The Real Estate Institute of New Zealand Incorporated. The Real Estate Agents Act 2008 Exemption Request:

JUNE 2016 RESPONSE OF: The Real Estate Institute of New Zealand Incorporated ON The Real Estate Agents Act 2008 Exemption Request: Consultation Material for the New Zealand Institute of Forestry Te Pūtahi Ngāherehere o Aotearoa Incorporated ATTN: Fergus Broom Ministry of Justice Wellington

Introduction The Real Estate Institute of New Zealand Incorporated (REINZ) welcomes the opportunity to present this response to the Ministry of Justice (The Ministry) on the Consultation Material for the Real Estate Agents Act 2008 (REA Act) exemption request by the New Zealand Institute of Forestry (NZIF) (the Consultation Material). REINZ is a membership organisation representing an industry of real estate professionals for over one hundred years. REINZ has approximately 14,000 members specialising in all aspects of real estate work. The objectives and purposes of REINZ are to: (a) Promote and facilitate the quality, expertise and integrity of REINZ members in relation to the principles and practice of real estate; (b) Support, protect, represent, and promote the general interests of REINZ members in their real estate activities; (c) Consider, and represent REINZ members on all matters affecting the interests of REINZ members particularly the effects of legislation, regulations, rules of government, government agencies including crown entities, and local authorities; (d) Enhance the public awareness and reputation of REINZ members; (e) Undertake such commercial activities of benefit, interest and advantage for REINZ and its members; and (f) Manage and invest all the monies, property and assets of REINZ in a manner that is of benefit, interest and advantage for REINZ and its members. Through all of its functions, REINZ performs an important role in the protection of the public and the maintenance of public confidence in the practice of real estate in New Zealand. The exemption request by NZIF (Exemption Request) is in relation to the licensing requirements of the REA Act. Under s156 of the REA Act the Governor-General may, by Order in Council, make regulations for the purpose of exempting any person or class of persons from the requirement to be licensed under the Act and prescribing any terms and conditions of such an exemption. 1 Any regulations made under s156(1)(a) exempting any person or class of persons from the requirement to be licensed under the Act may be made only on the recommendation of the Minister. 2 The Minister must not make such a recommendation unless the Minister is satisfied that: 3 there is no material customer benefit to be gained by requiring the person or class of persons concerned to be licensed; and there are sufficient processes in place to ensure competent and ethical conduct on the part of that person or those persons; and he/she has consulted with representatives of organisations that, in the opinion of the Minister, have an interest in the proposed exemption. REINZ has been asked to comment on the Exemption Request as part of the statutory requirement set out under s156(3)(b). In particular, the Ministry has asked REINZ to respond to the following questions: 1. Where the Ministry believes there is a material difference between the regime of the Act and NZIF s regime, it has proposed terms and conditions designed to mitigate that difference. Does 1 S156(1)(a) REA Act 2 S156(2) REA Act 3 S156(3)(a)-(b)

REINZ agree that the proposed terms and conditions in each case are appropriate and mitigate risks to consumers and exempted NZIF members? 2. Overall, does REINZ agree, disagree or is REINZ neutral about NZIF s application to exempt its NZIF members from the requirement to be licensed under the REA Act? Summary Response A key submission underlying this response is that the matters required to be taken into account by the Minister under s.156(3) must assume, as a minimum, that any exempt activity will meet the same high standards as those imposed on licensees under the REA Act and which are reflected in the statutory purpose of the REA Act itself. The statutory purpose of the REA Act 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. Those are the minimum standards which any licensed or approved unlicensed person must attain in the practice of real estate. For the reasons explained in this response, it is submitted that the NZIF exemption application does not satisfy these minimum standards. REINZ does not believe that the Ministry s proposed terms and conditions will mitigate the difference between the Act and NZIF s regime. The practice of real estate is a specialised area of commercial activity requiring regulation in the public interest. That applies to licensed and approved unlicensed persons. For the following reasons, there is no basis for confidence that the principles and practices of real estate, promoted by the REA Act and the institutions established under that Act, including the CAC, REAA and READT, can be provided by NZIF: - The regulation and promotion of standards in real estate practice is a field of expertise far removed from the core activities and competencies of NZIF. - NZIF has no developed skill, experience, or established institutions to ensure the minimum public safeguards and protections which the REA Act is intended to provide. - NZIF s Registration Board has no developed expertise in the regulation or discipline of persons engaged in the practice of real estate, or the protection of consumers of real estate service. - The effective gatekeeper functions of the REA Act, and the REAA, concerning admission into real estate practice and continuing professional development once admitted, cannot effectively be established or monitored by the NZIF. The confidence expressed by NZIF concerning its relevant experience and competencies is unproven and unsupported by any relevant experience or developed expertise comparable to the licensing regime under the REA Act. That regime has well developed standards and systems in the areas of professional competency, continuing professional development, and ethical standards. The latter includes dealing with conflicts of interest, disclosure of personal interests, and discipline of errant members. NZIF has no equivalent competencies or experience. The NZIF s exemption proposal amounts to a form of self-regulation in which the Ministry, and the public, are being asked to accept an assurance that individual NZIF Members will recognise and discharge their responsibilities. In practical terms, this would be a self-policing regime, in contrast to licensed real estate agents who are subject to the independent scrutiny and authority of the CAC, REAA and READT.

Overall, REINZ opposes NZIF s Exemption Application. Reasons There is no proven need for NZIF members to engage in real estate agency work and, for the following reasons, no basis for confidence that NZIF or its members possess the necessary expertise in real estate work to ensure the protective purpose underlying the REA Act. Inadequate Registration Requirements According to Rule 146 of the NZIF s Rules (NZIF Rules), 4 a person who wishes to apply to be a NZIF Member must: Be a member of the Institute at the time of application; Have passed a formal course of a standing recognised by the Board in some branch of forestry or an allied discipline unless otherwise agreed by the Board; Have completed at least five years experience in forestry since graduation or certification, of which at least two must have been in New Zealand, and have reached a level of expertise recognised by the Board, and such other conditions as Council from time to time determines; Display to the satisfaction of the Board an understanding of the basic principles underlying the forestry process involved in the applicant s particular area of qualification and expertise, to an extent that allows interpretation and application to different situations that may reasonably be expected to be encountered in the course of the member s endeavours; Have undertaken continuing professional development ( CPD ) prior to application to the standard prescribed by the Board; and Affirm in writing the applicant s intention to abide by the Code of Ethics. NZIF Members are appointed by the Registration Board, the make-up of which is defined in Rules 128 to 144. According to these Rules, the Board will generally consist of 1 NZIF Council Member (Chair), 2 NZIF Members, 2 Full Voting Members of NZIF and 1 member of another Professional organisation. Under Rule 148, NZIF s Registration Board may at its sole discretion determine whether or not an application is approved, having regard to all the circumstances. Furthermore, as noted above, if an applicant does not meet the requirement of passing a formal course of standing recognised by the Board in some branch of forestry or an allied discipline, the Board may overlook this requirement. There is no definition of an allied discipline in the Rules nor a formal list of what constitutes a formal course of standing that is recognised by the Board in some branch of forestry. In the Consultation Material, this difference was recognised, but the preliminary view of the Ministry was that it was not material. 5 REINZ believes the difference is material because this is a delegation of the power to determine who can and cannot perform real estate agency work to a body that is not set up nor indeed has any hands on experience with real estate agency work. 4 See the NZIF s website, https://www.nzif.org.nz/attachment?action=download&attachment_id=1688, date accessed 7 June 2016. 5 Item 1.4, Consultation Material, p6.

The attributes and qualifications that are important in the eyes of the Registration Board will be different and possibly divergent from those of the Real Estate Agents Authority ( the REAA ), the licensing body for real estate salespeople. If approved, the exemption would entrust an important public role into the hands of the Registration Board, which lacks expertise and independence. On the other hand, specialist expertise and independence are features of the institutions established by the REA Act to supervise and enforce high standards in the practice of real estate by licensees. The broad nature of NZIF s registration criteria noted above contrast significantly with the specific licensing criteria under ss 36, 37 of the REA Act. Section 36 of the REA Act provides: S36 Entitlement to Licence (1) An individual may be licensed as an agent or branch manager if the individual satisfies the Registrar that he or she (a) has attained the age of 18 years; and (b) is not prohibited from holding a licence under section 37; and (c) is a fit and proper person to hold a licence; and (d) has the prescribed qualifications; and (e) has obtained 3 years' experience in real estate agency work within the 10 years preceding the application to be licensed as an agent or branch manager under this Act. (2) An individual may be licensed as a salesperson if the individual satisfies the Registrar that he or she (a) has attained the age of 18 years; and (b) is not prohibited from holding a licence under section 37; and (c) is a fit and proper person to hold a licence; and (d) has the prescribed qualifications. (3) A company may be licensed as an agent if at least 1 officer of the company satisfies the Registrar of the matters set out in subsection (1). Section 37 of the REA Act referred to in s36(1)(b) and 36(2)(b) above contains a long list of criteria under which a person may be prohibited from being licensed. When these are compared to the requirements that one must meet in order to become a NZIF Member, the following differences are noted: Under the REA Act, one must have obtained 3 years experience in real estate agency work within the 10 years preceding the application to be licensed as an agent or branch manager. There is no equivalent requirement under the NZIF Rules. Accordingly, an NZIF Member may be registered without having any prior experience in real estate-related work; Under the REA Act, a person who has been convicted (whether in New Zealand or another country) of a crime involving dishonesty within the 10 years preceding the application for a licence, is prohibited from being licensed. The same prohibition applies to a person who has been convicted of an offence under ss14, 17-22 or 24 of the Fair Trading Act within the 5 years preceding the application for a licence. Accordingly, these persons are not entitled to undertake real estate agency work in New Zealand. No similar provision exists under the NZIF Rules. Furthermore, following the High Court decision of Domb v REAA, 6 the REAA is authorised to complete extensive background checks to confirm the eligibility of a salesperson before issuing or renewing a licence, including: Police reports of criminal convictions; 6 [2016] NZHC 767

Information the Police have about pending charges against an applicant; and A record of any discharges without conviction and charges which have resulted in diversion. The Consultation Material notes that the Ministry s preliminary view is that there is no material difference between the two regimes. 7 REINZ disagrees with this view because, as noted above, while both regimes require an applicant to be a fit and proper person there is a fundamental difference in how each regime determines whether an applicant meets these criteria. The requirements of a fit and proper person in the practice of real estate involve different competencies and qualities from those required of a forestry worker. The NZIF application approaches the issue of fitness and propriety as a one size fits all concept but that disregards the specialised body of experience, regulation, competency, and ethical standards, in the practice of real estate. Inadequate Disciplinary Process NZIF has a self-regulatory role and its disciplinary process can be found under NZIF Rules 56-63. The complaints and disciplinary process against those licensed under the REA Act is prescribed by legislation, rather than by Rules, and so is robust, independent and cannot be manipulated or changed without legislative intervention. The NZIF disciplinary process and the way in which it falls short of the process under the REA Act, can be summarised as follows: According to NZIF Rule 57, when a complaint is received about an NZIF Member, a Complaints and Disciplinary Committee (the CDC) is set up to investigate the complaint. The CDC must have at least 3 Members of which at least 2 must be NZIF Members. If the complaint involves an NZIF Member, then the Council 8 (who appoint members of the CDC) must consult the NZIF Board before appointing a CDC. Members may appeal a decision of the CDC, in which case an Appeal Committee will be formed to hear the appeal. Again, two Members of the Appeal Committee must be NZIF Members, though no Members who were part of the CDC hearing the complaint may sit on the Appeal Committee. 9 In contrast, ss75-99 of the REA Act prescribes the make-up of the Complaints Assessment Committees (CACs) and the Real Estate Agents Disciplinary Tribunal (READT). Each CAC consists of 3 Members from a panel of 20 members. Each CAC must have a lawyer with no less than 7 years experience. Choosing people from the panel allows Panel Members to sit out if there is a conflict of interest. The READT must have a Chair who is a lawyer with no less than 7 years experience and 2 others chosen from a panel of 5, one of which must be licensed under the REA Act. In recent years, the Chair of the READT has been a District Court Judge. C D C s h a v e t h e p o w e r t o investigate and adopt one or more of the courses of action set out in NZIF Rule 58. Whilst many of the remedies available at the CDC resemble that of the CAC under the REA Act, the CDC does not prescribe the amount of monetary relief that may be granted if the NZIF Member breaches the Rules. Instead, the fines that may be awarded are determined from time to time by the NZIF Council. This can be compared with the CAC s power to, for example, fine a real estate agent up to $10,000 if an individual or $20,000 if a company. The CAC has an additional power to order the agent to 7 Item 1.2, Consultation Material, p.5. 8 The NZIF Council is the governing body of NZIF as per Rule 64. 9 Rule 61

fix an error or omission. Decisions of the CAC may be appealed to the READT. The READT may receive as evidence any statement, document, information, or matter that may, in its opinion, assist it to deal effectively with the matters before it. 10 Furthermore, the READT may accept evidence via oath and may permit witnesses at hearings. Hearings before the READT are considered judicial proceedings. 11 By comparison, an NZIF Member may appeal the decision of a CDC to an Appeals Committee. According to Rule 62, the Appeal Committee shall consider only the grounds of appeal submitted by the appellant and the written evidence that was available to the CDC. 12 This is concerning as the Appeals Committee can regulate its procedure as it thinks fit. It is especially concerning that the majority of the CDC and the Appeals Committee Members are NZIF Members. Furthermore, there is no corresponding right for the complainant to appeal a decision by the CDC. This contrasts with s111(1) of the REA Act which allows a person affected by a determination of the CAC to appeal to the READT. In turn, there is a corresponding right of appeal to the High Court if unsatisfied with a decision of the NZREADT. 13 According to REAA s statistics, only 11 per cent of complaints made during the 2014/15 financial year were made by those licensed under the REA Act, the rest coming from clients, customers, Members of the Public and solicitors. This strongly suggests that the majority of complaints against NZIF Members will be from Members of the Public. It is unsatisfactory that there is no avenue for to appeal a decision of a CDC, the majority of which is the NZIF Member s peers. The REAA has a search engine on its website which allows Members of the Public to see who is licensed under the REA Act along with their disciplinary history from the last three years. The REAA website has helpful information directed at customers, clients and those licensed under the REA Act so these groups are aware of the complaints process and have access to an extensive amount of compliance information. The REA Act prescribes certain requirements surrounding the display of information that licensees must follow. 14 Furthermore, decisions of the CAC and READT are made publicly available and are often reported in the media. 15 It is clear that the disciplinary regime established under the REA Act includes public safeguards and provision for transparency and accessibility which the NZIF Registration Board lacks. The REAA has a comprehensive complaints resolution process which aims to resolve disputes as quickly and effectively as possible, with recourse to alternative dispute resolution methods. According to recent REAA statistics, only 46 per cent of complaints received by the REAA within 13 months to May 2016 needed to be investigated further by a CAC, with the remainder being resolved by other methods. 16 There is currently no requirement for the NZIF to keep records of complaints made against NZIF Members and so similar statistics are not available. 10 S109(1) REA Act. 11 S109 REA Act. 12 Rule 62, NZIF Rules. 13 S116 REA Act. 14 S121 of the REA Act. 15 CAC decisions are published on the REAA s website, and members are able to receive updates from the REAA when decisions finding Unsatisfactory Conduct are released. Decisions of the READT are available through the New Zealand Legal Information Institute database. 16 May 2016 REAA Compliance Statistics, http://www.reaa.govt.nz/aboutus/reporting/compliancestatistics/pages/monthly-compliance-statistics.aspx, date accessed 14 June 2016.

It is apparent that the structure of the disciplinary procedure under the NZIF Rules falls well short of that imposed on licensed real estate agents under the REA Act. NZIF s current disciplinary regime is not as accessible to consumers and is restrictive in its effect when compared with the REA Act. Conflict of Interest Concerns Of concern to REINZ is that the NZIF Rules are silent on the issue of conflicts of interest and how to manage them when they arise. The Ministry s recommendation at Item 4.1 that NZIF Members advise their clients to seek legal and professional advice simply does not go far enough to protect consumers from conflicts of interest, particularly given the high probability that these conflicts will occur. It is realistic to expect that NZIF members will be exposed to actual or potential conflicts of interest to a significantly greater extent than real estate licensees because of the confined sector in which they are operating and the greater likelihood of associations with parties on both sides of a potential transaction. For example, NZIF Members have the more likely the peril, the greater the need for public protection. While NZIF Members must abide by the Code of Ethics released by NZIF, this is does not compare to the requirements that licensees must follow under the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012 (REA Rules). The REA Rules deal specifically with conflicts of interest under Rules 9.14 and 9.15 and licensees face serious sanctions for breaching these Rules. Rules 9.14 and 9.15 provide: 9.14: A licensee must not act in a capacity that would attract more than 1 commission in the same transaction. 9.15: A licensee must not engage in business or professional activity other than real estate agency work where the business or activity would, or could reasonably be expected to, compromise the discharge of the licensee s obligations. In comparison, under Clause 2.2 of the Code of Ethics, if an NZIF Member obtains written consent from all relevant parties, they may continue to act in a conflict of interest situation. The exact nature and extent of each conflict of interest will be one for the Registration Board to consider, a Board that is self-regulating and with the majority of its Members being from the Forestry industry. Public confidence in the performance of real estate agency work will be undermined by allowing NZIF Members to act in conflict of interest situations. Consumers of real estate agency work performed by NZIF Members should receive the level of protection that the REA Act provides. Competency and Continuing Education Concerns The NZIF Registration Board is free to set its own criteria for CPD. It is unclear if these criteria are publicly available but, according to the Consultation Material, an NZIF Member must complete 10 hours of CPD. 17 17 Consultation Material, p6.

