Real Estate Agents Bill

As the minority report of the National Party makes clear, we support the timely reform of the real estate industry. Indeed, we go so far as to say that the Real Estate Agents Act 1976 is well overdue for reform. We also say that the purposes of the Real Estate Agents Bill are well spelt out in clause 3, which is the first clause of Part 1. It is important that we have regulation of the real estate industry that promotes public confidence in the performance of real estate agency work. But we take issue with subclause (2) about whether the purposes of the bill are actually achieved in the way that that subclause says they are achieved, particularly where it states they are achieved by “providing accountability through a disciplinary process that is independent, transparent and effective.”

To come back to the general concerns of the National Party—and we acknowledge that the Minister in the chair, the Hon Clayton Cosgrove, has dealt with two of them—I say the first concern we had, which related to property management, has not been dealt with. The second concern revolved around the uncertainty created by the 5-year review of the employment status of real estate agents. That excited a great deal of discussion in the Justice and Electoral Committee meetings, and it has been dealt with to our satisfaction, because that provision is now deleted. The next concern is about the transitional provision, and I will spend some time on talking about the practical implications of the transitional provision when we deal with clause 2. We are not happy with that. The next concern we had was that auctioneers remain excluded from the legislation, and that the new rules relating to auctions were impractical. That concern has been dealt with to our satisfaction, because those clauses have been deleted on Supplementary Order Paper 243 in the name of the Hon Clayton Cosgrove. The auction bidder’s record was also impractical, and that has been dealt with to our satisfaction, because, as I said, clauses 136 to141 are deleted.

We remain concerned about the bureaucracy and the effect it will have on costs to the consumer. That has not been dealt with. We also remain concerned about the requisite experience for a real estate agent to hold a licence.

So some matters have been dealt with, and it is good that the Minister’s Supplementary Order Paper advances matters, but some other matters are not dealt with and we remain concerned about them. Therefore, we continue to oppose them. If the Minister was prepared to have an open mind on those matters, I believe that the remaining concerns could be resolved, but that is a matter for him.

I will briefly explain one or two matters that the select committee dealt with. A number of exemptions were contained in the bill. I have already mentioned clause 7 in my second reading speech. It deals with the exemption for lawyers and conveyancers, and only minor alterations have been made to it. Licensed auctioneers remain exempt, and that is fair enough. We deleted the exemptions for Landcorp and the exemptions granted by the authority. Clause 11 is an interesting clause. We tried to find out what the position was under clause 11. If my memory serves me correctly, it relates to a particular part of New Zealand only—somewhere in the Ruapehu district—where certain land agents are exempted under the regulations. I questioned whether we still needed that clause, because it covers so few people. Clauses 12 and 13 also deal with certain exemptions by Order in Council or on the recommendation of the Minister. I simply refer the Committee to clause 155, and in particular to clause 155(aa), 155(2), and 155(3). It was considered that the regulation-making power in that clause was the best place to deal with issues relating to the exemptions formerly contained under clauses 12 and 13.

In conclusion on this part, I simply say that the purpose of the Act as set out in clause 3(1) is commendable, but I regret that the purpose is not achieved by the structure that has been created. Some issues have been dealt with, but we simply do not need a bureaucracy to regulate this occupational group. We remain very concerned at the other issues I have dealt with.

Thank you, Mr Chairperson, for allowing me to take a call on Part 1 of the Real Estate Agents Bill. As National members have stated throughout the debate on both the first and second readings, we support the purpose of the bill as contained in clause 3, which is to promote and protect the interests of consumers in respect of transactions that relate to real estate, and to promote public confidence in the performance of real estate agency work. I cannot underscore enough the fact that we certainly support that purpose. We do not think this bill achieves that purpose and we think that it is a missed opportunity.

I want to spend some time on the interpretation clause, which is clause 4. It is the definitions clause, and there are a couple of definitions I would like the Minister to take a call on. The definitions of “residential” and of “real estate agency work” are integral to how this bill will operate, how it can protect consumers, and how it can be effective. As a practitioner who spent some time in the conveyancing field of legal work, I certainly know that even under the old real estate legislation the definition of real estate work was very topical and often discussed. It is a definition that will cause confusion and I think it will be tested in the courts if this Parliament introduces provisions that are uncertain or ambiguous.

If one looks at the definition in clause 4 of “real estate agency work or agency work”, one sees that it “(a) means any work done or services provided, in trade, on behalf of another person for the purpose of bringing about a transaction; and (b) includes any work done by a branch manager …”. And that is fine, but I think we really do need some clarification on the exclusions. Under paragraph (c), the work “does not include—(i) the provision of general advice or materials to assist owners to locate and negotiate with potential buyers; or (ii) the publication of newspapers, journals,” etc., “that include advertisements for the sale or other disposal of any land or business;”—and that is fine—or the broadcasting of such advertisements. Again, that is fine. The work also does not include “(iv) the lending of money on mortgage or otherwise; or (v) the provision of investment advice;”. The Minister just might like to know that there is an extra “or” at the end of that subparagraph, which needs to be deleted. It does not affect the substance of the provision but it certainly does affect its form.

I would like the Minister to take a call to explain to me, and to the Committee, how the operations of companies such as Green Door and the increasing trend to sell properties on TradeMe are affected by this definition of real estate work, or the exclusions thereto. I would also appreciate the Minister taking a call in relation to subparagraph (v), which excludes the provision of investment advice. Many people go to their real estate agents for investment advice. They want to know what investment properties to purchase, they want to know the rate of return on property, and they want to know whether there is any possibility of making capital gain on property. So they actually do go to their real estate agents. Admittedly, that is mainly in the commercial field, but not necessarily just in that field; it can also be in the residential field. They go to their real estate agents for investment advice.

This bill expressly excludes the giving of investment advice, but the bill is deficient to the extent that it does not actually say what investment advice really is, and where it starts and stops. Does it include the real estate agency work that is done, once the purchaser has decided to purchase a property? Does it start at the beginning of the transaction when the advice is first sought? Where does the investment advice start and stop, because that is a very important point in determining what exactly investment advice is, and whether it is excluded under the regime of this Real Estate Agents Bill.

