Preventing Estate Agents From Preparing Contracts

Published 13 March 08 05:21 AM | Peter Mericka 

by Tim O'Dwyer M.A., LL.B
Solicitor
Consumer Advocate
watchdog@argonautlegal.com.au

 

After firing more than a few verbal bullets over recent months at Queensland’s Attorney-General (and Fair Trading Minister) Kerry Shine in The Courier Mail and Gold Coast Bulletin newspapers, on ABC radio and here in the Australian Real Estate Blog, I finally got a response (of sorts). The critical issues, of course, had been the largely unregulated role of legally unqualified real estate agents in the preparation and execution of legally binding contracts and the consequent need for proper protection of real estate consumers.

See:
Catch 24 On Agents' Contracts
Who Will Pay The (Legal) Ferrymen?
Gold Coast Law Association Slams Agents And Calls For Contract Reforms
Deep North Agents "Re-licensed" to Practise Real Estate Law

Apart from my public fusillades, I had also written twice direct to the Attorney-General not only expressing my long-standing concerns but also giving him some examples of agents’ on-going contractual mischief. Finally this letter arrived from a senior policy advisor:

"Dear Mr O'Dwyer,

Thank you for your letters dated 21 December 2007 and 21 January 2008 concerning the Legal Profession Act 2007 and real estate agents preparing contracts.  The Honourable Kerry Shine MP, Attorney-General and Minister for Justice and Minister Assisting the Premier in Western Queensland, has asked me to reply to you on his behalf.

Section 24(2) of the Legal Profession Act 2007 excludes various activities from the reservation of work to legal practitioners.  The equivalent provision in the previous Legal Profession Act 2004 excluded real estate agents preparing or assisting persons in the preparation of contracts.  Because it referred to any contracts and was not limited to contracts that agents would be expected to deal with in the ordinary course of their licensed activities, the wording of the exemption was tightened in section 24(2)(e) of the Legal Profession Act 2007.

After concern was expressed that the new wording might be too narrow for certain activities typically engaged in by licensees, a transitional regulation was made to urgently clarify the scope of the exemption.  It exempts the activities of licensees authorised under the Property Agents and Motor Dealers Act 2000 and ancillary or incidental activities that are part of the ordinary course of business undertaken generally by a relevant licensee.

Under the Property Agents and Motor Dealers Act 2000 (PAMDA), before signing a contract, purchasers are advised, but not required, to obtain independent legal advice.  However, it has been a longstanding commercial practice for PAMDA agents in connection with their authorised activities to complete the wording of contracts and insert special conditions at the request of the parties.

The Attorney-General would of course be concerned if legal practitioners are identifying deficiencies in contracts or clauses drafted by PAMDA agents.

The Queensland Law Society has expressed concerns about real estate agents engaging in contract preparation and the Attorney-General has agreed to meet with the Society to discuss this issue, to examine the extent of contract deficiencies and to consider what responses, legislative and otherwise might be necessary or appropriate for addressing this matter.  To assist these discussions, you may like to write to the Law Society to inform it of your concerns and the issues that you have experienced in circumstances of contract deficiencies.

You have attached copies of sales contracts to your letters and allege breaches of the Property Agents and Motor Dealers Act 2000.  It would be more appropriate for your clients, or you on your clients' behalf, to formally lodge any complaint with the Compliance and Enforcement Branch, Office of Fair Trading, GPO Box 3111, Brisbane Qld 4001.  This would ensure that if agents act contrary to the requirements of the Property Agents and Motor Dealers Act 2000 or the Property Agents and Motor Dealers (Real Estate Agency Practice Code of Conduct) Regulation 2001, investigation and appropriate action can be taken against offending agents.

I trust this information is of assistance.

Yours sincerely
Tim Herbert
Senior Policy Advisor "

After I’d cooled down considerably, I sent off a remarkably restrained reply expressing my deep disappointment...

