Why real estate agent licensing requirements for large commerical property owners are unnecessary

GUEST OBSERVATION

What is proposed?

The proposal is an exemption from unnecessary real estate agent licensing requirements, and other regulation, for agents managing on behalf of ‘large professional commercial property owners’, including those agents managing for ‘related entity’ property owners (e.g. AMP’s shopping centre management arm managing on behalf of AMP-owned shopping centres).

Why shouldn’t these agents hold a real estate agents license?

The real estate agents license is exclusively oriented to residential real estate and teaches the holder nothing about commercial property work. Large commercial property owners (such as Dexus, AMP Capital Investors and Stockland) understand fully the risks involved in commercial real estate transactions.

They do not need the protection of Parliament in their business affairs. All this does is add unnecessary costs.

Why not have a special license for commercial property?

There is no need for a licence. Because the present license is irrelevant, large professional commercial property owners have instigated their own intensive on the job, and off the job, training for their staff.

The Property Council Academy also provides specialised professional development courses. The training of commercial property staff in Australia is admired around the world.

Will this have a major impact on commercial property?

No. This will affect fewer than 1% of commercial property buildings and more than 96% of commercial building sales will be unaffected.

If it has such a limited impact, why bother doing anything?

This is a major cost for commercial property owners since they have to send staff off to gain an unnecessary qualification and provide staff cover for them while they are doing so.

It also hamstrings them in making efficient staffing arrangements. This also means taxpayers’ money is being spent unnecessarily administering and enforcing this regulation.

What effect will it have on tenants?

None. Retail tenants are protected by retail tenancy legislation (such as the Retail Leases Act) and this reform is supported by the major retailer associations. It has never previously been claimed that the estate agents legislation was a protection for tenants.

Are any other States doing this? 

Yes. The Queensland has already legislated for these exemptions in its new Property Occupations Act which is expected to begin operation in September.

The government said this was a major initiative to reduce business costs in Queensland. The Victorian government has also announced it will do the same, following a recommendation from its independent Red Tape Commissioner. 

Will this have any implications for home owners and home buyers?

None. This does not affect residential real estate.

Will this have adverse implications for small and medium sized commercial real estate agencies?

No. This will only benefit large commercial property owners. These do not use small commercial real estate agencies for their management. Those large commercial property owners who do use large third-party managers (such as JLL, Savills) will still opt to use those agencies because they bring professionalism and experience.

Why did State Governments require regulation and licensing of these large commercial property owners in the first place?

This was regulation by historical accident. The original legislation was in existence prior to the rise of the professional commercial property industry in Australia and before the founding of companies such as Westfield (now Scentre Group) and Stockland. Because an agency relationship existed between these companies and their managers (even when the manager was a ‘related entity’) they were ‘caught’ by the legislation.

If this removal of regulation so minor, why are the Real Estate Institutes opposing it?

Not all REIs are opposing. The REI Queensland supported the exemptions, although it specified a minimum threshold for defining a ‘large commercial property owner’. We agree with their minimum.

The attitude of the REINSW and REIV is puzzling since it will have such a limited impact. We have been told privately by some of their officials that they fear this will be the ‘thin end of the wedge’, leading to the removal of all licensing requirements for commercial property agents. They fear this will lead to more competition in the industry. This should not be a consideration for governments.

Is there a precedent for removing a portion of an industry from regulation?

Yes. It is common for Parliaments to decide that there are entities that are large enough, and commercially sophisticated, to look after themselves in commercial transactions.

For example large retailers (those whose floor space is more than 1,000 square metres or whose rent exceeds a certain threshold) do not get the protection of the Retail Leases Act.

Parliaments decided that retailers such as Coles and Woolworths do not need the protections of this legislation, which was to be confined to ‘small retailers’. This is the same.

Companies as large as AMP and Lend Lease do not need to be protected in business dealings with their managers.

Is this being rushed through?

No. Debate on this issue has been going on for more than 10 years. The ‘related entity’ exemption has been recommended (twice) by the NSW Independent Pricing and Regulatory Tribunal (IPART) and by the independent Review of the NSW Property Stock and Business Agents Act.

Both the ‘related entity’ and ‘large property owner’ exemptions were recommended in the Regulatory Impact Statement on the proposed national license for real estate agents. Both exemptions were recommended in Queensland by the Red Tape Reduction Review of the Property Agents and Motor Dealers Act, which led to the exemptions being legislated in Queensland (see Q.6). 

Milton Cockburn is an adviser to Shopping Centre Council of Australia.