Preventing Estate Agents From Preparing Contracts

OPINION
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:

"Dear Mr. Herbert,

RE:         REGULATION OF THE ROLE OF PAMDA LICENSEES (PARTICULARLY REAL ESTATE AGENTS) IN THE PREPARATION OF CONTRACTS

Thank you for your disappointing letter of 29th February, 2008.

Your letter is disappointing (to me and a number of professional colleagues to whom I've shown it) for these reasons:

1)           You give no apology or explanation for taking so long to reply to correspondence on such serious matters.

2)           While you claim the purpose of the transitional regulation was to “urgently clarify” the scope of the Legal Professions Act's Section 24(2) exemption after concern expressed about its being “too narrow”, you fail to indicate any appreciation of the more common concern (among most lawyers) that consumers would be better protected by greater tightening of any exemption.  How will the scope of Section 24(2) be any clearer after 1st July, 2008 when this "get-out-of-jail-free" regulation has run its time?

3)           You appear to endorse the "longstanding commercial practice" of PAMDA agents in contract preparation.  When will it sink into ministerial and policy advisor heads that agents (and their employees) are not legally qualified to be involved in the preparation and execution of legally binding contracts?  When will it sink in that most agents (and their employees) can not competently or accurately fill in even simple details in pre-printed documents?  When will it sink in that the government’s endorsement of the agents' longstanding "commercial practice" is a green-lighting of their continued inappropriate control of the contracting process to the detriment of consumers?  What is the Attorney-General's view of the simple solutions for real estate (and legal) consumer protection set out in my recent Albert and Logan News advertorial (enclosed)?  It’s not rocket science!

4)           You suggest that the Attorney-General "would of course be concerned" if lawyers were identifying "deficiencies" in contacts or clauses drafted by PAMDA agents.  Did no one brief the Attorney-General on the examples of such "deficiencies" given in my two previous letters?  How could the Attorney-General not be immediately concerned about a contract with a clause giving the agent the right to lodge a caveat to protect commission?    When will it sink in that conveyancing solicitors across the State are constantly having to cope on behalf of their clients with estate agents' contractual gobbledegook?

5)           You quaintly invite me to write to the Law Society about these issues and my concerns.  For goodness sake, the Law Society has been long aware of my concerns about these issues, and I have already written to the Attorney-General (and his Fair Trading ministerial predecessors) providing evidence of agents' contract "deficiencies". Would an officer from your department care to attend at my office for a couple of days to sight first-hand the range of agents’ contract “deficiencies” evident in my current conveyancing files, and perhaps meet some of the consumers whose interests the government has largely failed to protect?

6)           You suggest that I lodge appropriate complaints with the Office of Fair Trading.  Please inform the Attorney-General that I (and many consumers) have long found this to be a mostly fruitless exercise.  In my Courier Mail article of 18th October 2007 I stated (without any subsequent official contradiction) that Fair Trading claims that its regulatory (and consumer protection) role “does not extend to agents’ contracts, and has long declined to investigate complaints about how incompetently, uncertainly, and mischievously agents prepared contracts.”  Nevertheless, on 24th October, 2007 I lodged a detailed complaint regarding the contractual conduct of Elders Real Estate Canungra.  On 5th December, 2007 and again on 13th December, 2007, I received letters from Fair Trading advising that my complaint had been referred to the Gold Coast office.  I have heard no more, and Fair Trading has made no contact with my clients.  Will the Attorney-General please find out for me what is happening to this serious complaint?

Yours faithfully

TIM O’DWYER

P.S.        I would still ask that the Attorney General might meet a delegation of concerned professionals about this issue.  I would still like the Attorney General to hear himself not only other solicitors’ views, but also the views of at least one responsible real estate agent, another who has worked in the ACT and of a licensed building inspector.  We would present our concerns to him about the role of agents in contract preparation as well as on the long-overdue need for mandatory and comprehensive disclosure by residential sellers (as has been the case in the ACT for more than three years)."

By the way, this is the local newspaper advertorial (for my legal practice) which I had enclosed:

"CONSUMER PROTECTION – IT’S NOT ROCKET SCIENCE!

Queensland has some pretty lame consumer protection laws:

• Legally unqualified estate agents can lawfully prepare, advise on and arrange the signing of legally binding contracts.
• Agents can lawfully refer tame solicitors, finance brokers and building/pest inspectors to buyers (and receive kickbacks for these referrals).
• Agents can lawfully refer pet solicitors to sellers.
• Referred solicitors can lawfully act for buyers (and sellers) no matter how lacking in independence.  (Solicitors can also lawfully act for both parties.)
• Agents, their employees and families can lawfully buy their clients’ properties.

