DIA issues guidance to real estate industry
The Department of Internal Affairs has issued guidance to the real estate industry following the enactment of Regulations specific to this industry. We recommend that anyone engaged in real estate assess whether they fall under the AML/CFT regime, and if they do, ensure that they take the necessary steps to comply.
The following provides more detail on why real estate agents are included in the Act, and what you need to do to comply.
Conducting an activity in the “ordinary course of business”
Activities must be conducted in the ordinary course of business to be covered by the Act. Real estate agents carrying out covered activities (in the ordinary course of their business) must comply with the Act.
What covered activities do real estate agents carry out?
Real estate agents are most likely to carry out two covered activities: real estate agency work and managing client funds.
Real estate agency work to effect a transaction
A real estate agent who, in the ordinary course of business, provides real estate agency work (within the meaning of section 4(1) of the Real Estate Agents Act 2008) to effect a transaction (within the meaning of section 4(1) of the Real Estates Agents Act) is a DNFBP and covered under the Act.
As defined in the Real Estate Agent Act 2008, “real estate agency work”:
a. means any work done or services provided, in trade, on behalf of another person for the purpose of bringing about a transaction; and
b. includes any work done by a branch manager or salesperson under the direction of, or on behalf of an agent to enable the agent to do the work or provide the services described in paragraph (a); but
c. does not include—
i. the provision of general advice or materials to assist owners to locate and negotiate with potential buyers; or
ii. the publication of newspapers, journals, magazines, or websites that include advertisements for the sale or other disposal of any land or business; or
iii. the broadcasting of television or radio programmes that include advertisements for the sale or other disposal of any land or business; or
iv. the lending of money on mortgage or otherwise; or
v. the provision of investment advice; or
vi. the provision of conveyancing services within the meaning of the Lawyers and Conveyances Act 2006.
A “transaction” (in relation to real estate agency work) means any one or more of the following:
a. the sale, purchase, or other disposal or acquisition of a freehold estate or interest in land:
b. the grant, sale, purchase, or other disposal or acquisition of a leasehold estate or interest in land (other than a tenancy to which the Residential Tenancies Act 1986 applies):
c. the grant, sale, purchase, or other disposal or acquisition of a licence that is registrable under the Land Transfer Act 1952:
d. the grant, sale, purchase, or other disposal or acquisition of an occupation right agreement within the meaning of the Retirement Villages Act 2003:
e. the sale, purchase, or other disposal or acquisition of any business (either with or without any interest in land).
Managing client funds, accounts, securities, or other assets
Managing client funds, including managing payments to or from your clients’ accounts, is a covered activity, including any instances where you receive or hold client funds and control the payment of those funds.
If you hold any funds in a trust account for a client/ customer in order to make a payment to a vendor/ purchaser or a solicitor on their behalf, this is a covered activity. Receiving payment of fees for your professional work is not covered.
Property managers and property management services
Property managers and property management activities are not currently covered by the AML/CFT Act even though it involves “managing client funds”. This exclusion applies to property management services carried out by real estate agents, as well as property management professionals who are not licensed real estate agents. For more details see Regulation 6 AML/ CFT (Definitions) Amendment Regulations 2018.
Commercial leasing
Commercial leasing and other commercial real estate agency work are recognised as an area of AML/CFT risk. Persons engaged in “the grant, sale, purchase, or other disposal or acquisition of a leasehold estate or interest in land” are subject to the full range of AML/CFT obligations as a reporting entity under the AML/CFT Act.
Residential leasing and other property management activity is not “real estate agency work” and therefore are not subject to AML/CFT requirements. However, any activities that do fall within the scope of “real estate agency work” are subject to requirements under the AML/CFT Act.
Engaging in or giving instructions on behalf of a client to another person
A real estate agent that does any of the activities listed in the following box is covered by the AML/CFT Act as a reporting entity. The activities specified in the box apply to situations where you either engage in the activities yourself, or give instructions on behalf of a client to another person for those activities. This means that if you are instructing a third party to undertake activities on behalf of your client, you are covered by the AML/CFT Act. The third party you instruct will also be covered by the Act if they fall within the definition of either “designated non-financial business or profession” or “financial institution”.
Engaging in or giving instructions on behalf of a client to another person for—
a. any conveyancing (within the meaning of section 6 of the Lawyers and Conveyancers Act 200616) to effect a transaction (within the meaning of section 4(1) of the Real Estate Agents Act 200817), namely,—
· the sale, the purchase, or any other disposal or acquisition of a freehold estate or interest in land:
· the grant, sale, or purchase or any other disposal or acquisition of a leasehold estate or interest in land (other than a tenancy to which the Residential Tenancies Act 1986 applies18):
· the grant, sale, or purchase or any other disposal or acquisition of a licence that is registrable under the Land Transfer Act 1952: 19
· the grant, sale, or purchase or any other disposal or acquisition of an occupation right agreement within the meaning of section 5 of the Retirement Villages Act 2003:20
b. a transaction (within the meaning of section 4(1) of the Real Estate Agents Act 2008); or
c. the transfer of a beneficial interest in land or other real property; or
d. a transaction on behalf of any person in relation to the buying, transferring, or selling of a business or legal person (for example, a company) and any other legal arrangement; or
e. a transaction on behalf of a customer in relation to creating, operating, and managing a legal person (for example, a company) and any other legal arrangement.
You should read both (d) and (e) to mean undertaking any one of the activities mentioned, not a combination of all activities at once. “Transaction” for (D) and (E)
is defined in section 5 of the AML/CFT Act and means any deposit, withdrawal, exchange or transfer of funds whether (i) in cash; (ii) by cheque, payment order
or other instrument; or (iii) by electronic or other non-physical means. There are some inclusions and exclusions specified in the definition.
Auctions and auctioneers
The auction of real estate falls within the definition of ‘real estate agency work’. Accordingly, real estate agents who undertake auctions will be covered by the AML/CFT Act in relation to the provision of those auctions.
Registered auctioneers (who may also auction real estate) are currently excluded from the AML/CFT Act. However, this exclusion is amended effective 1 January 2019 so that registered auctioneers will be reporting entities under the AML/CFT Act. This will ensure consistency between registered auctioneers (who auction real estate) and real estate agents.
Other covered activities
The other covered activities are less likely to be relevant to real estate agents, so are not explained in detail here. If you do conduct any of the following activities in the ordinary course of business, then please refer to the other guidelines available for gatekeeper professions for more information.
· Acting as a formation agent for legal persons or legal arrangements
· Acting as, or arranging someone to act as, a nominee director, nominee shareholder or trustee
· Providing an office or address for a company or legal arrangement
This guidance is issued by the Department of Internal Affairs (DIA). Please refer to DIA's website for further information