Family, Cousins and an Undisclosed Cross-Lease Defect
Hine is branch manager at a suburban agency and also lists a property at 14 Rata Street. The vendor is her sister-in-law. A salesperson in the branch, Mark, brings a buyer who is his own cousin. Mark wants to act for both the vendor and the buyer to “keep the deal simple”. The property has a cross-lease defect that the vendor has not mentioned; Hine knows about it from a family conversation. The buyer has asked whether the property is free of weathertightness issues. Hine is also aware that the agency’s owner has a 20% interest in a local building company that has quoted for repairs on the property. Hine has not disclosed her relationship to the vendor in the agency agreement or in writing to the buyer.
1. Identify the conflicts of interest and disclosure obligations under the Code and client care rules.
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There are several conflicts. Hine is the listing branch manager and the vendor is her sister-in-law; that is a close personal relationship that must be disclosed in writing to the vendor and to any buyer, and it should be recorded in the agency agreement. Mark wants to act for both the vendor and his own cousin as buyer; that is a conflict because he cannot give undivided loyalty to both. The agency owner’s 20% interest in a building company quoting for repairs is a financial benefit and conflict that must be disclosed.
Hine’s knowledge of the cross-lease defect is material information; she must not mislead the buyer, and if asked about weathertightness she must answer honestly and disclose what she knows. Under the Code, licensees must disclose actual or potential conflicts, obtain informed consent, and recommend independent advice. Where a conflict cannot be managed, the licensee should not act. The client care rules also require a written client care and service statement and clear agency agreement disclosures.
2. What must Hine and Mark do before the transaction proceeds, and what are the risks if they do not?
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Before proceeding, Hine should stop and put the conflicts in writing: her relationship to the vendor, the owner’s building-company interest, and Mark’s relationship to the buyer. The vendor and buyer should each receive independent advice, especially about the cross-lease defect and the remediation and repair issues. Mark should not act for both parties unless both give informed written consent after full disclosure; in practice, the safer course is for one party to be referred to another salesperson or agency. Hine should not supervise Mark on this transaction if her family interest compromises her judgment; another branch manager or agent should oversee it. The buyer’s weathertightness question must be answered accurately, with the known defect disclosed.
If they proceed without disclosure, the risks are: disciplinary findings of unsatisfactory conduct against Hine and Mark; fines, censure or licence conditions; possible orders for compensation; loss of the deal or later challenge; and reputational damage. The agency agreement and client care statement may also be non-compliant.