Property management companies fined for Fair Trading Act breaches

Three South Island companies involved in a scheme which misled people into believing that they were buying their own homes pleaded guilty to breaching the Fair Trading Act in the Invercargill District Court on 24 August.

Invercargill Property Management Ltd was fined a total of $38,500 and ordered to pay $25,000 in reparation to occupiers of properties that the company had managed. Newfoundland Limited was fined $13,500 and ordered to pay reparation of $10,955 and Southern Housing Group Limited was fined $10,500 and ordered to pay reparation of $5,000.

Invercargill Property Management Ltd was established to promote a property investment and management scheme. Newfoundland Ltd and Southern Housing Group Ltd were companies that purchased residential properties and then found people to occupy those properties by signing them up to long term instalment agreements for them. Invercargill Property Management Ltd was employed by Newfoundland Ltd and Southern Housing Group Ltd to manage the purchased properties.

From February 2003 to January 2005 Invercargill Property Management Ltd marketed a scheme which led people to believe that they would be buying their own homes. Their advertising used statements such as ‘Own your home’ and ‘Stop renting. Buy this home. Must sell now.’ The scheme was aimed at people who were renting homes, who would not ordinarily be able to get a mortgage through a standard lender such as a bank.

In exchange for occupying a property, customers entered into a 30-year instalment agreement with the registered owners of the properties and paid weekly instalments of principal, interest, rates, taxes and insurance. The occupier also agreed to pay for any repairs that the property required. It was not made clear to the occupier that this agreement did not give them legal title over the property until all the money had been paid in full at the end of the 30-year period. The registered owners of the properties remained recorded on the titles as the owners of the properties with their own mortgages registered against them.

“One of the most important and costly purchases that consumers make is buying a home. This case reinforces that creators of property schemes must promote them accurately and disclose all relevant information to potential participants,” said Adrian Sparrow, