Introduction

In reply to your letter dated 29 October, 2002, there appears to be a misunderstanding as to the functions of a legal practitioner, and some confusion as to the functions of a real estate agent.

Before any form of investigation into "allegations of unlicensed trading pursuant to Section 12 of the Estate Agents Act 1980 (the Act) can commence, it is necessary to differentiate, if possible, between the "functions of a legal practitioner" and the "functions of an estate agent". I submit that the difference is more apparent than real.



Definition Of Function

According to the Oxford Dictionary a function is an "activity proper to person or institution; mode of action or activity by which thing fulfils its purpose; office-holder's duty, employment, profession.".

Section 12 of the Estate Agents Act 1980 refers to the "functions of an estate agent". However, the Act does not define the term "functions of an estate agent". I submit that the reason for the absence of any definition of "functions of an estate agent" is that there is no function that an estate agent performs that is exclusively an estate agent's function.

The "functions of an estate agent" is simply a term used to describe those activities undertaken by an estate agent in the absence of a legal practitioner or other qualified professional. These include:

. Offering opinions as to valuation (this is really the function of an accredited valuer)

. Advising as to the nature and effect of the Exclusive Sale Authority (this is really the function of a legal practitioner)

. Placing of advertising (no qualifications are required for this task)

. Negotiating terms and conditions of the Contract of Sale (this is really the function of a legal practitioner)

. Formalising a sale by the execution of the formal Contract of Sale (this is really the function of a legal practitioner)

. Receiving of deposit funds, and paying the same into trust (the Legal Practice Act provides for greater security and accountability in relation to the handling of client funds than does the present Estate Agents Act.) The Legal Practice Act also allows greater flexibility for the Vendor, insofar as funds held by the legal practitioner can be paid on the Vendor's behalf to a third party. For example, a Vendor may instruct the legal practitioner to use these funds to effect the purchase of another property. The stricter controls and greater flexibility of a legal practitioner's trust account makes this a function of the legal practitioner, more so than that of the estate agent.

Where an accredited valuer is involved in the matter, the estate agent must defer to the valuer. This is because the valuer is better qualified and accepts greater responsibility for the valuation function than does the estate agent. However, in the absence of a valuer the estate agent is permitted to carry out this function, albeit to a much lower standard and with less responsibility.

Similarly, where a legal practitioner is involved, the estate agent must always defer to legal practitioner in relation to all aspects of negotiation, preparation of documents, and formal sale closure. A legal practitioner who has been retained by a Vendor in the sale of real estate carries full responsibility for safe and proper conduct of the sale. Only where the legal practitioner can demonstrate that an estate agent has acted independently and without the knowledge of the legal practitioner will the legal practitioner be able to defend an allegation of negligence or, perhaps misconduct in the handling of the sale process.

The proper conduct of the sale process is most certainly the function of the legal practitioner.



My Functions As A Real Estate Lawyer

I refer to Section 12 of the Act, and advise that I do not exercise or carry on the business of an estate agent. Nor do I act as an estate agent.

You have made specific reference to 12(1)(c) of the Act, suggesting that I "hold myself out to the public as ready to undertake.the functions of an estate agent".

I will describe my functions as a real estate lawyer:

Legal Advice

. I advise my clients that they are not obliged to use an estate agent to sell real estate. Many consumers believe that it is illegal to sell real estate without the involvement of an agent, having been told this by local estate agents.

. I advise my clients about the terms and conditions contained in the Exclusive Sale Authority used by estate agents. Most consumers have no understanding whatsoever about the extent to which they are bound to the agent through the use of this iniquitous instrument.

. I advise my clients about their obligations pursuant to the Sale of Land Act, the Transfer of Land Act, the Building Act and other rules and regulations that may impact upon their sale.

. I advise my clients about their legal obligations regarding the accuracy of information displayed in advertising material.

The giving of legal advice is not a function of the estate agent, and no estate agent is qualified to perform this function.

Consumer Advice and Assistance

. I advise my clients that neither legal practitioners, nor agents are sufficiently, qualified to offer opinions as to current market value, and that they should engage an accredited valuer for this purpose.

. I advise my clients that in order to promote or advertise the fact that their property is on the market we can arrange for the erection of signage and that we will place a display in our shop-front window. Photographs, signs and window displays are ordered over the internet via an on-line order form. A professional photographer takes the photograph, a professional signage contractor erects the "For Sale" sign at the client's property, and a professional graphic designer prepares the window display and delivers it to our office.

There is no expertise required in the arranging of advertising material, and the functions of taking photographs and preparation of signs is undertaken by professionals who are better qualified than an estate agent.

Consumer advice and the placing of advertisements is not the function of an estate agent.

Determining The Sale Price

. I advise my clients that determining a sale price is a matter for them alone, and that they should make reference to their formal valuation and seek further professional advice if necessary. I also advise that I am not qualified to advise as to the setting of a sale price, and that this is not a function of a legal practitioner.

I do not rely on the Estate Agents Act to know that it is inappropriate for me to advise a client as to asking price. As a legal practitioner I have a duty to ensure that my client always receives the benefit of my knowledge and skills, and to offer appropriate advice. In this case the appropriate advice is that the client should seek assistance from a properly qualified professional.

