Which act legislates real estate appraisals and penalties that could apply when these are breached?

In Western Australia, all real estate and business agents have an obligation under the Real Estate and Business Agents Act 1978  to comply with the obligations set out in the Real Estate and Business Agents and Sales Representatives Code of Conduct 2016 at all times.

The primary duties imposed on agents and sales representatives by the Code of Conduct are:

• To act in good faith and exercise due skill, care and diligence (Section 6);
• To act in the best interests of their clients (Section 5);
• To be honest in their dealings with all persons involved in a transaction (Section 7); and
• To act in accordance with the client’s reasonable instructions (Section 10(b)).

What if my agent breaches these duties?

If a real estate or business agent breaches any of their duties or obligations under the legislation, the aggrieved person may make an application to the State Administrative Tribunal. Under Section 103(1) of the Act, the State Administrative Tribunal has the power to:

• Reprimand or caution the agent;
• Impose a fine not exceeding $10,000; or
• Suspend or cancel an agent’s licence and any triennial certificate in respect thereof and in addition, disqualify the agent either temporarily or permanently, or until the fulfilment of any condition which may be imposed by the Tribunal.

Alternatively, under Section 103(3), in a matter concerning the discipline of a sales representative the Tribunal may:

• Reprimand or caution the sales representative;
• Impose a fine not exceeding $3,000; or
• Suspend or cancel the agent’s registration and, in addition, disqualify him either temporarily or permanently, or until the fulfilment of any condition which may be imposed by the Tribunal, from being registered.

In respect to the possibility of a licensee to have their licence and triennial certificate cancelled, a licensee must commit an offence involving:

• Defalcation by the licensee; or
• The fraudulent rendering of an account, knowing it to be false in any material particular, in respect of money or other property entrusted to him by or on behalf of another person in the course of the licensee’s business; or
• a breach of any one or more of the provisions of Part VI relating to the proper payment in and out of the trust account of the licensee of money entrusted to him by or on behalf of another person in the course of the licensee’s business, his licence and any triennial certificate in respect thereof is thereby cancelled, and the registrar of the court convicting him shall forthwith notify the Commissioner accordingly.

Some real-life examples

Below are some examples of penalties imposed for breaches committed by real estate and business agents in Western Australia.

Real estate agent barred from registering for 15 years

In 2017, Paul King was sanctioned for 13 breaches of the Code of Conduct relating to the sale of 5 lots of rural land between 2008 and 2010 while King was working for his father’s real estate agency. Mr King had sold the properties to an intermediary company controlled by his brother, Michael King, who was not a licenced real estate agent or sales representative. The properties were then sold to Malaysian investors at substantially higher prices, with more than $5 million profit going to Mr King.

This was in direct breach of Mr King’s obligation to act in the best interests of his client. Mr King was barred from registering as a real estate agent for 15 years and he and his father were fined $39,000 in total.

$5,000 fine for breaches of the Real Estate and Business Agents Act and Code of Conduct

In 2016, Caputo & Clay Pty Ltd trading as Harcourts Integrity Maylands was fined $5,000 for breaches of the Code of Conduct relating to various accounting failures. These allegations related to the withdrawal of trust funds without prior authorisation and failure to maintain proper records of transactions. Among other things, the Tribunal found that Harcourts Integrity had failed to exercise due skill, care and diligence.

Real estate agent suspended for 18 months and fined $3,000

In the case of Johnson v Sheppard, heard by the Western Australian Supreme Court in 2005, Mr Johnson was found to have failed to exercise due skill, care and diligence in effecting a misdirection of rental monies. This accounting failure resulted in the agent being suspended from practice for 18 months and fined $3,000. Mr Johnson appealed this decision, but the appeal was dismissed.

How can we help?

If you believe that your real estate agent or business agent is in breach of their obligations under the Real Estate and Business Agents Act or the Code of Conduct, GTC Lawyers can assist you to try to resolve these issues with the agent. If no mutually agreeable solution can be reached, GTC Lawyers can help you make an application to the State Administrative Tribunal for adjudication of the matter.

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• If an agent (or employee or relative) wants to purchase a property or business the agent has been engaged to sell, they must sign a form prepared by Consumer Affairs Victoria (CAV).
• LPLC recommends practitioners refer their vendor client to a valuer for independent valuation advice to ensure the sale is for a ‘fair market value’.
• Practitioners should explain sections 55 and 55A to their vendor client and recommend they obtain financial advice from their accountant.

Section 55 of the Estate Agents Act 1980 (Vic) (the Act) makes it a criminal offence for an agent (or their employees, family members or other related people) to buy a property or business listed or commissioned for sale with their agency. The penalty includes 240 penalty units, imprisonment for two years or both.

The only exception to the prohibition is found in sub-section 55(4) of the Act which reads as follows (note – an example of a ‘principal’ in this section is a vendor selling land):

‘55 (4) A person does not contravene subsection (1) or (2) if-

(a) the person-

(i) before a contract for the sale of the real estate or business is entered into, obtains the principal’s written acknowledgment in the form approved by the Director that the principal-

(A) is aware that the person is interested in obtaining a beneficial interest in the real estate or business; and

(B) consents to the person obtaining the interest; and

(ii) acts honestly and reasonably [1] in relation to the transaction; and

(b) no commission or other reward is payable in relation to the transaction; and

(c) the principal is in substantially as good a position as the principal would be if the real estate or business were sold at fair market value.’

This version of section 55 and section 55A came into operation on 23 August 2011 (see [2] below). The previous amendments required practitioners to consent to the agent (or their employees, family members or other related people) purchasing the land and/or business. This requirement has been removed.

The Explanatory Memorandum to the Consumer Acts Amendment Act 2011 (Vic) said that the new section 55:

‘makes it an offence for an estate agent to obtain a beneficial interest in any real estate or business the estate agent has been commissioned to sell. A penalty of up to 240 penalty units or two years imprisonment or both applies. This level of penalties is similar to penalties for equivalent offences in section 145 of the Property Agents and Motor Dealers Act 2000 of Queensland and section 49 of the Property, Stock and Business Agents Act 2002 of New South Wales.’

The memorandum does not assist in understanding how a vendor or an agent (or the agent’s employees, family members or other related people) must practically deal with the issues around a sale by a vendor to their agent (or the agent’s employees, family members or other related people).

A breach of section 55 does not render the contract void and unenforceable. This means a breach of section 55 will not itself give a vendor or purchaser any right of rescission nor any right to refuse to settle the contract.

When practitioners are acting for vendors proposing to sell their properties to agents or relatives of agents LPLC recommends they should:

1. explain sections 55 and 55A to the client
2. advise the client that, given the nature of the transaction and the obvious conflict of interest, it is especially important the client obtain independent financial advice including independent advice as to the value of the property or business being sold
3. make the client aware you are not providing financial advice, not providing any opinion of the market value or whether it is financially prudent for the client to enter the transaction
4. test the client’s understanding of the advice given by asking the client to tell you what they have understood
5. keep a detailed file note of the advice given and the client’s responses, ensuring the file notes:

a. are datedb. record the time takenc. record who was present

d. are a note to the file rather than a cryptic note to yourself.