I know that the Minister in the chair, the Hon Clayton Cosgrove, is not listening, because he does not actually understand the real estate industry, at all, but the other issue is in relation to residential property and its definition in clause 4: “residential property means any property used, or intended to be used, exclusively or principally for residential purposes”. That sounds simple enough, and the Minister will know, because he is actually temporarily the electorate member for one of the fastest-growing areas in the country, which has a proliferation of lifestyle properties. Does a lifestyle property fall within the definition of a residential property, or not? What does “exclusively or principally” mean? If a person has a 10-acre/4-hectare property, on which there is a house, a garage, a stable, a couple of ponies, and four sheep, is that residential property for the purposes of this Real Estate Agents Bill, or is that excluded?

Someone might ask why that definition is important. It is important, because we can turn to clause 129 and read, “Parties may cancel sole agency agreements in respect of residential property 90 days after agreement is signed”. So if a property is a lifestyle property—that is, partially used for residential, partially used for agistment, partially used for grazing—does that mean that the parties to that agreement, the vendor-clients, can then automatically cancel that sole agency agreement after 90 days, or does that mean they cannot, because that will be very important. If they cancel it, and they cancel it wrongly because of the uncertainty in this bill as enacted, they could end up instructing other agents and paying twice the agency fees, twice the real estate agent’s commission. So we need to know, and the Minister needs to take a call on, the scope of that word “residential”.

The other issue in relation to the definition of “residential” concerns subdivisions. Although clause 129(4A) excludes residential property that “(a) has been developed with other properties in a continuous area; and (b) is proposed to be sold or otherwise disposed of by a vendor who also proposes to sell or otherwise dispose of, … some or all of those other properties.”, at what stage does residential property fall within that exclusion? Is a subdivision created, for example, by dividing that 4-hectare paddock into two 2-hectare paddocks? Does that make that land a subdivision that falls within the exclusion provision in the definition of residential property for the purpose of clause 129?

Although to some that may seem pedantic, as one who has been involved in this industry as a lawyer for many, many years, I can tell members that a number of disputes arise from the vendor-clients who think they have properly cancelled a sole agency agreement, for whatever reason, but who suddenly find that they have not cancelled it and in the meantime they have gone to another agent, and then they run the risk of paying twice the commission.

I do not think this bill is good law for the protection of the consumer when it has these uncertainties in it. Some of these uncertainties were raised at the select committee but they were not answered, and I think one of the basic flaws of this bill is that although it is a real estate bill and relates to real estate agents, it seems to have been tailored with only residential property in mind and without giving any thought to other sales of real estate, whether commercial, industrial, or lifestyle. I think those issues do need to be addressed and I do think the Minister needs to take a call on that.

The other definition I will also speak about is the definition of “transaction”. Although it might be a typo, that definition in clause 4 has five paragraphs. Most talk about the “grant, sale, purchase, or the disposal or acquisition” of a licence freehold estate or leasehold estate, but paragraph (a) does not include the word “grant”. The word “grant” is specifically excluded in relation to paragraph (a) of the definition of transaction, so paragraph (a) includes only “the sale, purchase, or other disposal or acquisition of a freehold estate …”. It does not include the “grant”. That omission must be deemed to be deliberate, because that is the way statutes are interpreted, and I want to know why the word “grant” has been deliberately omitted from paragraph (a).

Finally, in relation to this call, I will talk about the Minister’s Supplementary Order Paper 243, which talks about the sale and purchase of shares, and states that they are excluded. Why are they excluded? In the field of real estate there is often a family-owned company whose sole asset is a farm, and for various reasons—for example, it could be for GST or other reasons—rather than sell the real estate or the property itself, the parties decide to effect the transaction by way of the sale of shares. That, for all intents and purposes, and common sense, says that that is a sale relating to real estate, but under this bill it is not caught. I think that that, again, is a deficiency in this bill, which is borne out by the lack of awareness on the part of the Government parties as to how the real estate industry works. I think that that really does need to be clarified, because more and more rural property transactions are being conducted by way of a sale of shares.

It is with some concern that I see this legislation back before us this morning. My concern is the relationship between the Real Estate Institute of New Zealand and the Minister in the chair, Clayton Cosgrove, because that relationship appears to be at an all-time low—

💬 Dr Richard Worth: Fractured.

—permanently fractured. In fact, I refer to an editorial in the Manawatu Standard on 12 July this year, in which the editor said: “Now that the heat has gone out of the property sector, Mr Cosgrove looks like a bully.” I say to the Minister that this is not the way to conduct a review of the legislation under which the real estate industry operates.

I have had a harmonious relationship with the industry for many, many years. I have appreciated the worth of that industry. I know that, throughout the time National was in Government, the industry requested on many occasions that the Act be modernised and reviewed, but because National had so many other important things to do, we did not get on to the job. Then Mr Cosgrove got the chance, so what he did was to go out and call the real estate agents of this country cowboys and land sharks. I know that he has had to back down because Helen Clark put his arm up behind his back and said that is not the way to progress legislation. He has had to eat humble pie with his mate the Rt Hon Winston Raymond Peters. He has had to go to the Rt Hon Winston Raymond Peters and ask him to please support the legislation so that he can get it through the House. He has had to go back to the Real Estate Institute, and to work diligently on a Supplementary Order Paper, which he promised to present to the institute approximately 2 months ago. I think I am right in saying the institute got it yesterday at around 11 o’clock. It goes some of the way towards starting to mend the fractious relationship that this Minister has created with the industry, but it does not go far enough.

I say to that member, who was aptly described by the Manawatu Standard as a bully—not my words, but the words of the editor of the Manawatu Standard—that he ought to learn how to handle relationships far better. If he had done that, then I think we could have had legislation before the House today that everybody could sign up to. He would not have had to go begging for the support of the Rt Hon Winston Raymond Peters; he would have had support from everybody. But, instead, he goes around and talks about the industry, besmirches it, and calls the real estate agents of this country cowboys and land sharks. I am not saying they are all perfect. I am certainly saying to the Minister that the great majority of them are.

