Regulation is on its way for residential property managers. Currently, anyone can hang out their shingle without training, licensing or even knowledge of the relevant law. Property managers handle thousands or even tens of thousands of dollars at a time on behalf of landlords and tenants. Some have not proved to be honest.

Google “rogue property manager” or similar and the results bring up several examples of the type of behaviour that legislation could quell, says Joanna Pidgeon, a director of Pidgeon Judd, a former ADLS president and a member of the ADLS Property Law committee.

All too common are headlines such as: “Property manager siphons $50,000 in rent payments”, “Property manager filmed resident in bed” and “Property manager stole bonds, gave herself a bonus”.

Other groups handling client money, such as lawyers, real estate agents and body corporate managers, are regulated. Just not independent property managers, Pidgeon points out. Moves to bring in regulation have received wide support from organisations ranging from the Real Estate Institute of New Zealand (REINZ) to Renters United and Anglican Advocacy.

Currently, property managers who work directly for real estate agencies are required to have audited trust accounts, are regulated, and complaints can be made to the independent Real Estate Authority (REA) which in turn can fine and censure those managers.

However, independent property managers who do not work for real estate agencies are not subject to those requirements. Licensed real estate agents have long called for these independent property managers to be regulated to level the playing field.

For individual property managers, the comprehensive regulator regime outlined in the Residential Property Managers Bill will be a major change.

The bill:

• establishes minimum entry requirements
• sets professional standards of practice
• creates an independent, transparent, and effective complaints and disciplinary process through the REA and the Real Estate Agents Disciplinary Tribunal and
• applies a range of offences and penalties

The Bill also amends the Real Estate Agents Act 2008 to provide for an expanded role of the Real Estate Agents Disciplinary Tribunal. This will include determining allegations of misconduct by residential property manager licensees. Rogue property managers can cause problems for both tenants and the landlords they’re working for.

The legislation follows on from reform of the Residential Tenancies Act (RTA) in 2021 and the introduction of the Healthy Homes Guarantee and the Unit Titles (Strengthening Body Corporate Governance and Other Matters) Amendment Act 2022, Pidgeon says.

She singles out the Unit Titles Amendment Act as an example of evolving legislation that set the path for the current bill. Among other things, it improved access to dispute resolution, added measures to increase the professionalism and standards of body corporate managers and brought in new enforcement tools to support compliance with the Act.

Previously, owners in unit title buildings had little recourse to any official authority if they had a complaint about body corporate managers, even though the bodies corporate themselves were regulated.

The issue of managers handling owners’ money is similar to that faced by landlords who employ rogue property managers. “In the [property] industry, there has been a move towards regulating people who hold other people’s money,” Pidgeon says. Another issue is that landlords can be penalised if property managers fail to comply with the RTA, through ignorance or deliberate behaviour. Sometimes property managers don’t even tell landlords when cases have gone against them in the Tenancy Tribunal.

Yet landlords are liable by law for the penalties handed out by the tribunal. “All of a sudden, you’ve got this judgment against you and limited time to appeal,” Pidgeon says. “You don’t have the necessary information because the rogue property manager has it all. Landlords are at quite a disadvantage.

“When there’s a shortage of housing, there is a bit of a power imbalance. So, it’s important people who are providing property management services have the necessary training, so they are operating in a compliant manner.”

Code of professional conduct

Under the bill, the Real Estate Agents Authority will establish a code of professional conduct and prescribe continuing professional development requirements. Issues such as conflicts of interest will likely be brought into the code. “That’s another element that was in the Unit Titles Act,” Pidgeon says. “If you’re getting kickbacks because your local plumber gives you a rebate or something, you would have to disclose it.”

She says tenancy law is becoming more complex and the educational requirements of the bill will help to ensure practitioners are acting in a compliant manner. Organisations that train real estate agents will probably extend into property manager training and insurers specialising in real estate cover will offer policies relevant to property managers.

The requirement to being a “fit and proper person” will also be an improvement. “It means people who aren’t suitable can’t become property managers. If you’ve gone to jail for embezzling money, it’s unlikely you’ll be allowed to be a property manager.”

Welcoming the bill, REINZ chief executive Jen Baird said the growing complexity of property management made it necessary. “Over the past four years, we’ve seen a raft of changes to legislation, including the Residential Tenancies Amendment Act, Healthy Homes legislation, changes to the Privacy Act and Health and Safety at Work Act and more. Add to that environmental social challenges such as Cyclone Gabrielle and we have a profession that New Zealanders have come to rely on.”

Landlords excluded

Currently, landlords who are unhappy with unlicensed property managers need to take a contractual dispute to the Disputes Tribunal or court, Pidgeon says. The new law will allow them to complain to the REA and have their matter heard. The REA will prosecute on their behalf.

Landlords themselves are not covered by the bill because tenants can complain to the Tenancy Tribunal. Otago University housing researcher Dr Lucy Telfar-Barnard has called the exclusion of landlords a “missed opportunity”. Her housing research team submitted in favour of the idea because it would give an extra layer of protection to tenants.