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Filed under: Conveyancing, Estate agent, Agent, Contract, ethics, queensland, kerry shine, conflict of interests, contract of sale, contract note

Comments

# Preventing Estate Agents From Preparing Contracts | Real Estate Blog said on March 13, 2008 8:15 AM:

PingBack from http://www.australianhousehunters.com.au/blog/2008/03/13/preventing-estate-agents-from-preparing-contracts/

# Lynton Duffell said on March 14, 2008 9:28 AM:

Tim, I couldn't agree with you more, Queensland also needs to have like Victoria a Sec 32 prepared by the solicitor for the vendor before attempting to sell a property, I totally agree with you an agent should be subject to section 55 the same as Victoria re purchase of a property owned by the client, it is the only ethical and professional way. Special conditions on contracts in most states of Australia has been a grey area for both agents representatives and licensees not qualified in both the legal sense of writing a legal english clause that protects their vendor and obviously you have made the point there is the  unscrupulous agent protecting their own interests, (At least Victoria had a recommended wording prepared by the Law Society for certain frequently used special conditions under the cover of the  pad of hardcopy contract/sale note I am not sure what they have now with electronic forms now mostly used?) However Queensland contracts amended with special conditions prepared by unqualified agents and licensees are an accident waiting to happen when a problem does occur then watch real estate agents professional indemnity hit the highs! Who will be squealing then?

Agents are their own worst enemy they should remember their one and only job is to list and sell they cannot be martyrs.

# Peter Mericka said on March 14, 2008 12:35 PM:

Hi Lynton,

I have to correct you regarding your observation,

"At least Victoria had a recommended wording prepared by the Law Society for certain frequently used special conditions under the cover of the  pad of hardcopy contract/sale note..."

In fact, these pro-forma special conditions are provided by the Real Estate Institute of Victoria (REIV) to estate agents, and are one of the means by which contract corruption has spread through the industry.

(See "Building Inspection Conditions" at http://www.lawyersconveyancing.com.au/deception.asp)

An estate agent who is paid on the basis of winning a sale for a vendor is in a position of conflicting interests when he or she purports to be acting in the purchaser's interests when "assisting" by drafting special conditions.  For further outrageous examples of estate agent conditions see http://reic.com.au/blogs/australian_real_estate_blog/archive/2007/04/30/estate-agent-s-finance-clause.aspx.

# Tim O'Dwyer said on March 14, 2008 9:34 PM:

STOP PRESS: Today husband and wife clients got in touch about buying a block of land. The selling agent had prepared a purchase contract, and was bringing it to them to sign. Wisely the clients faxed it to me to check out first. The agent had not left the "encumbrances" item blank (hey, what's new?), but - surprize, surprize - my title search revealed that the land was encumbered by a registed drainage easement in favour of the local council.

I rest my case on why agents should not be allowed within 20 metres of any contract.

# Santa Fe Properties said on March 18, 2008 8:06 AM:

It's a good thing you were able to have a little restraing after receiving a letter like that!

# Tim O'Dwyer said on March 19, 2008 1:26 PM:

Of course conveyancing solicitors can be just as incompetent (and negligent) as real estate agents when it comes to contracts.

Further to my "STOP PRESS" comment above about a selling agent's recent non-disclosure of an encumbrance easement, I would like to share with our readers what happened next. After the buyers signed the contract offer (still with no easement details on it) the agent presumably submitted this signed document to the sellers who presumably took it to their solicitors before accepting the offer and signing the contract.

I make this latter presumption because the fully signed contract arrived at my office in today's mail - under cover of a letter, not from the agent, but from the sellers' solicitors.

You guessed it!

The dreaded drainage easement had still not been disclosed in the contract. Clearly these slack solicitors, like the dumb agent, had failed to undertake a simple title and inexpensive search of their clients' property.

the consequences could, however, be expensive for the sellers and their solicitor whose later involvement, to my mind, lets the agent off any liability hook.

# Peter Mericka said on March 19, 2008 1:46 PM:

Tim, it has been my experience in Victoria that many lawyers and conveyancers will not make any changes to a contract that has been drawn up by an estate agent, even if there are problems with it.  My impression is that they don't want to get the estate agent off-side.

I'm not eliminating incompetence or negligence as factors, but simply adding a further possibility.

# Tim O'Dwyer said on March 24, 2008 11:10 PM:

Attorney-General Shine also recently received a few no-nonsense letters from consumer crusader Kathryn Simpson (who featured in the Blog's 'Blind Freddy Would Have Spotted The Problems').

Kathryn tells me she has had no replies yet, but regular Blog readers should keep watching this space to see whether Kathrine gets any better bureaucratic response than I did.

# Tim O'Dwyer said on March 26, 2008 3:56 PM:

This week I saw disturbing evidence of why some Queensland conveyancing solicitors should also be kept well away from real estate contracts.  