💬 Hon Clayton Cosgrove: As I’ve said. I’ll give you all the press cuttings.

Oh, the Minister is now saying the great majority are good guys! That is not what he said a couple of months ago, when the guy was full of bluster and bravado. He went on TV—I remember seeing it—and talked of carnage in the industry. Now he is saying most of them are good guys. Why did he not think of doing the job properly in the first place? Why did he go out and destroy a relationship that did not need to be destroyed? Why did he not talk to the Real Estate Institute, work with it—

💬 Jill Pettis: Unlike that member, he did something.

Jill Pettis is piping up now. What does she say?

💬 Jill Pettis: That member did nothing!

I am the one who has been talking to the Real Estate Institute on a regular basis, making sure that its concerns are addressed in the Supplementary Order Paper. That member would not have picked up the phone to talk to anybody in the industry. She probably would not know anybody in the industry, and if she did she would probably abuse them; she would pick up on Clayton Cosgrove’s words and call them all land sharks and cowboys. That does nothing, I say to Jill Pettis.

What this industry wants is modernised legislation. It wants modernised legislation so that it can operate in the 21st century. The industry has been requesting that for a long time, and if the Minister had only worked with the industry and prepared some legislation that addressed the concerns held by a wide number of New Zealanders, then we could have had legislation back in the House today that would be supported by most political parties. But, no, Clayton Cosgrove probably took his lessons from Jill Pettis, so he had no chance of being a gentleman. He had no chance at all; instead of that, it was bullying tactics, bluster, and words that I should not be allowed to use in Parliament and will not. Consequently, we are here now with legislation that will mend some things that need to be mended, but it will not go far enough and it will not be enduring legislation for this industry. Of course, it is something that the National Government, after 15 November, will have to come back and tidy up, simply because of the arrogant and bullying attitude of the Minister.

💬 Kate Wilkinson: And ignorance!

The Minister obviously had a run-in with somebody, some time—we do not know why.

I was not going to take a call on this part, but I am so intrigued when I look at this bill, because I well remember seeing the Minister in the chair, the Hon Clayton Cosgrove, on TV, using some very extravagant language to describe real estate agents: “rip-off merchants”, “rascals”, “land sharks”—all of those sorts of words—

💬 Hon David Carter: Cowboys.

—cowboys—and he was going to protect the consumer. I will talk a wee bit about that in a minute.

When one looks at this legislation, one asks what the purpose of Part 1 actually is. The purpose rather intrigues me, because we had this very, very strong rhetoric about how consumers were being ripped off and were at risk, and when I look at the commentary, I see that the purpose of the Act is to “reinforce the message that the bill sends to the industry”. So here we have this great mischief occurring in the transactions of the nation, and this bill will reinforce the message. I feel that if there are such evil procedures taking place in the transactions involving real estate around the country, there certainly needs to be quite a bit more than a message.

I think that this bill is spawned out of envy, to some degree. Some real estate agents have actually been successful. Therefore, if they have been successful, they must have been conducting evil business. That is where it comes from.

💬 Hon Clayton Cosgrove: That’s silly.

It is not silly. The Minister is now interested. If one looks at the expenditure of an individual in a lifetime, and at the size of the investments people make, one sees that No. 1 is real estate. There is absolutely no doubt about that. No. 2 is a motor car. Who are the most hated people, apart from politicians? Car salesmen! We have this focus on car salesmen, so we have to lift our game and hate those successful real estate agents. The third biggest investment that people make in their lives is carpet, which is rather fascinating, is it not? So the next thing we will see is that carpet salesmen are ripping off the nation. That is no basis to legislate on.

The consumer is at risk—well, the consumer is frequently at risk in a whole range of ways. Looking after the consumer is a high aspiration, but to a degree we have to set out a course—a road map—so that people who are making these real estate investments have a course that they can follow. There is a requirement that real estate agents be licensed and are of good character. Then one writes a contract. I have bought land on a handshake, without an agent. Would it not be great if we could do that?

💬 Hon Clayton Cosgrove: You did?

The member understands that there are no problems with the great majority of transactions that take place. Then one gets a lawyer. The lawyer looks at the land information memorandum report and the memorials to see whether there is any mischief. There is a structured way in which those transactions take place.

💬 Hon Clayton Cosgrove: So there’s no problem at all?

Well, here is the point, you see. The Minister said “So there’s not a problem?”. I want the Minister to stand up and say “This is the mischief that we have uncovered.” I want the Minister to take a call and say “This is what was happening.” Then we might have something to debate other than a bill whose purpose is to reinforce a message.

I think we have had the select committee beavering away over submissions. I will have some things to say, because I became intrigued by an element in Part 5, so I am looking forward to getting the Minister’s response on that. But, essentially, we really need to have a clearer amplification of what the purpose is in this bill. What is the mischief? What have these evil real estate agents been doing to the nation of New Zealand that this bill will protect us from? If I am to know what it is, then I need to have some clear articulation of what the mischief is so that we can measure whether this bill addresses those things. I look forward to the Minister in the chair, the Hon Clayton Cosgrove, telling us what those evils are.

💬 Hon Clayton Cosgrove: Hold on, help is on the way.

Right, well, let us hear about them.

At the moment we are dealing with Part 1 of the Real Estate Agents Bill, which National opposes. I certainly support what the previous speaker, Mr Roy, said about the deficiencies of this particular part. I do not want to deal with the purpose provisions, because they are now the subject of some amendment. But I would like to deal with what is clearly a gap in this legislation—a gap that others have recognised—relating to residential letting, leasing, and property management, because if the bill were to be extended, the extension would take place in this part in substantial measure.

Members have heard the argument that residential letting, leasing, and property management should be brought within the coverage of the bill. That would not be very difficult. It could be done by removing the phrase “(other than a tenancy to which the Residential Tenancies Act 1986 applies):” from the definition of “transaction” in clause 4, and by amending the definition of “real estate agency work’’ or “agency work” in clause 4 to include something that might be expressed in this way: “does include the management of leases and tenancies on behalf of another person, including the collection or receipt of rent money”. If those changes were made, then that would be sufficient to deal with the issue that has been identified as a looming lacuna in this bill.

