Abolition of commercial licensing should stay off the agenda

Guest observation

Those agitating for the abolition of licensing requirements for large commercial property transactions continue to press their case, despite the significant risks this poses for consumers and business.

The Real Estate Institute of Victoria (REIV) welcomed news in May, following our pressure on the Victorian Government, that there would be a deferral of the decision to remove commercial agent licensing for "large transactions" – a move foreshadowed by the Government as one of 36 anti-red tape reforms it announced in January.

The proposed amendment would create a two-tiered licensing system – permitting the negotiation of leases and sales without a licence under the Estate Agents Act 1980.

What is the risk?

Such a change would expose both buyers and businesses to unacceptable risk, which licensing is designed to mitigate.  Licensing offers protection for consumers and uniformity across the industry.

Under the proposal, unlicensed operators would not be bound by the Estate Agents (Professional Conduct) Regulations 2008 and their clients would face increased risk because the operators would not be subject to probity checks or required to maintain an audited trust account.

Without a licensed agent, consumers are exposed to serious financial risk arising from their dealings with untrained and potentially unethical operators engaging in unlawful practices.  They would also not be able to access the protections available through the Victorian Property Fund.

Licensing means better agents

Licensed agents are highly trained, enabling them to deal with legal and ethical requirements, contracts, private treaty sales and conflict management.  REIV also hosts a number of commercial agent events each year to increase agents' understanding of current industry best practice in the commercial sector. Many vendors do not have experience with large transactions and using the services of a licensed agent provides a vital safety net.

Large proportion of sales

A key supporter of the change, the Shopping Centre Council of Australia (SCCA), claims that licensing is costly and unnecessary, affecting only a small proportion of sales.  In fact, in the most recent year (2013), almost 40 per cent of property transactions, by value, were above $10million.

Stronger consumer protection

Payments related to the sale of property are held in trust accounts, offering greater surety for vendors. Without an agent, they are exposed to high financial risk and the potential for unlawful behaviour.

Consumers, able to access the Victorian Property Fund's protections, are also safeguarded from unprincipled operators – who would not be subject to probity checks or required to maintain an audited trust account if licensing were to be abolished.

Exemption already in place

While the SCCA supports a change, an exemption from licensing requirements is already in place which the group can leverage.  This exemption, under the Estate Agents (Exemption) Regulations 2005, assists SCCA members – exempting them from the need to hold a real estate licence, for transactions by a member with another which it wholly or partially owns.  This is especially beneficial to large shopping centre owners dealing with related entities.

Let's not reduce professionalism in our industry

Any move to change licensing of commercial agents would have a detrimental impact on the levels of professionalism in the commercial property sector. The requirement for a licence to sell or lease residential, retail, industrial and commercial property in Victoria has increased the levels of professionalism and integrity within the state's real estate industry.

The REIV strongly believes the aim should be to increase consumer trust in the commercial sector - and to build that trust through rigorous standards and highly capable, licensed commercial agents.

Enzo Raimondo is the chief executive of the Real Estate Institute of Victoria.