Local solicitors posted to my firm on 20th March 2008 (before Easter) a copy of a contract dated 17th March 2008 with no agent involved.  These “deficiencies” jumped out when I received the contract on 25th March (after Easter):

• The contract showed a firm other than mine representing the buyers;

• The seller’s solicitors’ covering letter noted that the deposit was to be paid “to the agent” whereas the contract showed those solicitors as deposit holder;

• The covering letter mentioned “balance deposit” although the contract made no mention of any initial deposit;

• Now get this:  In this “time of the essence” contract the deposit was payable, building and pest inspection reports were due, finance was due and settlement was due – all by 31st March 2008;

• The contract showed that the property was tenanted, gave tenants’ names and weekly rental but the items for tenancy term and options, starting date of term, ending date and bond were blank;

• The item for managing agent (of the tenancy) was completed with the seller’s name;

• Although the items for finance amount and finance date had been completed, the item for financier was blank.  No matter that a nearby pre-printed notation on the contract stated:  “Unless all of finance amount, financier and finance date are completed, this contract is not subject to finance …”;

Anyhow, the good news is that this abortion of a contract had been sent to me by mistake.  When I rang the buyers, they confirmed they were using the solicitors shown on the contract.

# Tim O'Dwyer said on March 29, 2008 5:07 PM:

Some of us are not entirely confident that Queensland Law Society will have either the wit or the will to get the right messages across to the Attorney-General not only about agents' contract-drafting incompetency but also their "culture of sales pressure expediency." For instance, this is part of a letter sent by a solicitor (not me!) in April 2007 to the Law Society:

“If you could please pass the following onto the relevant sub-committee of the Queensland Law Society which…generally liaises with the Real Estate Institute of Queensland.

Perhaps…the QLS would better serve their members by endeavouring to change the practices that lead to a culture of real estate agents being in complete control of forming legal relations between the parties. This way of doing things considerably devalues the role and advice a solicitor can offer to clients simply because in most property matters the solicitor first sees the contract after it is formed. The legal profession is then mostly relegated to a low value conveyancing only function. Clients suffer by not getting timely advice…”

The writer gave an example of how he and one of his client’s had been recently shabbily treated by an agent, and went on to suggest that “the Queensland property culture of sales pressure expediency” be replaced by “one which encourages legal advice prior to contract rather than after contract.”

Apparently the only official response to date was that this letter would “hopefully” go onto the agenda of the Law Society’s Property & Development Law Section’s meeting on 1st May 2007.  

# Tim O'Dwyer said on April 2, 2008 7:04 PM:

A legal colleague has just sent this ball-tearer of a letter to the Queensland Law Society:

"I understand that you are currently compiling some material to furnish to the Queensland Government relative to the ongoing daily stuff-ups occurring because real estate agents have a tight hold of land contract preparation in Queensland.

I understand that I must have client consent prior to divulging client information so accordingly I set out hereunder a brief summary of recent agent stuff-ups:

1. Failure to list encumbrances such as easements in the simple spot intended for same in standard REIQ contracts.

2. Rampant failure to insert realistic time frames for purchasers finance and building inspection clauses.

3. Failure to particularise chattels in relevant section of contract (appears to be just lazy practice by agents).

4. Failure to insert clauses relative to Land Sales Act statutory disclosure when selling unregistered plans (2 contracts in 2 weeks from different agents).

5. Failure to follow PAMD procedure at time of signing of contracts (actually PAMD procedure remains a pathetic mess which would not be an issue if agents were excluded from preparation of contracts).

6. Failure to even closely comprehend the effect of the Duties Act relative to changing of entities entering into or endeavouring to be deleted from contracts (ie. ignorance as to potential double stamp duty).

7. Failure to insert binding special conditions relative to buyers prior sale which level of uncertainty ranges from no settlement date through to uncertainties generally relative to time framing of certain events surrounding the prior sale.

8. Continuing collusion between agents and building inspectors – unrealistic time frames for building inspections – non allowance for checking of Council records – buyers in essence being “conned” into locking into building inspection part of contracts often with building inspection clauses of 7 days or less – with no warning from building inspectors that they have not checked Council records – so, the sweetheart deal between agents and building inspectors is resulting in buyers being locked in on building inspection clauses prior to buyers solicitor even receiving the contract.

There are hundreds of examples of agent contract preparation mischief that I have encountered over the last 25 years – I have a shipping container full of old conveyance files – if there was time to obtain client consent and throw the evidence of the litany of mischief at the feet of the relevant legislators with proper disclosure to the public, I would expect that the legislative spin machine would go into meltdown."