Recent headlines about agents being pulled up by the Real Estate Authority for not meeting their disclosure obligations have put the spotlight on an important question – just what are those obligations, and what happens when they’re not met?
Getting it wrong can cause settlement delays, expensive disputes, and potentially serious financial consequences. Knowing what needs to be disclosed, and when, is essential.
What Is Disclosure, and Why Does It Matter?
Real estate agents in New Zealand operate under a strict set of professional rules governing how they handle property information. Two rules sit at the heart of disclosure obligations.
- Rule 6.4 states that a licensee must not mislead a customer or client, provide false information, or withhold information that should by law or in fairness be provided.
- Rule 10.7 addresses defects specifically — a licensee isn’t required to discover hidden or underlying defects, but must disclose known defects to a customer.
Rule 10.7 goes further: where it would appear likely to a reasonably competent licensee that land may be subject to hidden or underlying defects, the agent must either obtain confirmation supported by evidence or expert advice that no defect exists, or ensure the customer is informed of any significant potential risk – not just the defect itself, but the risk associated with it.
On top of the responsibilities that the agent carries, the sale and purchase agreement also provides the purchaser with vendor warranties. We have seen these come in to play, for example, where work has been undertaken on a property but council consent had not been obtained, leading to costly delays.
The Standard Is High – and That Protects You as a Seller
For sellers, understanding this standard matters, because it shapes how your agent should be working with you from the very start of the sales process. A good agent will have a direct conversation about anything that could be considered a known defect or potential risk – earthquake repairs, moisture issues, cladding type, or any previous building work. Sellers who are upfront about known issues, and who work with agents who communicate those issues properly, are far better protected if a dispute arises later.
What About Methamphetamine Contamination?
Methamphetamine disclosure is another area where the rules have recently been clarified. Under current regulations, a contamination level beyond 15 micrograms per 100 square centimetres is considered a defect that must be disclosed. Properties that have been tested and decontaminated to below that threshold don’t automatically require disclosure – but if a buyer asks a direct question, the obligation to answer honestly remains.
If a property has a testing history, a decontamination report, or any related documentation, sellers should discuss with their agent whether that information should be shared.
Practical Steps for Sellers
There are several practical things sellers can do to make sure disclosure is handled properly throughout the sales process.
- Be honest with your agent from the start. Share everything you know about the property – repairs, leaks, structural issues, council consents, or anything flagged in previous inspections. It is better that you discuss these things up front, rather than have to respond to them when your buyer gets a building report.
- Your agent should make sure any known issues are documented in writing. Verbal conversations are difficult to rely on if a dispute arises. Written records provide a clear trail.
- Your agent should also encourage buyers to seek their own independent advice. A good agent will actively recommend that buyers obtain a building inspection. If a buyer chooses not to, that decision should also be documented.
- Don’t rely on old reports. For example, a building report from when you purchased the property six years ago may not accurately reflect the current condition of a property. Up-to-date information gives buyers, sellers, and agents a much clearer picture.
- Consider obtaining a building report prior to marketing the property. With that information at hand, you’re better positioned to ‘front-foot’ any issues which are identified, rather than waiting to see if anything arises in a report commission by your purchaser, which can then lead to delays and further costs.
If a purchaser obtains a report and does find something wrong, they could cancel the contract, ask for repair or remediation work to be done, or they could also ask for a reduction in purchase price to cover the cost of repair. In our experience, the reduction can be more costly than simply addressing the issue from the outset.
Above all, work with an experienced salesperson and seek legal advice early. The right professionals can help you navigate your disclosure obligations, identify potential risks, and avoid costly issues arising later in the sale process.
Talk to the team at Irelands today to get the ball rolling!