Advising a Vendor as to an appropriate sale price is not a function of a legal practitioner, nor is it the function of an estate agent.

Contact Between Potential Purchaser and Vendor

. I advise my clients that potential Purchasers should be able to make direct contact with the Vendor. This allows the parties to become familiar, to facilitate discovery of the attributes of the property, to discuss quality issues, and to come to an understanding as to asking price and conditions of the sale.

. The Vendor's contact details are displayed on all advertising material, unless the Vendor requires otherwise. Any queries concerning the property itself are referred to the Vendor.

It is not an estate agent's function to bring the potential Purchaser and the Vendor together. This is achieved simply by advertising the contact details of the Vendor and the address of the property. It should be noted, however, that estate agents generally conceal both the property address and Vendor contact details so that the parties cannot make direct contact. This ridiculous approach has more to do with the interests of the estate agent that those of the Vendor.

Arranging contact between potential Purchaser and the Vendor is not a function of the estate agent. In the absence of an estate agent potential Purchasers will find other means of making contact with the Vendor. Receiving inquiries direct from potential Purchasers or legal practitioners acting for potential Purchasers on behalf of a Vendor client is a function of the legal practitioner, and may be performed by either the legal practitioner or an estate agent.

Negotiating The Sale

. I advise the Vendor as to whether or not it is in the Vendor's interests to accept an offer from a potential Purchaser. I may advise the Vendor that a finance condition is unwise in the circumstances, or that the sale should be conditional upon acceptance of the Vendor's offer on another property. I carry full responsibility for the legal advice given, and for the drafting of conditions required to give effect to the Vendor's requirements.

. I ensure that I am never in a situation of conflicting interests, by advising potential Purchasers to seek independent legal advice before entering into a Contract. Where a counter-offer is made by my Vendor client I ensure that the client understands the subtleties of offer/acceptance, counter-offer/acceptance, and communication of acceptance. I also explain about the opportunity to withdraw an offer prior to acceptance.

Negotiating for the sale of real estate is specifically listed under the definition of "estate agent" in Section 4 of the Act. This would indicate that the Act regards negotiating as a core function of the estate agent.

Negotiating on behalf of a Vendor in the sale of real estate is most definitely the function of the legal practitioner. Given that the estate agent has only a rudimentary knowledge of the laws affecting real estate, it is not possible for an estate agent to fully represent a Vendor in sale negotiations. Matters are always referred to the Vendor's legal practitioner when negotiations reach a critical stage, and special conditions must be drafted, interpreted and explained to the parties.

This is a clear indication that an estate agent's functions are only estate agent's functions in the absence of a person who is better qualified to perform them.

Another way to resolve the issue to is to ask as to whether a legal practitioner would be liable in negligence if he/she allowed an estate agent to negotiate a sale and to draft special conditions without offering the Vendor the benefit of his/her legal knowledge and skill. Similarly, would a legal practitioner be entitled to blame the estate agent where the legal practitioner checked the Contract negotiated and drafted by the estate agent, but failed to notice that it had been improperly prepared.

In either case, the legal practitioner would be liable for failing to fulfil the function of legal practitioner; namely, negotiating, advising, drafting, and effecting the safe sale of the Vendor's property.

Effecting the Sale

. The sale of a property is not complete until such time as an offer has been made, the offer has been accepted, and acceptance of the offer has been communicated to the Purchaser. Effecting of the sale includes negotiation as to terms and conditions, receiving of the formal offer and perusing the formal offer to determine efficacy and acceptability, and formal acceptance through execution or exchange. The fact that this is clearly a function of the legal practitioner has been discussed above.

. The Exclusive Sale Authority used by estate agents defines "Sale" at Agreed Condition 1.16 as: "the result of obtaining a Binding Offer and "sell" and "sold" have corresponding meanings in the same situations." At Agreed condition 1.15 "Binding Offer" is defined as "an offer on the terms set out in the Particulars of Appointment which, if obtained in compliance with this Appointment, would (or does) result in a contract enforceable against the Purchaser. While estate agents have been permitted to create their own definition of "sell" or "sale" or "sold", it is not their function to do so. I advise my Vendor clients that a property is not sold unless and until an unconditional Contract of Sale exists.

It is the function of the legal practitioner to determine on behalf of the Vendor client as to when a property has been effectively sold, by reference to principles of both Statute and Common Law. It is the function of the legal practitioner to assert on behalf of the Vendor client that a sale has been effected, on the basis of legal principles.

Compiling Information Or Preparing Reports On The Sale Of Real Estate

. I prepare the Vendor's Statement required pursuant to Section 32 Sale of Land Act on behalf of my clients, and I accept legal responsibility for ensuring that the contents of the Statement are accurate.

. I prepare a full Contract of Sale of Real Estate, setting out any special conditions my Vendor client may require in the circumstances.

. I prepare the Section 27 Deposit Release Statement by which my Vendor client seeks early release of deposit moneys.

Each of these is clearly the function of the legal practitioner. However, in the absence of a legal practitioner an estate agent may perform them, albeit to a limited extent.