Some would say that those changes might carry with them a need for substantial adjustment of the transitional period—and there has been a minor change to that transitional period—but I question that, because I think only a very short transitional period would be needed to bring property management under the regime. Why do I say that? Because the current residential property managers’ code of practice and the current property management strands in the National Certificate in Real Estate for salespeople can be very easily adapted to suit this purpose. That was the issue Mr Finlayson was trying to get across to the Minister when he made those points in his second reading speech. I also think there is a strong case for commercial and industrial property management to be included in the legislation. It should not be simply limited to residential letting, leasing, and property management.

I would like to pick up on another important point that Mr Finlayson made in the course of his comments on this part, because he usefully drew our attention to a series of omissions that have been made with regard to clauses 9, 10, 12, and 13 in Part 1. These include an exemption for Landcorp Farming Ltd, an exemption granted by the authority, and some other provisions. What does remain? As Mr Finlayson identified, what remains is clause 11. To the challenges that Mr Roy laid down to the Minister in the chair, the Hon Clayton Cosgrove—which I hope he will respond to—I would just add that I invite him to look for a moment at clause 11. Clause 11 now states: “A person who is exempted by a regulation made under section 155(aa) may, in accordance with that regulation, carry out real estate agency work.” So there is a reference to later provisions contained in a later part that will be the subject of debate. But if we look at clause 155(aa), we see that in very broad terms it enables the Governor-General, in the case of any person or class of persons, to make an exemption.

The challenge I am throwing down to the Minister is to briefly explain what the current exemptions are, but, more specifically, to invite him to consider the work that has been done by the Regulations Review Committee relating to the use of exemptions. I ask why, in this case, it has been deemed to be appropriate to depart from the Legislation Advisory Committee recommendations and guidelines for exemptions of this type, because I believe that the power to grant general exemptions to people or classes of people from the requirement to be licensed should be removed from the bill. If exemptions are to be made, then they should be expressly provided for in primary legislation, and clause 11, therefore, should also be omitted. The Minister should comment on that. It is simply not appropriate to confer, by way of delegated legislation, a privilege on a person or a class of persons for no good reason.

If the power to grant exemptions remains, then surely the bill should be amended to require a clear code to be established for the circumstances in which exemptions should be granted. There should be an obligation to consult with affected parties, certain factors should be laid down that can properly be considered, consideration should be given to the effects of granting an exemption on persons who are licensed under the legislation and are not subject to the exemption, reasons should be given for the granting of the exemption, and, of course, it should be clearly recorded that the Minister, who will, in effect, be promoting the regulation, is satisfied that granting the exemption will give effect to the purposes of the bill. I ask why it is appropriate to depart from the clear guidelines laid down by the Legislation Advisory Committee in the way that has been done here.

Those are the issues that I seek the Minister’s response to. He cannot sit there lamely, not responding to the issues that Mr Roy and I have laid down by way of challenge.

I would like to speak on the exemption for licensed auctioneers in Part 1. Clause 8 states: “A person who is licensed as an auctioneer under the Auctioneers Act 1928 may sell or offer to sell any land by auction.” I was not involved in all of the proceedings of the Justice and Electoral Committee on this bill, but I remember being present for the meeting when we received submissions on the requirements where land was sold by auction.

The submissions overall, as has been said by others here today, were detailed, and the meetings were often intense occasions. Rightly or wrongly, a large section of the real estate industry had developed real fears associated with the bill and the implications that it could have on long-serving, dedicated practitioners who had been working in an ethical and thoroughly professional manner, often within small communities. There was a movement throughout the industry that generated a particular point of view that did not help those who were uncertain. The fact that there were so many submissions on a very complex piece of regulatory framework would have been hard to manage in any circumstances.

The other aspect is that other members who have spoken this morning—and I would perhaps put myself in the same category, from a technical point of view—do not really have a fixed understanding of the way the real estate industry, and particularly auctioneering, works. In respect of clause 136, relating to the requirements where land is sold by auction, I think it was Sue Bradford who had the decency to recognise this lack of understanding. In her speech this morning she said she had a complete lack of knowledge of auctioneering. I guess that this situation would have got the select committee hearings off to a rocky start. I am not sure that the officials had other than a textbook understanding of auctioneering.

The rocky start was not necessary, and did not help, but I can appreciate that for those not involved in auctions and auctioneering it is a system full of mystery, uncertainty, risk, and it has potential for deception. It is, none the less, probably the world’s oldest system of having a commercial exchange of goods by competitive treating amongst a group of people with a common interest in an item or items of property. There were reports of auctions being held on battlefields in Roman times as a means of personal property disposal. The system in its simplest, purest form is exactly that—it is simple. It is a call and a response. Goodness only knows who dreamt up clauses 137 to 141, but on the very first day of submissions it certainly lifted the eyebrows of lifetime-experienced auctioneers right over the top of their heads.

So that those who are listening to this stage of the debate on the Real Estate Agents Bill can understand what we are talking about, I point out that the legislation states that any auction for the sale of land, whether the person conducting the auction is a licensee or licensed auctioneer under the Auctioneers Act 1928, must have a bidders record before any bids are taken at an auction.

The CHAIRPERSON (Hon Clem Simich): I am just wondering whether you are of the view that you are on Part 5.

No, we are dealing with Part 1, Mr Chairperson—

The CHAIRPERSON (Hon Clem Simich): Good.

—where it lists auctioneers as being licensed to conduct sales. These conditions pertain to it, so it is relevant from that point of view. The person’s name and address, and the reference to one or more documents by which the identity of that person is proved, is provided to auctioneers, who, perhaps, are also involved in the sale of goods and chattels, cattle and sheep, and all of that sort of thing. Not only does one have to get the person’s name and establish a bidders record but also one has to have some document that identifies someone as the correct person. It goes on. In the case of the person bidding on behalf of another person, the name and address of that other person, and the reference to one or more documents by which the identity of that person is proved, must be produced. Clause 137(5) states: “The person engaged to conduct the auction must keep the Bidders Record for at least 3 years and must keep all the Bidders Records made by the person together in the form of a register of Bidders Records.” That was a needless regulation.

