27 February, 2020 / IN Audit & assurance / by Paul Quealey
In the most significant review of the Property Stock and Business Agents Act (the Act) since 1997, the NSW Government has announced a vast array of changes in the way compliance, licensing, professional development and disclosures are handled by Real Estate agents moving forward.
While changes to the completion and reporting of trust account audit results came into effect for the 2019 trust account reporting season, the most significant changes for the industry will become effective from 23 March 2020.
With the time to act on these changes being now, our Audit Partner, Paul Quealey, has summarised the key changes.
Under the previous Act, there were 6 licensing levels, including real estate agents; buyer agents; business agents etc. Additionally, one or more licences could also be held by individuals and corporations. Changes recommended from the IPART Report Reforming Licensing in NSW, and adopted by the NSW Government, introduce a three-tier licensing system being:
- Certificate of registration as an assistant agent
- Class 2 licence as a licensed agents
- Class 1 licence as a licensee in charge
The changes also enable an election between licence/certificate periods of 1, 3 or 5 years, rather than the 1 year licence period previously provided.
The reforms will only apply to new entrants or licence applicants and are designed to improve professional standards and skills across the industry. The key requirements and changes for each licence type are summarised as follows:
Certificate of Registration as an Assistant Agent
- Applicants must complete 7 units of competency from the Certificate IV qualification (increased from 4). The additional units will be focused on minimising risk to consumers and knowledge of laws and regulations.
- A certificate holder is unable to enter into contracts on behalf of an agency or authorise trust account transactions.
- Certificate holders must complete the qualifications for, and transition to, a full licence (i.e. Class 2) within 4 years. If transition not complete, certification is cancelled, and the individual can not work in the industry for 12 months or reapply for a Certificate of Registration again (must apply for licence).
Class 2 – Licensed Agent
- Applicants must obtain Certificate IV qualification from the CPP07 Property Services Training Package.
- Applicants must hold at least 12 months’ practical experience and provide evidence to NSW Fair Trading of the attainment of specific competencies during this practical experience.
- Th Act prohibits the licensed agent from authorising trust account transactions however allows them to enter into a contract on the agency’s behalf.
Class 1 – Licensee in Charge
- Applicants must obtain a Certificate IV qualification from the CPP07 Property Services Training Package and an equivalent qualification in business management.
- Applicants must have at least 2 years’ experience within a licensed business and provide evidence to NSW Fair Trading of the attainment of specific competencies during this practical experience.
- The licensee in charge now has greater supervisor requirements (i.e. monitoring and managing agency staff).
With regard to transitioning to these new requirements, it is important to note that current certificate and licence holders will automatically hold an equivalent level of licence on 23 March 2020 or at their next renewal date.
The changes introduce new continuing professional development (CPD) requirements for licensees and certificate holders. For this, NSW Fair Trading will require evidence to demonstrate that the required CPD topics have been successfully completed. The CPD requirements for Class 2 and Class 1 licensees are summarised as follows:
- Compulsory topics: 3 hours of compulsory topics to be completed through a CPD year (which runs from 23 March each year to 22 March the following year).
- Elective topics: 3 hours of elective topics focussing on a range of applicable topics, including marketing, communication, fraud prevention, risk management, legislation and compliance etc.
- Business skills: Class 1 licence holders are required to complete 3 hours of business skills training each CPD year (note: requirement to complete business skills training will not commence until the 2021-to-2022 CPD year).
Training is to be delivered by any training provider and does not need to be approved by NSW Fair Trading. Licence and certificate holders must retain their own records of any compulsory, elective or business skills topics completed and must provide these records as evidence, if requested. We noted that the NSW Fair Trading is developing an online recording system for training providers and licence holders for these details to be entered and submitted electronically.
The CPD requirements for a Certificate of registration as an Assistant Agent licence, are:
- To complete at least 3 units each CPD year from a valid Certificate IV qualification (these are required for obtaining a Class 2 Agent Licence in Real Estate); and
- There is no specific requirement on the units to be completed in any CPD year.
Activities and Supervision
The reforms are designed to increase the level of supervision and strengthen consumer confidence when dealing with agents. As a result, the below additional reforms have been introduced and will impact the day-to-day activities of an agency and the Licensees in Charge:
- Trust transactions: only a Licensee in Charge can authorise the withdrawal of funds from a trust account. The legislation removes this as a duty able to be completed by a licensed agent.
- Contractual agreements: removal of the ability for Certificate of Registration as an Assistant Agent to enter into any binding contractual agreements, except for residential tenancy agreements and livestock agency agreements.
- One Licensee in Charge: a business will only be able to nominate one licensee in charge to supervise that business, removing the ability to have Licensees in Charge for different branch offices.
Rules of Conduct
The reforms introduce a series of new rules of conduct to be followed by agents and assistant agents. These new rules of conduct are as follows:
Payment of rental income monthly to landlord
An agent is now required to pay rental money received on behalf of a landlord under a residential tenancy agreement to the landlord at the end of each month, unless the landlord has instructed otherwise. No longer can money be withheld from payment of end-of-month landlord payments unless under specific instructions from the landlord.
Maximum dollar value of gifts and benefits
An agent must not request or accept any gift or benefit from another person that is valued $60 or greater if it could be considered to give rise to a conflict of interest.
Separate trust accounts for rental and sales
Licensees in charge will need to establish separate trust accounts for rental money and sales money, if not already doing so. No longer can sales and rental trust money be held and reconciled in the same trust bank account. This change could result in greater bank fees and charges and greater administration work required in managing, reconciling and reporting for two separate trust bank accounts.
Disclosure of facts
The changes legislate the kinds of facts that an agent knows, or should reasonably know, which should be disclosed to a prospective purchaser. These could include that the property:
- flooded from a natural weather event or bush fire in the last 5 years;
- has significant health or safety risks;
- is listed on the loose-fill asbestos insulation register;
- has been the scene of a crime of murder or manslaughter in the last 5 years;
- has been used for the production or supply of a prohibited drug or plant in the last 2 years; or
- is, or is a part of, a building that contains external combustible cladding to which:
- a fire safety order, or a notice of intention to issue a fire safety order, has been issued requiring the building to be rectified regarding the cladding;
- a building product rectification order, or a notice of intention to issue a building product rectification order, has been issued requiring the building to be rectified regarding the cladding; or
- a development application or complying development certificate application has been lodged for rectification regarding the cladding.
Failure to disclose the above listed facts will result in significant fines and penalties, no matter if the agent intended to conceal them from the prospective purchaser or not. Even if the agent did not know the fact, if it is reasonable to expect the agent to know the fact, then it is considered a failure to disclose.
For further details on the changes and how they will impact your individual certification or the running of your agency, please contact Paul Quealey on (02) 4969 6600 to discuss.