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Property management regulation

After nearly five years of lobbying, the government is set to regulate residential property managers, but some don’t think the legislation goes far enough, writes Sally Lindsay.

By: Sally Lindsay

31 March 2022

Labour’s planned management rethink has come under attack for leaving private landlords who manage their own properties out of the new scheme.

“If the quality of property management is going to be improved it has to include private landlords,” says David Pearse, Residential Property Managers’ Association president. “The days of DIY landlording are over.”

Under the government’s plans property managers are likely to need a licence, establish a trust account, hold insurance, undergo 20 hours of professional development, and comply with an independent disciplinary and complaints resolution scheme.

Property management company Propertyscouts says it marks a long overdue turning point for the industry, which needed to be regulated “yesterday”.

About 59% of the country’s private rental properties are under management. At the beginning of 2020 it stood at 49%, but there has been a significant swing to property management companies by private landlords since government legislation was introduced covering the Residential Tenancies Amendment Act, Healthy Homes Standards and new rules phasing out investors’ ability to claim mortgage interest against rental income for tax purposes and the bright-line test extension from five to 10 years.

As things stand, anyone can set themselves up as a property manager, with no experience or qualification. It’s a specialised industry, and the implications when something goes wrong are large.

Negligence And Deceit

A 2018 report by Anglican Advocacy, titled A Decade Overdue, compiled dozens of first-hand, anonymous accounts from tenants and landlords about negligence, deceit, discrimination, privacy breaches and dishonesty by property managers.

While landlords must adhere to the Residential Tenancies Act and real estate agents the REA, there is no regulation of property managers. New Zealand is one of the few countries in the OECD that does not regulate property managers.

After promising to introduce legislation as part of its 2020 election campaign, the Labour Government has put out a discussion document on regulating property managers with submissions closing in the middle of April. The aim is to have legislation passed before the general election next year.

Labour’s Associate Housing Minister Poto Williams says rental property owners can be vulnerable to poor conduct by property managers and there have been instances where unregulated property managers have misused rental income and bonds and provided little or no property inspections and maintenance.

Propertyscouts says landlords and tenants are suffering from an unprofessional service.

As a result, Propertyscouts New Zealand director Ryan Weir says his company has seen evidence of landlords and tenants suffering from mistakes, and incorrect advice. “Landlords have been left thousands of dollars out of pocket, and tenants have had to put up with poorly maintained properties because they aren’t comfortable raising issues with their property manager who rarely addresses their concerns.”

Weir says property managers hold positions carrying immense power, influence and responsibility. “They have the keys to houses, collect thousands of dollars of rent a week, and until recently have had access to personal financial information about tenants, yet they don’t have to hold themselves to any professional standards, or have to keep payments in a separate trust account, nor carry indemnity insurance.”

He says private landlords tend to be poorly advised by property managers that they are required to comply with the Residential Tenancies Act and other legislation. Lack of compliance can lead to messy Tenancy Tribunal hearings and landlords losing thousands of dollars to fines.

“Part of a property manager’s job is to know the rules and legislation landlords must comply with, but there is no requirement for property managers to undertake any specific training or hold themselves accountable for any incorrect advice.”

Bad Managers

Weir says lack of regulation jeopardises the reputation of good property managers. “The time, money, and hassle a good property manager saves a property owner is priceless. However, too many bad property managers exist. One poor experience with a bad property manager can result in landlords being hostile and pessimistic towards other property managers.”

He says while regulation of the industry won’t completely remove bad property managers from the ranks, it will significantly improve the industry’s quality and reputation.

It’s a sentiment the Residential Property Managers’ Association agrees with. The association, which has 85 members, a minority of the estimated 1,200 property management companies around New Zealand, sets standards for managers to adhere to. However, managers don’t have to be registered.

Pearse says the proposed legislation is a step in the right direction, but the association would rather the government based its regulations on those used in Wales.

The Welsh model includes a register of all property managers and private landlords. “A big chunk of rental properties are managed by private landlords, so the government’s aims will not be achieved.”

The main reason landlords were left out is they are dealing with their own rental money and are hardly going to rip themselves off, says Sharon Cullwick, New Zealand Property Investors’ Federation executive officer. “If the Ministry of Business, Innovation and Employment (MBIE) wants information about private landlords with active rentals it has access to the information through Tenancy Services. There is no need for a separate register.”

The federation provides members with property management training so they can give better service to their tenants, although some people say there is no evidence private landlords are any better than property managers.

Tracking Bonds

If the Welsh model is adopted by the government, Pearse says tenants will be able to see the register and MBIE could use it to determine which property managers and landlords have deposited bonds with Tenancy Services. “If this was a major problem, MBIE could tighten property management rules, particularly if it was the industry regulator as we are suggesting.”

Appointing MBIE as the regulator made sense because it already has extensive experience and knowledge about the industry and how it works.

Williams has indicated she is open to talking about private landlords and Pearse says the association will be raising the issue at workshops run by the Housing and Urban Development Ministry. More than 100 submissions were received during the first few days.

Cullwick says if private landlords are included in the legislation it will come at a huge cost. “Most have only one or two properties and are facing cost increases over a number of areas plus having to find money to pay extra tax. If they go out of business and sell their properties, rentals will be few and far between, exacerbating an already overburdened private rental market.”

Pearse says many people are ignorant about property management and the responsibilities that go with it. “Few property owners ask why they get rubbish service but often it comes down to the biggest problem in the industry that is rarely acknowledged — property managers having to manage up to three times the number of properties they can effectively deal with.

“They cannot give good service if they have 300 properties to manage, which is often the case in the bigger agencies. The most they can do is keep on top of arrears. They can’t do property inspections or keep in touch with owners. It is impossible to manage that many properties and many property managers are the meat in the sandwich between owners and property management companies owners.”

As a result the industry has a high staff turnover. Cullwick says property managers are lasting on average eight months in the industry because of the workload and other stress factors.

Pearse says an effective agency will allow its property managers to manage only 100 properties at any time to give full service and client satisfaction. “This is an industry about service. It should not be about greed.”

He says this is another area where MBIE could effect change if it was the regulator.

'Fit And Proper Person'

Under the Government’s preferred option for regulating property managers, those entering the industry must be aged at least 18, pass a “fit and proper person” test and undertake education/training with a basic course of 15 hours.

Things like dishonesty-related conviction, financial problems like bankruptcy, or a history of violent behaviour would preclude someone from being fit and proper.

Industry standards include 20 hours a year of continuing professional development, indemnity and public liability insurance and trust accounts (including independent review with periodic audits as required by the regulator).

The federation is endorsing the establishment of trust accounts for property managers to avoid millions of dollars of rent money being paid into their personal accounts. If a property manager commits an offence they can be fined up to $40,000, and if a company does the same it can be fined up to $100,000.

A regulator independent of the property management industry is to be appointed and the Ministry of Housing and Urban Development (Te Tuapapa Kura Kāinga) will oversee and report on the performance of the regulatory authority.

Cost recovery will be a major issue for the new regime, and property managers are going to be expected to cover the full cost for some services and partial recovery of others through fees and levies, rather than relying on government funding.

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