where the threat is to individuals finances and consumers have a choice about whether to use a particular service or property manager. Certification certification would mean that property managers could join a certification scheme and in return will have the right to call themselves a certified property manager. Certification provides an assurance to the public that the practitioner has met certain requirements at the point of certification. In addition, a certification body may provide a complaints process for consumers. The certification body may be an industry organisation, multiple industry organisations, an independent body, or a government agency. Registration registration would require all property managers to be listed on a publicly available register. Registration is not intended to convey any suggestion of competence or quality of service, nor are there minimum professional requirements for registration. Registration is a regulatory option that is generally used where the threat to public health, welfare, and safety is minimal. The Registrar may be from an industry organisation, an independent body, or a government agency. Licensing licensing would require all property managers to be licensed before they can refer to themselves as a property manager or deliver property management services, unless they are exempted from the scheme. The licensing body could be an industry organisation, an independent body, or a government agency. Examples of occupational licensing regimes include medical practitioners, lawyers, and real estate agents. 62. While these categories of occupational regulation can be identified in broad terms, a regulatory regime can be constructed in many ways, and could be a hybrid of different models or contain additional components such as educational requirements, or a complaints and disciplinary process. 20

63. A regulatory regime can be voluntary, compulsory, or contain both voluntary and compulsory elements. For example: A voluntary scheme could be established where a property manager was free to determine whether or not to belong to an industry organisation that sets standards for its members and has mechanisms for protecting consumers in return for being able to hold themselves out as offering those extra protections to consumers. In contrast, a compulsory scheme could set minimum disclosure requirements for all property managers or require all property managers to be licensed, or both. In a mixed scheme, there could be compulsory disclosure requirements for all property managers, and a voluntary framework for different industry organisations to become accredited so that their members can hold themselves out as being certified property managers. 64. In considering what, if any, occupational regulation is necessary for property managers, it is important to have regard to: the nature and extent of risks posed by property managers failing to deliver property management services to an appropriate standard whether sufficient mechanisms already exist to mitigate the potential risks whether the nature and extent of the risks associated with property management services differs depending on the type of property concerned (for example, property used for residential, commercial, or rural purposes) whether the costs of a regulatory system are proportionate to the benefits it provides whether the system targets the risks. 65. The following table summarises potential solutions if intervention is needed. Please bear in mind that a combination of the different solutions for each issue may be a good way forward, and that these solutions could be implemented by a government agency, independent body, or an industry organisation. Potential problems Consumer Awareness For example, a lack of consumer awareness may mean that consumers do not have enough information about what to expect from property managers or how to deal with problems that arise. Professionalism For example, a lack of professionalism such as poor communication may reduce the quality of the service provided. Potential solutions Provide more publicly available information for property owners so that they know what to look for in a property manager and what to do if things go wrong. This could be done through a website, pamphlets, seminars, or a helpline. Require property managers to provide a disclosure statement to a property owner before entering into an agreement. The statement would cover matters such as membership of industry bodies, qualifications and training, what services will be delivered, how to resolve disputes, and where the property owner can get more information. Require property managers to provide a disclosure statement setting out: whether they are a member of a professional body, how to contact that body, and whether there are complaints and disciplinary mechanisms as part of that body any potential conflicts of interest what services will be provided for the fee. 21