Mr Chairman, I want to raise two further points to do with Part 1. The first point is in relation to clause 9, which through the select committee process in the Justice and Electoral Committee has been deleted. That was a surprising exemption clause for Landcorp Farming Ltd. I want to know what the rationale was for the Minister, the Hon Clayton Cosgrove, as he put this legislation together, to say there should be a regime for everybody else within New Zealand, but that regime should not apply to Landcorp Farming Ltd.

As the Minister will know from his days as a humble backbencher and from sitting on the Primary Production Committee, the Landcorp Farming company is actually involved in significant numbers of residential property sales, particularly around the likes of Lake Taupō. It seems to me that this Minister, armed with that background information, should never have contemplated dealing with the cowboys and land sharks, as he calls the industry, and then saying one particular State-owned enterprise, with which he was familiar, should be exempted. So I would be very, very interested in the Minister taking a call and explaining the rationale for the inclusion of clause 9 in the bill originally. I am very, very, pleased that the select committee saw fit to remove that clause. I guess it has done that on the basis of saying “one law for all”. If the law is good enough to apply to the industry generally, it should also apply to our own State-owned enterprise Landcorp Farming Ltd.

The second issue that I want to make sure the Minister has done his homework on is around the definition of an “agent”. Here we now have the definition of an agent meaning “a real estate agent who holds, or is deemed to hold, a current licence as an agent”. Does that include a cowboy? The Minister has gone out there and said all land agents are sharks and cowboys, etc., and they cause carnage. And here he has a fairly defined definition of an agent, which seems to me to exempt anybody whom we might possibly have classified as a rogue agent. The Real Estate Institute of New Zealand is involved in a process of licensing these people. All it wants is the ability, if there is an occasion where somebody becomes a rogue agent, to, in fact, deal with that person. It has been asking for that and for modernised powers for a long time.

Perhaps, if that definition is not suitable to define a cowboy, then the Minister ought to think quite seriously about including specific definitions of a land shark and of a cowboy. I say to the Minister that despite his rather extravagant outbursts and the bullying and arrogance around this legislation, he is not right to label the great majority of real estate agents as cowboys, because they are not. They are not cowboys and they are not land sharks.

The Minister, at the end of my earlier contribution, interjected with some derogatory remark about me being a property developer. Well, if the Minister means by that that I have had considerable dealings with, and sold properties through, real estate agents, that is true. There is nothing wrong with doing that; I had every ability to engage somebody if I wanted to. I also had the ability, if I was not happy with the system, to actually attempt to do it on my own, without involving the services of the industry. That has always been a choice available to people. It is interesting to me to note that when most people come to sell property, whether it be industrial, commercial, rural, or residential property, they do not choose that path. They make a decision to engage somebody, because they think the expertise offered by that person will actually further the value of the sale that they are about to engage in.

So if the Minister would rise to his feet and earn his keep, then I would be very, very grateful, because I think he could help the debate by answering a few of the questions that have been raised.

The other very interesting comment that I would like to pick up on is something that I picked up from NewsRoom dated 11 October 2008. Mr Cosgrove stated then: “Every day you wake up there is incompetence, more silliness, and in this case alleged fraud.” As those comments were made nearly a year ago, I just wondered whether he did not have some sort of premonition of what was to happen to his own Government. I think we are very definitely talking about incompetence, more silliness, and in this case alleged fraud.

I do want to make several comments on this bill. It raises the fundamental question about why we need this bill in the first place, given there is currently an Act that guides a great deal of the activity of real estate agents in this country. The purpose of the bill states that it is for the protection of the interest of consumers in respect of transactions that relate to real estate and promote public confidence in the performance of real estate agency work. That immediately leaves us with the question about the range of work that a real estate agency undertakes. Right now, it is not only the listing of properties, the advertising of properties, and the sale of properties—although technically they do not sell them, they facilitate a sale between a seller and a purchaser, and they connect the parties in a way that keeps them, I suppose, in a position of protecting their own interests—but also the extensive engagement in property management. Nothing at all in this bill deals with that aspect of their business.

No doubt the genesis of this bill was a great deal of publicity made some time ago about one or two rogue performers in the real estate industry. It would be hard, then, to imagine why we need to turn the whole of the industry on its head with this Act when, in fact, there would not be a single professional body in this country where there are no rogue operators. Everyone regularly hears about the Law Society having to take action against some of its members for all sorts of things—perhaps, coming to Parliament and telling porkies to a committee, or covering up activities of someone deemed to be a client. These sorts of things happen, and the Law Society duly takes the appropriate action to protect the integrity of its members. Similarly, one could say that about the teaching profession and the medical profession. Periodically there are cases of doctors who go off the rails, and they are discussed. If we look at all the professional bodies we see, they all have some form of legislative protection and arrangement around the way in which those professionals may operate, and we may find that there are rogue operators at various times.

So what was the necessity to tighten up so very much on the real estate industry? I commend the efforts of the Real Estate Institute. It has said it wants to get tougher and wants changes that will enable it to get tougher. But I also accept that the provisions of this bill are just a step or two too far. One of the problems that beset the economy in New Zealand is the extraordinary cost of doing business. It is much higher than in many other countries in the world, and when it comes to real estate New Zealand has some of the most expensive transactions anywhere in the world. I know we see people out there offering to do the job for 1 percent of the sales fee, etc., but that is always on top of a range of costs that are pre-prescribed and generally prepaid by the vendor. In New Zealand it is not uncommon for real estate fees to be 4 to 5 percent. A fee of 4.75 percent is common, and then there is a base fee as well. There is a range of fees up to that sort of level. It would be interesting to know why anyone would expect that this bill will lower that cost. We should surely be always looking to remove costs from our economy through legislation, rather than at loading them into the economy through legislation.

It would be interesting to hear from the Minister just how he thinks the changes he has proposed to this bill make it any more palatable to those who are on the other end of the bill. I suppose it would also be interesting to hear some recitation on the consultation that might have taken place. The Government is very strong on saying it consults widely and seldom moves without widespread acceptance of what it is doing. That is a little hard to understand, given the current nature of polling, but I will not go down that track. It would be interesting to hear from the Minister how he has been persuaded to change his mind.