By comparison, those licensed under the REA Act must complete prescribed educational requirements set by the Real Estate Agents Authority and published in the Gazette. 18 As of June 2016, this includes 10 hours of verifiable training and 10 hours of non-verifiable training. REINZ appreciates that the required qualifications and training listed in the NZIF Rules may equip NZIF Members to provide advice relating to forestry of a high standard. However, REINZ is concerned that these educational requirements do not provide the skills required to undertake real estate work of the type to which the Exemption Application applies. In recent years the REAA has moved to raise the industry standard by requiring real estate licensees to have good knowledge in property law, town planning regulations and Council requirements, ability to read and understand certificates of title and Council records and to have the ability to identify and explain important information from reviewing these records. 19 These are part of the range of essential skills for persons working in real estate. They represent minimum standards required for the protection of the public. There can be no confidence that these standards will be achieved by NZIF if the exemption is granted. Unless licensed under the REA Act, NZIF Members will not be required to complete various educational requirements designed to increase consumer confidence in the real estate industry and protect consumers. Examples not already mentioned include: The obligation to ensure that all employees have sound knowledge of legislation relevant to real estate agency work; 20 The obligation to ensure that all salespersons employed or engaged by the agent are properly supervised and managed; 21 The obligation to ensure that licensees employed or engaged have the opportunity to undertake any continuing education required by the Authority; 22 The obligation to not release deposit monies if the agent receives written notice of any requisitions or objections in respect of the title; 23 The obligation to give the person an accurate copy of the contractual document signed; 24 To comply with prescribed regulations relating to licensees (or their related persons) acquiring a client s land and/or business. 25 In REINZ s view, there is material consumer benefit to be gained by requiring NZIF Members to be licensed under the REA Act and to complete the continuing education requirements of that Act. In the absence of a robust system of ongoing education NZIF Members, like real estate agents, may overlook a significant factor in a transaction to the detriment of consumers. As with the regime for complaints and discipline, the CPD requirements for real estate licensees under the REA Act have the qualities of independence and well-proven competency, which the NZIF Registration Board lacks. 18 S15 REA Act. 19 See LB and QB v The Real Estate Agents Authority and Li [2011] NZREADT 39 20 Rule 5.2 of the REA Rules 21 Rule 8.3 of the REA Rules 22 Rule 8.5 of the REA Rules 23 S123(3) of the REA Act. 24 S132 of the REA Act. 25 Ss134-137 of the REA Act.

