Compliance in Agency Agreements and the Importance of Owner Identification

Did you know that an agent is not entitled to commission, or the reimbursement of their expenses, unless they comply with section 55 of the Property and Stock Agents Act 2002 (NSW) (the Act)?

Compliance with the Act

Such compliance includes:

  • A written agency agreement being entered into, and signed, by both the property owner (or authorised representative) and the licensee (agent); and
  • The agency agreement complies with the applicable requirements of the Property and Stock Agents Regulation (NSW) 2002 (the Regulations); and
  • A copy of the agreement must be served on the property owner (or authorised representative) within 48 hours of them signing it.

The Regulations, specifically Schedules 5, 6 and 7, outline the terms that must be included in any agency agreement for the sale or purchase of property. Deviation or removal of those terms may render your agency agreement invalid.  It is important that the warnings contained within the agency agreements are not removed in any circumstance without first obtaining advice.

When we review an agency agreement to determine its validity, we can rely on the provisions of section 55A of the Act if we discover a minor failure that would normally render the agreement invalid. If the licensee fails to serve a copy of the agency agreement on the property owner (or authorised representative) within 48 hours of them signing it or they have failed to comply with the requirements of the Regulations in some respect, the Tribunal can still order an entitlement to commission.

In circumstances where a licensee has failed to comply with the Regulations or the service requirement, the Tribunal will consider:

  • The failure is a minor failure; and
  • No loss has been suffered because of the failure; and
  • Failure to make the order for the payment of the commission would be unjust.

Despite having the protections in section 55A of the Act, we strongly recommend that the agency agreement should comply with the obligations always imposed by the provisions of the Act and Regulations.

Preventing Real Estate Fraud

In addition to the requirements of the above-mentioned sections, it is also imperative that agents confirm the identity of the owner of the property to prevent instances of fraud. Pursuant to section 32 of the Act, a licensee must properly supervise their place of business. To properly supervise, section 32(4) states that the Secretary (being NSW Fair Trading) may issue guidelines as to what constitutes the proper supervision of the business of a licensee. A failure to comply with the requirements of any such guidelines constitutes a failure to properly supervise the business.

Subsequently, the Secretary issued and published the Fraud Prevention Guidelines, contained within the Supervision Guidelines, which outlines that agencies must have a process to confirm the identity of a person (or corporation) entering into an agency agreement. This applies to all types of agency agreements, including sales, property management and buyers’ agents.

The guidelines state that a licensee (being a licensed agent under the Act) must sight an original or certified copy of:

  • A primary proof of identity document;
  • Two secondary proof of identity documents;
  • A document providing proof of legal ownership of the property.

To comply with these Guidelines, agents should ensure that they keep a record of the documentation they used to verify an individual’s identity.

An agent should also take steps to ensure that all the documents provided have not been altered in any way and are clear and legible.  If there is any discrepancy between the information an individual has provided, and the information contained in the documents, an agent must undertake enquiries as to why there is a discrepancy, and the discrepancy must be supported by evidence.

Baybridge

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Christian Bird

Special Counsel | Commercial

Christian Bird brings real world experience to his role as a senior franchising and general commercial lawyer. Christian understands the commercial challenges faced by franchisors having watched his father successfully found and grow a national franchise system that has been in operation for over 30 years. As a result, he is uniquely placed to assist franchising clients with the myriad of legal challenges they face. Christian has experience working with franchisors across Australia and internationally in a range of industries.