I make myself available to the Committee, after undertaking other business this morning, to make a contribution on the Real Estate Agents Bill, which I have taken a long and personal interest in since it was introduced into the House by the Minister, the Hon Clayton Cosgrove. I decidedly recall the Minister saying to me across the Chamber that the National Opposition’s decision to oppose the bill, because of seven or eight things we were concerned about, would be a major problem for us in coming months. The problem for him was that it was not, and we have seen from the Minister—and I am sure my colleagues alluded to this during the second reading debate—a major back-down on several of the matters we raised right at the first reading of the bill.

The Minister, quite rightly, was initially concerned—this relates to the purpose clause, by the way—about people whose decisions on savings and the purchase and sale of real estate were not receiving the type of service that the country would expect from real estate agents. The problem in addressing that, of course, was that instead of taking an approach that could have been considered to be thoughtful and forward-looking, the Minister chose to take the opportunity to make a few political statements around the place. I thought the Minister’s choice of phrase was interesting. I have to remind the Committee of the fact that the Minister announced six times, at the last count, he was going to review and rejig the real estate industry, before we saw a bill.

We finally got the bill and found the curious thing was that clause 3(1) states “The purpose of this Act is to promote and protect the interests of consumers”. No one has ever argued with that; National has always said that should be a paramount issue. Whether we have to legislate is another issue, but the fact is that the bill’s purpose is to promote and protect the interests of consumers. The most extraordinary addition to clause 3 is this: “… and to promote public confidence in the performance of real estate agency work.” That makes sense too, as the Minister has been knocking the industry about the head and face—metaphorically, of course—for the last 6 or 7 months. I now see that at the last moment the Minister and his officials have decided to flip the coin completely and promote public confidence. I tell the Minister that the easiest way to do that is to talk about the industry in a positive way and suggest legislation that could help to craft such positivity and such consumer confidence over the years to come.

I am staggered, after all the newspaper column inches I have read about the Real Estate Institute and how appalling the industry is, that the Minster then decided to put forward Supplementary Order Paper 243 in his name—yesterday, I believe, or maybe the day before. Many of the proposed amendments on it were contained in National’s minority report on the bill. There are three areas of the Supplementary Order Paper where we would take exception with the Minister, and those are around the experience matters, which the Minister has changed, the transitional period, which by my reading of it he has increased by only a couple of months, and of course the elusive issue of the non-inclusion of property management.

I know that the Minister will argue, as we have heard, that property management could be seen to be outside the scope of the bill, but, as we know, that matter could easily be addressed by leave of the Committee of the whole House. I would be interested to know from the Minister, who is sitting there quietly and thoughtfully—it is a pity he did not do that 6 months ago—whether he would be prepared to put that leave and see whether we could indeed, by the will of the Committee, include property management in the bill at this point in time. I know many of the political parties represented here this afternoon would be prepared to help officials to draft an amendment to that effect, so we should test the Committee in order to see its will on that point.

I said during the first reading debate on this bill that had the Minister adopted the approach that his colleague the Hon Lianne Dalziel did in dealing with the financial advisers legislation and the matters surrounding those reviews, this bill could have been dealt with, I would imagine, cross-party in a pretty constructive and deliberate way. There would have been disagreements on some things, but overall there was no need for us to have such a fiery first start to this legislation. We will be working our way through the Committee stage in a part by part debate, unless the Minister is of a mind to do so clause by clause. Either way, the National Party will be here to address the issues throughout the afternoon and evening. I think the important thing is that the Minister is convinced, as we go through the bill part by part, that the amendments he is now proposing—having rejected them initially—are up to scratch and will do the job he wants to do.

I am just signalling, as part of the debate on the purpose clause, that we are ready to have quite a detailed discussion with the Minister during the debate on the remaining parts of this bill. I have no doubt that he is up to the task, but I want to know from him—and I would be grateful if he took the next call—whether he thinks the new Supplementary Order Paper 243 could be further worked to ensure that the amendments present and needed for this legislation to work properly—those proposed by National in its minority report—are considered as part of this process. I would also be interested to know whether the Minister is prepared to seek the leave of the Committee to include property management as part of this bill. If he is, then again, in the interests of progressing matters, we are happy to put the offer to the Minister to draft something for him this afternoon and tonight. I am sure he would be happy, if he agrees to that, to make his officials available to give us a hand with that, so we will move to try to test the Minister on that issue later today.

Ultimately, what has occurred here is that the Minister decided he would dig in and take some political opportunities 6 or 7 months ago. To be fair to him, he held fast for a very long time. Then it became clearly obvious that what National had been saying at the first reading of the bill, and what other parties had mentioned not only in the first reading but also during the select committee process in the Justice and Electoral Committee, was that the bill as proposed simply was not doing the business, not just for the industry—which, to be fair, is a major player in this legislation—but also, more particularly, for the consumers who use the industry to buy or sell real estate.

I was not able to be there all of the time during the select committee process, but I did enjoy the odd visit when the discussions on this bill were being undertaken, and, in fairness, I acknowledge that members of the committee from the Labour side were interested in having detailed discussions about how the clauses in the bill would work. I felt a bit sorry for the officials, because they were moving around a bit in the dark early on, in the sense that it was not clear whether the institute or anybody else who had been consulted prior to the first reading was being consulted during the course of the bill being before the select committee. If the Minister can help us with regard to that point, it would certainly help to clear that issue up, once and for all.

I am signalling that it is worth saying to the officials involved in this process that their efforts were not unnoticed. They did the best they could do with something that people tried to make into a political hot potato. In the end, it really just did not fly, because legislatively—

💬 Hon Clayton Cosgrove: Potatoes don’t fly.

It depends on whether one throws them, I say to the Minister. Legislatively, there was always going to be a difficulty with the acceptability and practicality of this legislation, given that it deals not just with the industry but also with consumers and its relevance to their buying and selling of real estate. Those issues, of course, meant that complex questions around the Lawyers and Conveyancers Act and the financial advisers legislation had to be taken into account when coming up with this bill and its purpose, which is contained in Part 1. I know that Gerry Brownlee, Lindsay Tisch, Christopher Finlayson, Kate Wilkinson, and others will be talking about this matter in some detail.

