This article from our legal partner McLachlan Thorpe Partners explores the amendment of regulations regarding Disclosure Requirements for Expression of Interest Deposits, and the agent’s obligations under the updated regulations.
The Property Stock and Agent Regulations were recently updated and one of the key amendments concerned Expression of Interest Deposits.
What is an Expression of Interest Deposit?
An Expression of Interest Deposit is where a person makes payment of the deposit to the agent prior to exchange of contracts, to convey to the vendor the seriousness of their intent to proceed with the purchase. This applies to both the sale of a property or a business.
The action of paying the deposit does not create an obligation on the purchaser to purchase the property or business, nor does it convey an obligation on the vendor to sell the property or business to the purchaser.
- Amendments to the Property Stock and Agent Regulation
From 1 September 2022 the Property Stock and agents Regulation 2014 was replaced with the Property and Stock agents Regulation 2022 (“New PSA Regulation”). A key change under the New PSA Regulation is more stringent disclosure requirements for agents when accepting Expression of Interest Deposits.
Under schedule 2 section 5 of the Old PSA Regulation, when agents issued the receipt for payment of the Expression of Interest Deposit to the deposit payer, they were required to inform that person that;
- the vendor has no obligation to sell the property or business,
- the buyer has no obligation to buy the property or business, and
- the deposit is refundable if a contract for sale of the property or business is not entered into,
The above disclosure obligation is now required prior to the agent accepting an Expression of Interest Deposit, noting that under section 6(2) of the New PSA Regulation, agents cannot accept an Expression of Interest Deposit unless they have given notice in writing to that person of the information set out in (i) to (iii) above.
Furthermore, Section 6(2) further provides that the person paying the deposit must give the agent a signed written statement confirming they were advised of and understand the information set out in (i) to (iii) above before the agent accepts the Expression of Interest deposit.
- Obligations after receipt of the Expression of Interest Deposit
Other obligations on the agent post-payment of the Expression of Interest Deposit in the Old PSA Regulation remain the same in the New PSA Regulation, including;
- the agent being required to promptly inform the person who paid the deposit if a subsequent offer is made to purchase the property or business, and
- the agent informing the person who paid the deposit they have the right to make further offers until exchange of contracts has taken place, and
- the agent must promptly inform the vendor once an Expression of Interest Deposit has been paid.
In addition to the above, there is a new obligation imposed under schedule 2 section 6(5)(c) of the New PSA Regulation whereby if the vendor enters into a contract for sale of the property or business with another purchaser, the agent must refund the Expression of Interest deposit paid by any the unsuccessful purchaser within 14 days.
If an agent fails to comply with their obligations under the Rent Bidding Regulations then they may be issued with a penalty notice. Under Schedule 13 of the Property Stock and Agents Act 2002 No 66 the penalty fee is currently $550 for an individual and $1,100 for a company.
Author: Chelsea Hughie-Williams from McLachlan Thorpe Partners