The compiling of information or preparing of reports on the sale of real estate is listed under the definition of "estate agent" in Section 4 of the Act. This would indicate that the Act regards the preparation of the Contract of Sale, Vendor Statement and Section 27 Statement as a core function of the estate agent, when this is a obviously a ridiculous proposition.

The preparation of legal documents in relation to the sale of real estate is most definitely the function of the legal practitioner. Given that the estate agent has only a rudimentary knowledge of the laws affecting real estate, it is not possible for an estate agent to fully or properly advise a Vendor as to the proper drafting or compilation of legal documents. The Contract is always referred to the Vendor's legal practitioner when difficulties arise, and special conditions must be drafted, interpreted or explained to the parties.

This is a further indication that an estate agent's functions are only estate agent's functions in the absence of a qualified legal practitioner, and then only to a limited extent.



Functions That I Do Not Perform

As outlined above, most of the functions of an estate agent are really functions of a legal practitioner, but performed by an estate agent in the absence of a legal practitioner. There are, however, some functions performed by estate agents that are not functions of a legal practitioner.

The guiding principle for me as a legal practitioner is the requirement that I should always avoid a situation of conflicting interests. While estate agents are permitted to perform functions in circumstances of conflicting interests, I am not permitted to do so. Consequently I do not perform any of the following functions:

. I do not escort potential Purchasers to a Vendor's property. This practice is used by estate agents to control both the Vendor and the potential Purchaser. The agent is able to determine whether or not an inquirer will be directed to the property about which he/she has inquired, or to another. Usually a potential Purchaser will be shown to more than one property in a single trip. As the agent has been engaged to sell all 3 properties, the aim of the agent is not to sell a particular property for a particular client, but to sell any property to any inquirer.

. I do not advise potential Purchasers, and all potential Purchasers are advised to seek independent legal advice. It is a clear conflict of interests for a legal practitioner to offer legal advice to a person who is negotiating to purchase a Vendor client's property. An estate agent, on the other hand, will readily "assist" a potential Purchaser by inserting a special condition into the Contract without advising the Purchaser to seek independent legal advice. For example, where a potential Purchaser indicates to an estate agent that he/she would like to make the Contract subject to a building inspection, the agent invariably inserts the "standard" building inspection condition prepared by the REIV and supplied to its members. Agents don't understand that this conflict of interests could render the Vendor client liable if the Purchaser later claims that he/she was misled by the estate agent.

. I do not accept rebates from advertisers. A legal practitioner would probably be found guilty of misconduct for engaging in this behaviour. However, estate agents are permitted to receive and retain refunds of their clients' funds provided that these funds have been termed "rebates" and the agent has convinced the client to "sign where indicated" on the Exclusive Sale Authority.

. I do not charge a commission based on the value of my client's property. As seen from the above analysis, there is very little that can be described as the "functions of an estate agent", and these functions are properly the functions of other professionals anyway. Because an estate agent would have difficulty in justifying a set fee of the magnitude currently charged by way of "commission", estate agents invariably use the value of the client's property as the basis for determining their reward. I charge a set fee, which includes the cost of advertising ordered on-line, legal work, conveyancing work and GST.



Who Is An Estate Agent?

It may be arguable that every legal practitioner who engages in legal practice relating to the buying or selling of real estate is an "estate agent" according to the definition in Section 4 of the Act. Similarly, every conveyancer who undertakes the business of "negotiating for the sale of any real estate" or "compiling information or preparing reports on the sale of any real estate" could also be caught by the definition. A legal practitioner can rely upon Section 5(2)(e) of the Act on the basis that selling, negotiating compiling information etc. are the ordinary functions of a legal practitioner who has been engaged by a Vendor client. However, a conveyancer cannot rely on any saving provision.

It would appear that estate agents, legal practitioners AND conveyancers may ALL be estate agents pursuant to the Section 4 definition.



Question Of Functions

If everyone who performs any of the functions listed in the definition under Section 4 is an estate agent, then recourse must be had to Section 5(2)(e). This, in turn, requires an examination of the functions of both estate agents and legal practitioners.

There is no such thing as an exclusive "function" of the estate agent. Each function identifiable as a possible estate agent function is better performed by a qualified practitioner in that discipline, whether it be the providing of valuations, contract negotiation, document drafting, signwriting, or photography. Estate agents are permitted to perform these functions, not as of right, but because regulations have been passed that allow them access to these functions, albeit a limited access.

The grouping together of a set of functions that are ordinarily performed to a higher standard by other professionals, and identifying them by the group name "functions of an estate agent" does not render these functions any less functions of their applicable professions.



Conclusion

I am not required to hold an estate agent's licence in order to hold myself out as performing the functions of a qualified and competent legal practitioner, even if estate agents are permitted to perform some of the same functions.

The allegation that my advertising in my shop window, advertising on sale boards, and the advertising and representations on my web site amount to breaches of the Estate Agents Act 1980 are strongly denied.

I now seek urgent written confirmation from your office that this issue has been investigated, that you have concluded that no breach has taken place, and that I may continue to perform my functions as a real estate lawyer in accordance with the Legal Practice Act.

Yours faithfully,"