I want to finish by saying this to the promoter of this bill: it is not too late; we can still fix the bill. I know that the Minister has made a substantial shift in producing Supplementary Order Paper 243. If he had just gone a step further, I am sure the bill would be moving at a much faster pace than it will be moving at this afternoon and this evening.

I wonder whether the Minister in the chair might be good enough to turn his attention to clause 6(3) of the bill, which states: “For the purposes of this section, it is immaterial whether or not a person carries out any agency work as a business in its own right or as part of, or in connection with, any other business.” The reason I am raising this is that when we see legislation rushed through Parliament, we are left with the impression that there must be a few things in here that have not been properly considered. I take the Committee back to the definition of “real estate agency work or agency work”, which is contained in the interpretation clause. It states: “(a) means any work done or services provided, in trade, on behalf of another person for the purposes of bringing about a transaction;”. Well, that immediately raises the question about the status of private sales, and about the status of deceased estates being sold within a family or, for that matter, outside a family—private sales between parties who are perhaps consenting over the values and property swaps. It raises the question about mortgagee sales and the way in which, for example, banks might cluster and group those sales.

And then it raises other questions. Let us look, for example, at the recent purchase of a number of properties by the Christchurch City Council from a property developer in that city. Given that those properties were on the market but the parties did an off-market deal, there is no doubt that the staff of the council effectively put themselves into a position, under this legislation, of being the agents who facilitated that particular transaction. It is interesting to note that the catch-all provision of “any other business” would tend to rule out the suggestion that it has to be a related business—a business related to the activities of a real estate agent. There is no suggestion of that, at all.

I think that that potentially causes quite a bit of a problem, because we know that off-market sales occur frequently. We know that quite often if someone is the executor of an estate, he or she may go out to relatives or family friends or others who are not direct beneficiaries of any particular estate, indicate that there is a property for sale, and then start to negotiate a deal. Well, it would seem that under this particular law that will now not be possible. It will force people to accept the expense involved in taking on a licensed operator in order to give effect to that transaction.

I am sure that is not the intention of the committee, or even of the Minister. It will, I think, substantially slow the transfer of properties, which might rightly be done outside the usual practice of working through licensed real estate agents. It is, of course, a fact that lawyers’ offices, the Public Trust, various banking institutions, and others will not have a great interest in lining up with their papers all put together, to become licensed real estate agents.

That may not be the worst of it. I think, by the reading of this bill, the worst of it is that private sales between individuals are most certainly caught. It would be interesting for the Minister to offer the Committee his view on that particular point.

It is interesting to note, too, that agency work “includes any work done by a branch manager or salesperson under the direction of, or on behalf of, an agent to enable the agent to do the work or provide the services described”. There are hundreds of people in this country who work as assistants to real estate agents. They are not real estate agents in their own right, and they do not advertise their services. They may well, under the instruction of the agent, open up a property so that someone can view it. But they do not turn up with the papers that get signed in order for the transaction to take place. They are simply an assistant, yet it would seem they are now caught, under this bill, and will need to meet all the requirements that this bill puts on real estate agents.

I will take a brief call to give notice to the Committee of four amendments that I will be moving to various clauses in Part 1 of the Real Estate Agents Bill. There are three amendments to clause 4, and I just want to draw the attention of the Committee to those. The first amendment relates to clause 4(c)(i). The proposal is to omit that wording, because what that definition does is define the scope of activities of real estate agency work or agency work. The amendment effectively says that the removal of a prohibition on the provision of general advice or materials to assist owners to locate and negotiate with potential buyers is actually logical. If we say that that activity by agents is excluded from the definition, then in fact one of the major areas of concern that people might have is also being excluded.

My second amendment relates to clause 4(c)(v), and that is to remove the reference to the provision of investment advice. At the moment we have this rather strange situation where real estate agents providing what might be described as investment advice to clients is permissible. That is permissible under this bill because it is deemed not to be a definition of real estate agency work or agency work. It seems that that is actually a major omission. It may well owe something to the rather negative way in which this particular clause has been drafted.

The next amendment is a more technical one to the definition of a transaction, being “the sale, purchase, or other disposal or acquisition of a freehold estate or interest in land:”. I am proposing to add the word “grant”, because otherwise we do not have any capacity to deal with the issue of letting and leasing. An amendment along those lines would bring in the scope that the legislation intends.

My final amendment to this part relates to clause 8. I simply propose the deletion of clause 8, for a very simply reason. Clause 8 as it stands introduces an exemption for licensed auctioneers. In fact, in the bill as it stands, auctioneering generally is excluded, yet it is a major part of the real estate industry, and the amendment would bring the auctioneering side of the business into the scope of coverage of the legislation.

I have some other amendments to subsequent parts of the bill and will deal with those as we come to them. But I would ask the Committee to give consideration to those matters. I do not think they are in the main contentious. I think they are designed to make this legislation work as intended, and, laying aside one’s opposition to the principal Act, it is always a responsibility of the House to make sure we get the best legislation in place. I simply ask the Committee to give consideration to those amendments.

I congratulate the previous speaker, Peter Dunne, on the amendments he is bringing forward. I think they add value to the bill. I do not find the bill as it stands to be a negative one. It is a gut reaction to a concern in the market place. I think the deletions the member proposes add value. I cannot speak for National as to whether we will support them, but certainly from my point of view—

💬 Eric Roy: Yes, we will.

We will be supporting them. The first amendment he mentioned affects paragraph (c)(i) of the definition “real estate agency work”, in clause 4. It was the next one that really caught my attention, and it affects subparagraph (v), dealing with “the provision of investment advice;”. I am sure there are a lot of experts out there in the market who say to people that if they purchase such-and-such a property, they will get a rate of return, guaranteed cash flows, or whatever. If members have ever been to property seminars, they will know that those sorts of things are very much to the fore. Unwilling people have been captured by too-good-to-be-true growth potentials and returns. I am sure that if this subparagraph is not taken out, we will have a problem. The issue goes back to other bills the House has been debating over the months. I think the Financial Advisers Bill also encapsulates it. The point the member makes in terms of his amendment deleting that subparagraph certainly would add value. I did not catch what the fourth amendment was, but the other one I did pick up on was to omit clause 8, “Exemption for licensed auctioneers”. I am sure that when we further debate these provisions, Peter Dunne will have the support of National for his amendments.

