When an Otago woman became frustrated with a property manager failing to pay on time and not providing invoices for work done, despite requests, she quickly discovered there was "no-one to go to".
The woman, who did not want to be identified, went to both the Disputes (previously known as Small Claims) and Tenancy tribunals but to no avail.
While she could go to the police and make a fraud complaint, she did not have evidence and did not know where to go for help.
"They [property managers] should be answerable to someone," she said.
The woman's concerns have been echoed by Dunedin firm Keogh McCormack Ltd, which has become concerned with issues surrounding residential property managers, who have been left unregulated.
"Today's reality is that anyone can set up as a property manager and have no alliance with any professional body, have no formal qualification and still handle money in trust on behalf of somebody else," chartered accountant Averil Rodgers, of Keogh McCormack, said.
Keogh McCormack has an extensive rental property client base as well as being involved in the auditing of licensed property managers in Otago.
Findings with its audits had caused "significant" concerns and the firm wanted to alert existing and potential landlords, along with property managers, of the issues, Ms Rodgers said.
Fraud cases, and the firm's experience, suggested monies were at greater risk than most landlords and tenants perceived.
"Recent times have seen landlords being left out of pocket by thousands of dollars when property management businesses have unexpectedly just shut shop and disappeared with their client's money.
"Tenants are also finding bond monies have not been lodged with the Department of Building and Housing."
The lack of accountability for property management accounts/businesses had brought about a notable relaxation in the attitude towards the administration of property management accounts, she said.
The types of issues that had resulted included:
- Rent and bond monies being collected from tenants and not making it into the office for receipting and banking.
- Monies received not being banked for two or more weeks.
- Monies used inappropriately by property managers and licensed agents.
- Landlord rent receipted, banked into the business operational account, effectively providing operational funds to the property manager.
- Breakdown and lack of internal controls resulting in bad practices.
- Discrepancies with monies received.
- Landlord funds being transferred from the trust account to earn interest for the agency, not the landlord.
- Property inspections not done, as agreed in contracts.
- Landlords being charged for inspections that had not been done.
November 17, 2009, saw the start of much of the Real Estate Act 2008.
A major change was to remove compulsory audits for property management trust accounts dealing with residential property letting and managed by a licensed agency.
Prior to that date, those accounts were required to be examined three times a year. If something went wrong, clients/landlords of the real estate agents could make a claim against a fidelity fund to reimburse their losses.
Post that date, two categories of property managers now existed - licensed property managers within a real estate agency and a growing number of unlicensed independent property managers, Ms Rodgers said.
In July, 2009, then Associate Minister of Justice Nathan Guy announced no new occupational regulation would be imposed on property managers.
Jeanette Aspin, of Propertyscouts, believed some landlords would see the comments from Keogh McCormack as "scaremongering".
She said the audit process was not foolproof and some property managers who had committed fraud did have audited accounts.
Propertyscouts was "completely transparent", paying fortnightly and offering copies of every invoice with each statement. A rental guarantee to its landlords was also offered.
Owners needed to ensure they were getting regular payments and receiving invoices for work done. Irregular payments should "raise a flag".
"If something doesn't seem right, act on it straight away."
Tania Elmer, of Mana Property Management Ltd, who is also treasurer of the New Zealand Property Investers Federation, said auditing had always been a requirement of real estate property management companies "so if auditing was the answer, you would expect the majority of problems to be with non-real estate companies. However, that is not the case".
Long-term procedural problems were being picked up in companies where audits had not picked up problems in the past which also suggested audits were not the answer.
"Having worked in the field of accounting myself, I would say a management team with good procedures would be able to prevent fraudulent activity or recognise a problem before a periodic audit would," she said.
Larger companies were more prone to problems because of the staff structure, and portfolio-based set-ups were also more prone because of one person handling the majority of the work with regards to the property or owner.
"At the end of the day, nothing beats owners checking their own statements and bank accounts and asking questions when something doesn't seem quite right."
It was "far more common" for landlords to lose out with property managers selecting the wrong tenants, she said.
Another Otago property manager, who did not want to be named, said from an owner's point of view, the element of risk was basically one month's rental income, unless that owner did not check bank statements.
As with all businesses, the due diligence lay with the owner to check the property management company was performing as it should.
Another property manager said, in their view, trust accounts had "never stopped people from stealing".
Landlords should look at what protocols property management companies had in place. The property manager was not aware of "any untoward things" going on in the industry in Dunedin.
Richard Evans, a director of Leading Property Managers of New Zealand (LPMNZ), and a former chairman of the Real Estate Institute of New Zealand's property management group, shared Keogh McCormack's concerns.
He feared the "horse has bolted" and the issue would have to get political before it was resolved. There was really no protection for the consumer, apart from going to the Disputes Tribunal, he said.
LPMNZ, which was launched last year, offered training, advice, resources, networking and a code of practice.
LPMNZ was "very fussy" about who was allowed to become members and it was "pretty good at getting rid of scallywags and turning down people with unsavoury reputations", Mr Evans said.
As the property management industry was not regulated, it was not within the scope of the Real Estate Agents Authority.
Whether it was regulated or not was a matter for the Government, acting chief executive Dean Winter said.
The authority could not deal with complaints about property management unless the person complained about was a licensed real estate agent and the behaviour complained about was serious and could be misconduct.
Real Estate Institute of New Zealand regional director Liz Nidd said all property management companies who had MREINZ in their letterhead were audited.
For now, Ms Rodgers said landlords could protect their investment and return by being more proactive.
That included researching thoroughly before selecting a property manager, confirming they used a trust account or similar, that they implemented best practices and had chosen to remain within an assurance/audit regime.
Landlords should also check monthly statements for irregularities, check if the property was tenanted when rent payments were not being received, request property inspection documentation and review and verify property servicing costs.
