Bill, a real estate agent, was selling a property that had recently been renovated.  The Vendors had informed him that a Code Compliance Certificate had issued for the renovations.

Bill passed this information on to prospective purchasers, who relied on this information when making their offers.

The offer, which the Vendors ended up accepting, was conditional on finance and a LIM report.  The Purchaser’s bank needed a copy of the Code Compliance Certificate before they would approve finance.

It turned out from the Purchaser’s investigations that a Code Compliance Certificate had not in fact issued – the Vendors were confused and thought that applying for a Building Consent at the start of the work automatically meant the property had a Code Compliance Certificate, which was of course incorrect.

Confirmation dates for the LIM and finance conditions ended up having to be extended, resulting in a delay to settlement, so that the Vendors could apply for the Code Compliance Certificate.

Bill was fortunate this wasn’t an unconditional contract or an auction as his statement about the Code Compliance Certificate would have resulted in delays, and extra costs for both parties that the Vendor and Purchaser would no doubt have tried to claim from him.

The New Law

In the above case Bill made a statement about the Code Compliance Certificate that he had no actual proof was true.

From 17 June 2014, it will be an offence under the Fair Trading Act to make an unsubstantiated representation in trade.

What this means in practice is that if you make representations that are true, and that are not misleading, you will still be liable for breaching the Fair Trading Act if you are not able to “substantiate” your representation at the time you make it.

Importantly, you cannot contract out of this requirement.

Those who do not have something to back up their representations could be found criminally liable, and could be fined up to a maximum of $200,000 for an individual and up to $600,000 for a company!  This will also result in a conviction which may affect your ability to renew your real estate licence.

The Commerce Commission will be policing the requirements, but the Real Estate Agents Authority will work closely with them in relation to any matters regarding real estate agents.
The proof of the claim doesn’t need to be too complicated. The Commerce Commission has published guidelines that suggest it is enough to have information provided from reputable suppliers or manufacturers, information the business making the claim holds, or some other reliable source of information.  In Bill’s case, confirmation from Council or a copy of the Code Compliance Certificate would likely be sufficient.

Agents will be relieved to know “puffery” is also still ok. These are the “mere puffs” of advertising rhetoric not meant to be taken seriously. The law presumes reasonable people would not expect to be able to rely on these statements (e.g. “this is the best house in the world, a house fit for a king.”)

Five Tips to help ensure you don’t breach the new Fair Trading Act

Here are five tips to help ensure you don’t breach the new law:

  1. Ensure you keep a written or photographic record of the information you are relying on when making statements to potential purchasers.
  2. Keep a record of the statements you have made (eg if you make a statement orally, make a detailed file note of it).
  3. Ensure that when a vendor gives you information you obtain documentation that satisfies you of the truth/accuracy of the information before you rely on it.
  4. Be careful in your advertising to only include information that you know can be substantiated at that time.
  5. Ensure there is consistency across your agency as far as possible.