Conflict of interest obligations – Form 2 and provisional value

When purchasing a property, sections 134 and 135 set out licensees’ obligations, which include the requirement to obtain the client’s consent and provide the client with a valuation at the licensee’s expense. The client’s consent must be given in the prescribed form, which is Form 2 in the Schedule to the Real Estate Agents (Duties of Licensees) Regulations 2009. You can find Form 2 on our website here. The licensee must give the valuation to the client either before asking for their consent, or if they agree, within 14 days of obtaining their consent. The consent is not effective unless it is given on Form 2 and the client is provided with a valuation.

The Tribunal has highlighted the important and ongoing nature of the obligations under sections 134 and 135 in CAC 403 v Zhang [2018] NZREADT 30(external link) and noted that:

• “… the obligations under ss 134 and 135 are fundamental to the Act’s purpose of promoting public confidence in the performance of real estate work” (para 43)
• “… the obligations as to disclosure continue to apply after a sale and purchase agreement becomes unconditional, until settlement” (para 43)
• “There can be no doubt that licensees are expected to know what their obligations are, and that they persist until settlement” (para 44)
• “… the fact that Mr Zhang had no involvement with the vendor, and no input into negotiations leading to the agreement for sale and purchase, does not absolve him from liability or lessen his culpability to the extent of reducing it from misconduct to unsatisfactory conduct” (para 46).

In situations where a client has agreed that a valuation can be provided within 14 days of their consent, licensees are required to specify a provisional value on Form 2. The client can choose to cancel a contract if the valuation, when supplied, is greater than the provisional value.

Recently in Tremain Real Estate (2012) Ltd & Cox v REAA (CAC 403) & Ly [2018] NZREADT 54(external link), the Tribunal confirmed that, if the parties do not want to wait for an independent valuation (which was preferable), the provisional value should be as close as possible to the independent valuation. The Tribunal determined that the licensee appraisal was the figure that should be used for the provisional value on Form 2.

The Tribunal noted the following in relation to the licensee appraisal:

“[67] A licensee preparing an appraisal will, therefore, be aware of the need for the appraisal figure to support the estimate of the commission payable, required to be given to a prospective client. The licensee will be required to comply with licensees’ obligations to “exercise “skill, care, competence and diligence at all times when carrying out real estate agency work” (r 5.2), to “comply with fiduciary obligations to the licensee’s client” (r 6.1), to “act in good faith and deal fairly with all parties engaged in a transaction” (r 6.2), and “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” (r 6.4).”

This decision is consistent with a previous Tribunal decision issued in 2015, so the use of the licensee appraisal as the provisional value (if required) should be well established.

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