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Property Management Comes Of Age

Regulation of the property management sector is good news for the industry as a whole, writes David Faulkner of Property Brokers.

By: David Faulkner

1 February 2022

At the start of my second week in my new job as the general manager of property management for Property Brokers, I received a call from one of our team leaders who had an issue with one of our landlords.

The problem was that this property owner was refusing to allow us to comply with the Healthy Homes criteria within the 90-day deadline of new tenancies starting. This particular owner had three properties with us. He had threatened to take his business elsewhere to another, smaller company, who were more than happy to take his business and assured him they would not make him comply with Healthy Homes requirements.

Here was a landlord who was more than happy to expose our company to risk so long as it saved him money and backs us into a difficult corner. What do we do? Do we yield and accept the risk, or do we stand firm and risk losing business with a significant contract value to us?

Many landlords do not understand the property manager takes on the responsibilities and risks of being their agent. In the eyes of the tribunal, the agent can be held liable for breaches of the Residential Tenancies Act (RTA). What is worse for a property management company is they are also exposed to pecuniary penalties of up to $50,000 if they have been found to have intentionally breached certain sections of the RTA. Healthy Homes fall under that criterion.

Great Idea

We did not want to lose this business, but we have made it clear we will not manage properties that do not comply with the RTA. After discussing potential solutions to the problem, the team leader had a great idea. In addressing her response to this particular landlord, who was also a real estate agent, she asked him what he would do if one of his vendors asked him to breach the Real Estate Agents Act? The landlord reluctantly agreed to get the work done on receiving this question, and we retained the business.

The genius of this question highlights the need for regulation within our industry and perhaps even for self-managing landlords. No real estate agent with any moral compass would intentionally breach the REA after being instructed to do so by a vendor; the risks are simply too significant. They would face sanctions through the REA and potentially jeopardise their ability to make a living. Their reputation would be damaged, potentially beyond repair, and they may even be stripped of the ability to work within the industry. On realising he was intentionally asking his property manager to breach the RTA, he yielded and allowed her to do her job.

The problem with an unregulated industry is that there will always be operators who will be more than happy to take those risks and manage non-compliant properties to make a living. As things stand, anybody can start a property management business without any training or qualifications. If they operate their business in an unethical manner, there is nowhere for a landlord to go to complain other than a minor disputes tribunal. Yes, a tenant can seek retribution through the Tenancy Tribunal. Still, the tribunal does not have the jurisdiction to stop a landlord or a property management company from carrying out their daily business.

Regulation of the industry would mean greater protection for landlords and tenants. It would set minimum standards such as audited trust accounts, police checks on property managers and compulsory qualifications. A regulatory body could revoke a company’s licence to operate if a company continued to breach the RTA intentionally or failed to have good practices in place to protect landlords’ money.

Powerless To Act

In January it was reported that a property manager had failed to pass $52,000 of rent to their landlords. The irony of this story is that the Real Estate Agents Disciplinary Tribunal could only act because this particular property manager also had a real estate licence. If the property manager was not licensed under the REA, they would have been powerless to act.

I am not naive enough to believe that regulating the property management industry will somehow remove all cowboy operators as well as unethical operators. Still, it will significantly provide greater consumer protection, regardless of whether you are a tenant or a landlord. There is no doubt that regulating the real estate industry improved professionalism and ethics. The same would surely happen in the property management space.

The next question is, what do you do with landlords who decide to self-manage? I know several investors who either manage their own portfolios as their job or employ someone to do it for them. Then you get the small mum and dad investors who believe that they can look after it themselves. Many, as well-intentioned as they may be, do not understand the complexities of managing a property and the level of record-keeping or compliance. This is not to suggest they must use a property manager, but that they should undertake some basic compulsory training to manage their property portfolio.

Initiative Success

In Wales, a landlord register was developed that meant every landlord, whether they are a property manager or a self-managing landlord, had to be registered and had to undertake relevant training. The level of training was dependent on whether they were an agency or a self-managing landlord. This was introduced after the Housing (Wales) Act 2014 was passed into law, and the initiative has been a success. Landlords have a much better understanding of their responsibilities, meaning they will provide a better product. Agencies will have minimum standards they must meet in order to be able to conduct business.

What about tenants? How does regulation benefit them? It is about ensuring that every law-abiding New Zealander has a warm, safe, and compliant property that they can call home. Data from MBIE shows that people are renting for longer. In November 2021, Tenancy Services held 384,813 active bonds.

This has increased by over 20,000 since Labour came to power. Many Kiwis will be lifelong tenants, and whether the government likes it or not, New Zealand needs a strong private rental sector to cope with the demand. Regulation of the property management industry will help provide better protection for landlords and tenants while a compulsory landlord register with basic mandatory training will also benefit the sector.

Labour made the property management industry regulation an election promise in the 2020 General Election. Our industry will be putting pressure on Associate Housing Minister Poto Williams to deliver, and surely 2022 is the year the framework will be outlined.

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