Apart from general government slackness, the reason agents prepare and advise on contracts and arrange their signing is about control.  Sales commissions are more assured if you control the whole process. 

How to properly protect real estate and legal consumers, not only from self-interested and controlling agents, and from less-than-independent solicitors and other agents' mates?

It's not rocket science:

• Prohibit agents from preparing contracts, adding clauses, explaining conditions and controlling signing of contracts.
• Prohibit agents from referring solicitors, finance brokers, building/pest inspectors and similar service providers to buyers.
• Prohibit agents from referring solicitors to sellers.
• Prohibit solicitors, brokers and building/pest inspectors from providing services to buyers if not independent of sellers and agents.
• Prohibit solicitors from representing sellers if not completely independent of agents and buyers.
• Prohibit agents, their families and employees (and employees' families) from buying clients' properties (without government approval after agents supply independent valuations and good reasons for buying their clients' properties).
• Prescribe stiff penalties for agents, solicitors (and solicitors-disguised-as-conveyancers), brokers, inspectors and others who breach or try to circumvent these prohibitions."

In the meantime I was also disturbed to discover that my Law Society was not going to inform its conveyancing solicitor members of the proposed meeting with the Attorney-General about agents’ contract “deficiencies”. Nor was it going to invite solicitors to provide and arm it with examples of agents’ outrageous contract-and-clause-drafting efforts, although this was exactly what the Gold Coast District Law Association promptly requested from its members (to onforward to the Law Society) as soon as it got wind of the Society’s less-than-enthusiastic response to the A-G’s more-than-obvious disquiet.

So I sent this letter off to the Law Society president together with a large bundle of agents’ contracts and clauses:

"The President,
Queensland Law Society
GPO Box 1785,
Bribaen   Qld   4001

Dear Ms Mahon,

Re:       REGULATION OF THE ROLE OF PAMDA LICENSEES (PARTICULARLY REAL ESTATE AGENTS) IN THE PREPARATION OF CONTRACTS

You may be aware of my long-standing concern about the above subject.  For more than 15 years I have been lobbying Attorneys-General, Fair Trading Ministers and my Law Society, albeit fairly fruitlessly.  You will find part of the latest version of my conveyancing and real estate reform wish-list in the attached Albert & Logan News advertorial of 29th February 2008.

Nevertheless, you will be aware that Attorney-General Shine recently stated that he would be concerned if solicitors were identifying “deficiencies” in real estate agents’ contracts and clauses.

The Attorney-General has informed me that , because of the Law Society’s expressed concerns about the role of estate agents in contract preparation, he will be meeting with the Society to discuss this issue and examine the extent of agents’ contract “deficiencies”.   Consequently, to assist in this regard, I enclose a bundle of examples of agents’ contractual mischief.

It has been many years since my article appeared in PROCTOR pointing out the mischievous inability of many agents to complete the encumbrances item in standard residential contracts.  Nothing has changed as you will see from some of the enclosed material.  It needs to be made clear by the Law Society to the Attorney-General that, despite the “tightened” intentions of Section 24(2) of the Legal Profession Act 2007, estate agents generally are not capable even of filling-in details in pre-printed contracts/documents.  The failure of many agents to satisfactorily complete the encumbrances item in standard contracts is proof of this.  No matter that the REIQ/QLS contract and the alternate ADL Forms contract both include directions (to agents) regarding the completion of this item.

In recent months I have seen the encumbrances item completed with such nonsense as: “searches to reveal”, “search to reveal”, “title search reveals”, “nil except sewerage main if any”, “nil known by vendor’s agent”, “see atached (sic)” and “nil as per search”.  One of the contracts I’ve enclosed even has the gobsmacking “surches (sic) will reveal”!

Every conveyancing solicitor knows that, when a property is actually encumbered by a drainage or electricity easement, the selling agent will most likely have failed to disclose this in the encumbrances item.

I am happy to elaborate on my concerns regarding the enclosed material.

Yours faithfully,
Tim O’Dwyer

P.S.     But wait, there’s more on the encumbrances item:  I have just reviewed within my office twenty recently-settled residential contracts.  In eight the encumbrances item was correctly completed with “nil”.  In another eight the item was not filled-in at all.   One was completed with “nil known”, another with “not known by agent” and yet another with “excepting statutory encumbrances”.  In the twentieth contract the agent correctly identified an electricity easement encumbering the property."

I should explain that in Queensland standard residential sales contracts expressly provide that properties are being sold “free of encumbrances” unless any are disclosed in the “encumbrances” item of the contracts’ reference schedules. As you can see above many agents have not the foggiest idea of how significant it is for this item to be accurately and properly completed. PROCTOR, by the way,  is the Queensland Law Society’s journal - to which I long ago gave up writing.

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