I want to go back to the genesis of this bill. It is interesting that although there has been some concern about the cowboys out there—people who have not operated in the professional way that one would expect—that situation is not unique to this industry. It happens in every occupational class. One can identify it happening right throughout other professions, whether it be the medical profession, the accountancy profession, or the field I come from. I am a valuer by profession. [Interruption] I did not quite catch the point of the Minister in the chair, the Hon Clayton Cosgrove; would he like to repeat it, or is he going to mention it when he responds to my questions? Even in the valuing profession, which I was a member of for many years, there has been a question mark over some of the practices that have been carried out. The situation is not unique to real estate agents.

The industry has said that some people should not have been in it, and they have disengaged, after bringing the industry into disrepute. There is no place for those people in the industry. It does not matter where such people come from; they should be removed. When I look at the interpretation of “agent” in clause 4, I see that it “means a real estate agent who holds, or is deemed to hold, a current licence as an agent …”. Well, so what? What does that actually mean in the market place? To my mind it gives absolutely no protection. If this bill is designed to protect people who are using an agent, I have to say that it absolutely does not do that.

One has to ask where the mischief is. What has actually gone wrong that makes this bill necessary in the format it is in? Where is the harm? That question was put back on 11 December 2007, when my colleague Simon Power spoke in the first reading debate. I will quote him specifically. It is in Hansard, Volume 644, at page 13817. He quotes people as asking “Where’s the evil?”, “Where’s the harm?”, and “What is it that this legislation is trying to address?”. Do members know what the Minister said at that time? I shall quote the Minister’s response in an interjection: “A listening Government.” Well, if he is part of a listening Government—and that is what we read on page 13817—if the Minister is in tune with, and is prepared to look closely at, the issues that have been identified, he would not be making comments about agents being “land sharks” and “B-grade goon shows”. That is what the Minister said. It is mentioned here.

💬 Hon Clayton Cosgrove: Just the bad ones.

Well, a “B-grade goon show” is not a way to describe this sort of industry. If one wants to build goodwill with an industry, one has to get alongside the people in it and work with them. The Minister says the Government is a listening Government; I say he is out of tune. He is out of step—

💬 Hon Clayton Cosgrove: Tell the victims.

The Minister talks about the victims. What about the “willing seller, willing buyer’ concept? What about caveat emptor? What about somebody who is about to make an investment actually getting some independent advice, whether from an accountant or a lawyer? A lot of the problems have happened because people take at face value what they are told and believe that it is kosher. They do not look behind the scenes. We have always advocated—

💬 Hon Clayton Cosgrove: So it’s their fault.

No, it is not their fault; it is just that they do not understand and they do not know. But the Minister cannot label land agents a “B-grade goon show”. That does absolutely nothing, I say to the Minister, for the reputation of this Government in trying to work out a programme going forward.

The industry is looking for change. It has identified that. It is not averse to change. It is saying that it wants legislation of the time. It wants to make sure that, in this new century, it meets the demands of the market and safeguards its customers. The worst thing that can happen is that agents get a bad name and people do not use them, or look elsewhere. At the end of the day, most agents are on a commission. Their jobs are based on a commission. They have to build up goodwill, because if they do not, they are down the road. Possibly, the one good thing about the commission system is that only the good agents survive.

Gerry Brownlee talked about the excessive fees paid to agents. Well, there is no harm—and I have done this in the past—in negotiating a deal, in negotiating a flat rate. That is acceptable. If people are in a position to do that, then moving to a flat-rate arrangement can work extremely well.

In the final minutes of my speech I want to ask the Minister a question. He can respond after the lunch break. The interpretation clause talks about “real property”; does that term include mussel and oyster farms? I do not know the answer to that. I have asked about it, because we are talking about property. But if we are talking about leases on mussel farms—

💬 Hon Tariana Turia: I’m wondering whether real estate agents are involved in selling mussel farms.

Well, we are talking about property, are we not? I am talking about a lease, which is tradable. People have an interest in it. There are mussel and oyster farms throughout my area. There are farms in the Firth of Thames, the Coromandel, the Marlborough Sounds, and in Big Glory Bay on Stewart Island. There are a lot of such properties out there.

Sitting suspended from 1 p.m. to 2 p.m.

I put to the Minister a question specifically relating to clause 4, “Interpretation”, about what was included in the term “land”, the definition of which talks about “real property”. The question I asked—and I would be interested in a response from the Minister—is whether mussel farms and oyster farms are included—

💬 Hon Clayton Cosgrove: No.

Well, I would like a more specific answer than just “No.” When the Minister takes a call he might like to explain it to the Committee, to me, and also to Tariana Turia, who was interested in the question I was asking. If those farms are not included in “real property”, we want to know why.

💬 Hon Clayton Cosgrove: Only land.

The definition talks about “interests”. A mussel farm does not just float there; it is actually on something, and I want a more specific answer than just “No.”

My colleague the very learned lawyer Kate Wilkinson, who has interests in the real estate world and understands the complexities of it, and who, in her time as a lawyer, handled many real estate transactions, has asked some specific questions that we would like the Minister to respond to. Again, they relate to clause 4, “Interpretation”, and specifically to the definitions of “agent”, “residential property”, and “transaction”. Specific questions were put to the Minister by Kate Wilkinson. I hope that over the luncheon break the Minister’s advisers were able to come forward with some very clear answers to those specific questions. They are not difficult questions. We want to know what those terms mean, because they form part of legislation that will be voted on shortly.

I end with those words finalising what I was saying prior to the luncheon adjournment. I look forward to the Minister’s response.

The question was put that the following amendment in the name of the Hon Peter Dunne to clause 4 be agreed to:

to omit subparagraph (i) of paragraph (c) of the definition of real estate agency work or agency work.