In its earlier discussion paper, the Ministry of Housing and Urban Development wrote that landlords were already adequately regulated under the RTA.

The new bill, however, introduces a two-strikes rule for landlords by amending the RTA to give the Tenancy Tribunal the power to order a landlord to use the services of a residential property manager if he or she has committed two or more of the unlawful acts specified in the bill within a five-year period. Those “unlawful acts” include:

■ s 45(1A) or 66I(4) (landlord’s responsibilities: cleanliness, maintenance, smoke alarms, healthy homes standards, and buildings, health, and safety requirements)

• s 45(1AB) or 66I(5) (landlord’s responsibilities: contaminated premises)
• s 54(3) (retaliatory notice of termination)
• s 60AA (acting to terminate without grounds)
• s 137(2) (contracting to contravene or evade the provisions of this Act) and
• subsection (3) applies.

Mickey Mouse property managers

Angela Maynard of the Tenants Protection Association (Auckland) would have preferred landlords to be included but is grateful that problematic property managers will be brought into line

“There are some Mickey Mouse property managers out there. [Currently] you could just decide tomorrow that you want to be a property manager and set yourself up,” Maynard says. “We see managers who have no idea of the Residential Tenancies Act. They think they’re going to get a vulnerable tenant that doesn’t know anything and will just do what they like. We get a lot of calls of that nature.”

For example, Maynard dealt with a case recently where the tenant signed a tenancy agreement with the property manager. Three months later the property manager wanted to increase the rent, even though the law allows only annual increases. The property manager told the tenant he had to sign a new tenancy agreement.

Self-regulation not working

Professional bodies have been set up to represent independent property managers. However, self-regulation wasn’t seen by legislators to be working and the Labour Party campaigned at the last election on reforming the property management sector. The Residential Property Managers Association of NZ (RPMA) chairman David Pearse says his organisation is a strong supporter of regulating the industry, but he sees issues with the bill as it stands.

Pearse argues that property managers are not the problem. “You do not have to search very deep to see that only 42% of private rentals are managed by property managers and that most of the complaints taken by MBIE against landlords are against private landlords managing the properties themselves.

“Most of the proposed regulation is a cost on the industry that does little to improve the quality of service to property owners and tenants which was the main aim of the legislation, according to housing minister Megan Woods.”

But he says the main issue with the proposed bill is that the REA, which regulates real estate agents, will also be regulating property managers but has limited knowledge and experience in working with the RTA. Pearse adds that Australian experience suggests there will be problems.

“The minister of housing says that [the bill] is to improve the quality of service to owners and tenants. But what is being proposed is similar to the requirement of residential property managers in Australia. It does nothing at all to address the main issue with poor service. The average property manager in Australia lasts only nine months in the industry because of the unrealistic expectations put on residential property managers by their employer, and as the case in Australia this is predominately the real estate sales industry” he says.

“We find it frustrating that she will not even make the time to meet us since she became minister, when we enjoyed regular meetings with Phil Twyford and Kris Faafoi when they had the roles. Megan Woods wants us regulated like lawyers, accountants and valuers. So why not follow that model? The cost would be lower and have a consistent outcome.”

Costs

Licensing and auditing of trust accounts will add cost for property managers. The licensing costs alone could add about $3,000 per year for a sole trader. “It is a concern that the model will mean huge licensing costs which will drive out boutique companies who have been providing the level of service the minister is looking for,” Pearse says.

“It would make it more difficult for property managers to start their own business. They [would] need to apply for a licence after being in the industry for at least 18 months. They also would need to employ the services of a supervisory residential property manager to oversee the supervision of property managers.”

Trust accounts will not necessarily create the outcome expected, he says. Cases where managers have stolen money have involved trust accounts of REINZ property managers, which were already supposedly audited. Regarding insurance, Pearse says property managers should already have public liability, professional indemnity and statutory liability insurance.

Another issue that concerns the organisation is training. Pearse says suggestions from REINZ that 15 hours training would be sufficient to get a licence would be “a joke”. He says a Level 4 Certificate in Residential Property Management would be more appropriate.

If National wins the election, the RPMA will be asking Chris Bishop, who will likely become Housing Minister, to reconsider the bill and encourage him to treat residential property managers like any other professional organisation or association – ie, with their own professional body. “This has been the case for lawyers, accountants and valuers. So, why not residential property managers?” The RPMA supports the Welsh model where property managers and private landlords are both licensed.

Public landlords excluded

Public landlords such as Kāinga Ora and community housing providers will not be regulated under the bill.

Community housing providers come under the Community Housing Regulatory Authority, Pidgeon says. “If the oversight of the financial side is the main reason for regulating property managers, then [Kāinga Ora] already has oversight….and the civil service is required to comply with the law.”

Submissions on the bill close on October 12. ■