Disclosure Concerns Licensees under the REA Act are required to follow a strict disclosure regime under Rules 6.4, 10.7 and 10.8 of the REA Rules. 26 For ease of reference, we set out these Rules in full below: 6.4 A licensee must not mislead a customer or client, nor provide false information, nor withhold information that should by law or in fairness be provided to a customer or client. 10.7 A licensee is not required to discover hidden or underlying defects in land but must disclose known defects to a customer. Where it would appear likely to a reasonably competent licensee that land may be subject to hidden or underlying defects4, a licensee must either (a) (b) obtain confirmation from the client, supported by evidence or expert advice, that the land in question is not subject to defect; or ensure that a customer is informed of any significant potential risk so that the customer can seek expert advice if the customer so chooses. 10.8 A licensee must not continue to act for a client who directs that information of the type referred to in rule 10.7 be withheld. The application of the above Rules has been developed and refined over time by CAC, READT and Court decisions, with the result that those licensed under the REAA have clear obligations and guidance in respect of this issue. Education around disclosure and its importance is also provided to REAA licensees as part of their licensing and continuing education requirements. In contrast, the NZIF Code of Ethics does not impose any disclosure obligations on NZIF Members. 27 The NZIF Codes referred to in the Consultation Materials as being relevant to disclosure simply require NZIF Members to ensure that they do not make any false or misleading statements and to exercise care when preparing statements and valuations. This falls well short of and, in REINZ s view is barely comparable, to the disclosure standards imposed upon REAA licensees. The lack of a clear disclosure process and lack of disclosure obligations generally in the NZIF Code of Ethics exposes consumers to the risk that relevant information will be withheld during the course of a transaction. This risk is mitigated considerably under the REAA licensing regime. Response to the Consultation Material It is an essential part of this submission that the public interest requires the Minister to be satisfied that an exempt body would provide the same protections to the public as the REA Act and the institutions established under that Act. To do otherwise would result in a dilution of professional standards in real estate work, to the detriment of the public. The Consultation Material notes that the Ministry s provisional view is that there is no material consumer benefit to be gained by requiring NZIF Members to be licensed under the R E A Act and that there are sufficient processes in place to ensure competent and ethical conduct on their part. REINZ disagrees with the Ministry s provisional view, as follows: In regards to items 1.2 and 1.3, for the reasons discussed at pages 4-6, REINZ believes that 26 Rules 6, 10.7 and 10.8 of the REA Rules. 27 Consultation material, item 4.2, p10 ref CoE 1.6 to 1.8.

there is a material difference between how each regime determines who meets the requirement of a fit and proper person ; In regards to item 1.5, for the reasons discussed at pages 8-9, REINZ believes that that the CPD educational requirements for NZIF Members do not provide the skills required to undertake real estate work of the type to which the Exemption Application applies; In regards to items 2.1-2.6, and in addition to the points raised in the Conflict section on page 8 and the Disclosure section on page 9, REINZ believes that similar documents to the Form 2 disclosure form that is required for Licensees to comply with s134 should be required for NZIF Members. It is unsatisfactory that where a conflict of interest situation arises, NZIF Members will not need to adhere to the same ethical standards applicable to Licensees. Furthermore, if an NZIF Member breaches these ethical standards, the sanction will be decided by a CDC made up mainly of the NZIF Member s peers. REINZ believes there is a material difference between the two regimes in relation to disclosure, conflict of interest and commission obligations; In regards to item 2.7, REINZ disagrees that there is no material difference between Rule 9.7 of the REA Act and clauses 3.2 and 3.3 of the NZIF Code of Ethics. Rule 9.7 relates to advising the client of the potential for a double commission scenario, whereas clauses 3.2 and 3.3 of the Code of Ethics refer to how a commission amount is arrived at. The NZIF Code provides no protection for consumers against a double commission scenario; Regarding items 3.1-3.6, in addition to the matters raised around disclosure and conflict of interest at pages 8 9, there is little reference to the protection of customers, or people other than the NZIF Member s client or employer. It is unsatisfactory that customers or other members of the public are not afforded the same protections as those prescribed by the REA Act. Accordingly, there is a material difference between the two regimes in this regard; In regards to item 4.2, REINZ disagrees that there is no material difference between the two regimes for the reasons discussed in the Disclosure section at page 9. The NZIF Code of Ethics is not equivalent to Rule 10.8 of the REA Act, as there is no requirement in the Code of Ethics to stop acting for a client where there is a refusal to disclose; In regards to items 7.1-7.3, in addition to the points raised at pages 6 and 7, REINZ disagrees that the NZIF Code of Ethics is equivalent to the REA Act regime as there is no requirement for NZIF Members to report any unethical behavior of their colleagues. The suggested equivalent measure in the NZIF regime simply refers to the process that the NZIF Council must take when a complaint is made, not the requirement for NZIF Members to uphold professional standards and report those who may be breaching those standards. It is concerning that there is no requirement for exempt NZIF Members to report ordinary NZIF Members who are purporting to carry out work covered by the exemption request. The Ministry has proposed 5 conditions that it believes will mitigate any negative effects of granting the Exemption Application. The Ministry acknowledges that overall, the proposed conditions do not replicate substantial obligations under the REA Act. 28 REINZ agrees that the conditions are inadequate, as follows: Item 1.4: REINZ disagrees with the Ministry that there is no material difference between the prescribed education requirements between the REAA and the NZIF regimes. As 28 Consultation Material, p4.

explained at pages 4-6, the Registration Board has a much wider discretion to accept applicants who apply to be NZIF Members. The Registration Board is unlikely to consider the same educational requirements as necessary that the REAA would, thus leading to an unsatisfactory situation where consumers will be at risk of poor service from those with inadequate training. Item 4.1: Item 5.1: Item 7.4: REINZ does not believe that this condition goes far enough to protect consumers. REINZ also believes that this requirement must necessarily extend to customers as is the case in the REA Rules. 29 Furthermore, not only would these proposals need to be in the Memorandum of Understanding, but also within the Code of Ethics. A breach of such clauses in the Code of Ethics must lead to disciplinary action, just as a breach of Rule 9.7 of the REA Rules would. 30 REINZ believes the suggestions in the Consultation Material in regards to auditing requirements are a good preliminary step, 31 but REINZ does not believe that these go far enough. Licensees are subject to strict Auditing Rules and must abide by certain legislative requirements. 32 The same standards must apply to NZIF Members to protect consumers. REINZ does not believe that the suggestions in the Consultation Material go far enough for the reasons discussed at pages 6-7 above. While REINZ agrees that NZIF Members must inform the Registration Board of their insurance status and the differences between the processes and regimes along with a signed acknowledgement of the acceptance of the differences, it is important that, for the reasons discussed, there is a more comprehensive disciplinary regime for NZIF Members who undertake real estate agency work. Furthermore, a failure to abide by these proposals must constitute the equivalent of misconduct and penalties the same as those handed down by the REAA for misconduct must apply. It is not clear what fines or compensation those who breach the Code of Ethics or NZIF s Rules may face in relation to a finding that is the equivalent of Misconduct under s73 of the REA Act. Nor is there any compulsory mechanism through which the public can identify NZIF Members who are subject to complaint determinations. This information must be made publically available so that consumers can make an informed decision before choosing a service provider. 29 Rule 9.7 of the REA Rules. 30 See C08879, a recent decision of the CAC where the Licensee breached Rule 9.7 among other rules. 31 Item 5.1, Consultation Material, p.11. 32 Ss122-125 REA Act and the Real Estate Agents (Audit) Regulations 2009.

Conclusion REINZ opposes the Exemption Request sought by NZIF. The purpose of the REA Act 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. Public protection is ensured by the institutions established under the REA Act for that purpose, including the CAC, REAA and READT. Any alternative regime permitted by way of an exemption under s.156(1)(a) must provide the same measure of public protection and public confidence as the REA Act regime. The NZIF application does not reach that standard; it lacks experience in and specialised focus on real estate practice. In addition, it lacks independence in its ability to regulate and discipline its members. In this response by REINZ, we have set out some important factors that we believe that, in the interests of consumer protection and benefits that the Minister should consider before arriving at a decision. The purpose of the REA Act is to promote and protect the interests of consumers in respect of transactions that relate to real estate, whereas the purpose of the NZIF Rules is simply to continue the NZIF and require NZIF to have Codes of Ethics for its membership to follow. Parliament has mandated that the consumer protection provisions of the REA Act are not limited to clients who engage the licensees under the Act. The purpose of the REA Act is not so limited and the REA Rules have expressly extended the obligations of agents to customers, a class that extends beyond a principal-agent relationship. The NZIF Rules and Code of Ethics do not go so far and, for that reason, falls short of achieving the degree of consumer protection desired and intended by Parliament. In the opinion of REINZ, there is material consumer benefit in requiring NZIF Members to be licensed before undertaking real estate agency work. On t h e o t h e r h a n d, the proposed exemption would result in a detriment to consumers by allowing forestry workers to trade in the sale/leasing of forestry in the same way as a licensed real estate agent does currently, but with a different level of consumer protection. The variances between NZIF s current regulatory regime compared to the REA Act pointed out in this response cannot be overlooked. In our view, the way that the current regime under NZIF does not fit comfortably with that of the REA Act is consistent with the different core functions that real estate agents and Forestry workers are meant to play. NZIF Members are, however, not prevented from obtaining a license under the REA Act. REINZ welcomes any questions from the Ministry in relation to this submission.