Should Property Managers be regulated?

Property managers.

Among a list of responsibilities, they’re in charge of collecting the rent money, responding to your tenant’s urgent requests, and ensuring your investment is well looked after. So, with so much responsibility why is there no regulation? And, should there be?

In New Zealand, basically, anyone can be a property manager. While landlords have a list of responsibilities that they must adhere to under the Residential Tenancies Act, and Real Estate agents have their own under the REA, there are no separate set of expectations to regulate property managers.

What does this mean for New Zealand Property Managers?

The lack of regulation for New Zealand property managers means:

• Anyone can set up a business as a property manager, with no experience or qualifications.
• Property managers don’t need to have insurance.
• They can get rent money paid to their personal account. They do not need to hold funds in a trust account.
• Property managers do not have to be accountable as there is no compulsory code of conduct.
• There is no clear process of removing poor property managers from the industry so even if it gets really bad, they can choose to stay.

What does this mean for New Zealand landlords and tenants?

Ultimately, for landlords and tenants, this means uncertainty in the level of service and professionalism that property managers provide. It means tenants can be asked for information that isn’t legally anyone’s business. And in really bad cases, it can leave landlords hundreds and thousands out of pocket.

With landlords already forking out a decent 8-12% of their rent money to have property manager, it’s too much to not know what you’re actually getting. The same goes for tenants who pay rent every week.

The lack of regulation also impacts property managers who are doing a great job. While they may conduct a service that is professional and fair, the horror stories that come out of situations where regulation could help means the reputation of these PMs also suffers.

So, what is happening to try and change this? Who has put their hand up to say regulation is needed and why?

Current efforts to regulate Property Managers

Both political and industry efforts are trying to change the current market, where property managers are unregulated. Below, we investigate who is behind these efforts and what they think regulation looks like.

‘A call for change‘

‘A call for change‘ was launched in September 2019 by the Real Estate Institute of New Zealand (REINZ). This campaign highlights the need for regulation in New Zealand’s property management industry, noting that we’re one of the few countries apart of the OECD without any rules or standards for PMs. REINZ says this is an issue as “property managers are the gatekeepers of housing for many of New Zealand’s most vulnerable tenants.” Their campaign aims to get the Government to review regulation in the 2020 election, with another goal of ensuring it is cost-effective yet robust.

What would regulation look like under ‘A call for change’?

While REINZ would like property managers to be held to a certain standard, they do want this standard to be achievable and affordable. They list 7 ideas on their website which show what regulation could look like. These include:

1. Having a minimum level of education to operate, such as the NZ Certificate in Residential Property Management.
2. Having ongoing education obligations to ensure they stay up-to-date with law changes.
3. Requiring Police and background checks.
4. Holding tenant and landlord funds in a trust account.
5. Holding appropriate insurance.
6. Adhere to a mandatory Code of Conduct or standards to keep PMs accountable.
7. Fines or sanctions if the Code or standards are broken.

Who supports ‘A call for change’?

70 different companies support ‘A call for change.’ Among them are Real Estate giants like Harcourts, Professionals, Barfoot and Thompson, and even New Zealand’s Property Council.

Labour’s pledge to regulate PMs

In October 2020, a year after REINZ’s call for change, Labour says they will introduce a code of conduct for property managers. The code will ensure property managers meet certain professional standards, just like teachers, nurses, and other professionals are expected to.

What would regulation look like under Labour?

Although the details of the code are not yet clear, Labour references Australia’s regulatory requirements as an example of why they’re needed. They say property managers across the ditch have to meet the same rules as real estate agents. This includes having qualifications and being licensed.

Who supports Labour’s pledge?

Both landlords and tenants welcome Labour’s pledge, along with organisations such as REINZ, Salvation Army, Renters United, and others. While the Property Managers Institute of New Zealand (Prominz) is “broadly supportive” they do question how this code will impact private landlords, especially those who employ their own property managers.

Why do some see regulation for property managers as necessary?

There are many different reasons for REINZ ‘Call to change’ and Labour’s pledge to introduce a code for PMs. The role of a property manager holds a lot of responsibility, and good ones are highly educated and experienced. It’s a specialised industry, and the implications when something goes wrong are large.

Reason 1 – Tenants and Landlords suffer if a PM does not conduct a professional service

A report produced by REINZ underlines why regulation is required. On pages 9-12 of this document are media reports that highlight examples of real harm caused by poor property management in New Zealand. While the first story tells of an Auckland property manager owing $358,000 to 67 landlords, there are multiple cases where inadequate housing is being rented out by PMs. One such case is in Wellington where a family was given office space in a commercial building to rent as a home. There is also another instance where a property management business “converted” garages into two rooms. One of these rooms hosted a mother, her 7-month-old baby, and toddler. In the last story, the tenant was asked by the property manager to lie to the Council and say they were living in the main house.

Other stories of misconduct include an Auckland PM who stole rental payment of more than 100k, and the well-known case of property manager Rachel Kann. Kann told Government in 2018 that she looks at bank statements to determine if tenants can pay rent. This became known as the KFC test, with Kann explaining the statements of “low socio-economic” tenants as reading “KFC, McDonalds, the dairy, KFC.”

In all of these cases the stakes are high. Whether this is financial loss for a landlord or poor living conditions for tenants. The power that property managers hold in these situations is evident.

Reason 2 – Real Estate Agents are regulated, so why aren’t PMs?

Another point that is commonly discussed is the REA which Real Estate Agents have to abide by. Introduced in 2008, this Act sets out a code of conduct for agents and other expectations that include:

• Being licensed, and clearly advertising this.
• Having an inquiry process and Committee to follow up complaints.
• The agent’s duty in regard to money that they receive during the business.

Although many submissions were made to include property managers in this, the Government decided against intervention. Since this time in 2008/9, property management has not been revisited for regulation despite increasing tenant numbers. That was 11 years ago!

As agents aren’t the only ones handling thousands of dollars and peoples’ investments, some believe the same regulation should extend to property managers.

Reason 3 – Property managers are in positions of power and influence

Property Managers hold considerable influence over people’s lives, especially with the state of housing in New Zealand. Once again, the 2020 election has brought up the issue of housing quality, affordability, and availability in New Zealand. With NZ reaching 5 million people in March 2020, and not seeing the same growth in housing, property managers are in very powerful positions. They are what REINZ calls “gatekeepers of housing for many of New Zealand’s most vulnerable tenants.” Labour reinforced comments made by Consumer NZ that also illustrate this, and the imbalance that exists:

“…property managers [have] a key to a person’s house, collect rent, and [have] access to financial information about tenants, but they [do] not have to meet any professional standards…”

Stuff Article, Labour’s promise to regulate property managers, 2020

What training is available for PMs and private landlords?

Many online webinars and education courses exist for property managers despite being optional. Real IQ offers a 5 module course that starts at the basics of the RTA and ends at resolving disputes. In 7-12 months, property managers can achieve their Level 4 Certificate.

The NZPIF also developed their own education program after calls to regulate the rental property industry. Designed for self-managing landlords, this online training is available to all NZPIF members for free.