Land and Business (Sale and Conveyancing) (Beneficial Interest) Amendment Bill

Second Reading

Adjourned debate on second reading.

(Continued from 4 July 2017.)

The Hon. D.G.E. HOOD (12:14): I rise to speak on this bill, which strengthens protection for vendors through increasing the penalty for obtaining a beneficial interest imposed on real estate agents and introducing vicarious liability to hold directors of real estate agencies accountable. The bill amends section 24G of the Land and Business (Sale and Conveyancing) Act 1994 to increase the penalty for obtaining beneficial interest in selling or appraising property. Currently, the penalty is up to $20,000 or imprisonment for one year.

The bill proposes the maximum penalty be increased to $100,000 or two years imprisonment—a very substantial increase. Indeed, at first glance, the fivefold increase of the maximum fine and doubling of the term of imprisonment appears to be almost out of proportion. However, after consulting with the Real Estate Institute of South Australia (REISA) we agree that the proposed increase is reasonable. REISA, in fact, to their credit, strongly support the bill and view the current penalties as inadequate and not effective to serve as a sufficient deterrent to curb undesirable behaviour.

In a recent case, the District Court fined a person $14,000 for selling an elderly, mentally ill woman's house for substantially less than its value. It was reported the agent sold the Prospect house to a friend of his brother, who was a developer, for $130,000, when in fact it was worth in the order of $491,000—a very substantial discrepancy. The sale was reversed and although REISA cancelled the agent's membership shortly after conviction, the agent's real estate licence was not suspended or cancelled.

It is not uncommon for real estate agents to handle properties worth upwards of $1 million in today's real estate market. In that context, a $20,000 fine is simply inadequate and out of date. I think, again to REISA's credit, they have acknowledged this. Moreover, it was brought to my attention that real estate agents who obtain a beneficial interest at the expense of the vendors who they represent, in some cases, could potentially keep the profits. This leads to situations where it may be profitable to commit the offence under section 24G, as the profit made could be substantially more than the fine handed down. In the case I just mentioned, if the sale was not reversed, a $361,000 profit would have been made. Of course, as I have just outlined, the current maximum penalty is just $20,000—not bad work if you can get it.

However, the act does allow the court to order a person convicted of the offence to pay to the vendor any profit that the person made, or is likely to make, as a result of the offence. This is, however, at the discretion of the court and may not be imposed in all cases. I struggle to imagine situations where an agent should not be forced to pay back the profits to the vendor. Perhaps the parliament needs to consider whether or not there should be a legislative requirement that a person who commits an offence under section 24G must repay the vendor any profit made.

Moving on, the bill makes improvements to ensure prosecution for offences under the act are unimpeded. The bill achieves this through increasing the time limit for prosecution proceedings from two to five years, or up to seven years under certain circumstances. The bill also expands the definition of 'associate' and 'relative' under the act to include step relations. It is important to have a wide definition that encompasses all types of relationships to ensure that those who are clearly in breach of the act do not escape liability based on some technicality. Clause 5 places vicarious liability on directors of real estate agencies to ensure there is no turning a blind eye to employee misconduct. This applies pressure to the very top of body corporates, encouraging directors to monitor the conduct of their employees.

The bill provides a defence for directors where it is proved that, despite the exercise of reasonable diligence, the commission of the offence could not have been prevented. We believe this is an appropriate inclusion in the act and certainly support that aspect. Arguably, real estate agents owe a fiduciary duty to the vendors they represent, given their position of trust in handling, quite often, the most significant asset people will ever own, an asset in today's market worth at least hundreds of thousands of dollars, if not millions of dollars.

Australian Conservatives believe this bill has merit and support the second reading. I take this opportunity to commend REISA and their cooperation in forming this bill as I understand it. It is, after all, largely targeted at their members, but that is an organisation determined to ensure that their members uphold the highest standards, and we congratulate them for it. We support the second reading.

The Hon. T.T. NGO (12:19): I also rise today to support the passage of the Land and Business (Sale and Conveyancing) (Beneficial Interest) Amendment Bill 2017. This is a bill I feel strongly about, as the primary intention of the bill is to increase consumer protection where it is most necessary; that is, when individuals are selling what is usually their most valued possession.

As I am sure members would agree, a residential property is not simply the physical building consisting of bricks and mortar. It is often much more than that, particularly when a person has been residing in a property for many years or, in some cases, for most of their adult life. Naturally we develop an attachment to the family home and all the memories that come with it, so when the time comes to sell the property, whether it be to downsize into something smaller, to move into a retirement village or to live with family members who are able to care for us, it is often an emotional time.

Residential care facilities often require large, up-front payments in order to secure a residency, and in order to facilitate this the sale of the family home may be required. This is where the proposed amendments become relevant. Sadly, some real estate agents and sales representatives see this type of situation as a highly profitable opportunity. Often they will undervalue the property from the outset and set the vendor's expectation low as to what their home is worth, whilst arranging for a family member or associate to purchase the property at a bargain price that can be anywhere from $10,000 to $70,000 less than the market value of the property.

Even worse, they may not disclose to the vendor the relationship between the agent or sales representative and the purchaser, so the vendor innocently believes that the agent has acted in their best interest, but is led to believe that perhaps there is not much interest in their property or that the market is not the best. Some of these agents even have the audacity to claim commission as well.

The property may not have been advertised properly or, worse, the valuation report may have been completed by another associate of the agent where there may be a commission arrangement in place. This conduct is dealt with in other areas of the act. In other situations, higher offers from members of the public may not be presented to the homeowner. In a situation where the vendor is required to sell quickly to be able to secure a new residency, they often feel as if they have no choice but to accept an offer. In some cases family members do not find out what has actually occurred until later and are, understandably, devastated.

The way the current legislation is drafted does not successfully capture certain scenarios, which creates avenues for wrongdoers to pursue. For example, relatives of the real estate agency's directors could purchase properties listed by the agency without having to apply for an exemption, and brothers-in-law or sisters-in-law could purchase properties that the relative had listed. This bill will enable those who have abused their client's trust to be successfully prosecuted, and I believe the increase in penalties will be a strong deterrent for this conduct. I commend the bill to the council.

The Hon. I.K. HUNTER (Minister for Sustainability, Environment and Conservation, Minister for Water and the River Murray, Minister for Climate Change) (12:24): I would like to thank the honourable members who have made contributions for their indications of support. I should indicate here that, should the council support the second reading, it will be my intention to move that the committee stage be made an order for the next day of sitting. I commend the bill to the council.

Bill read a second time.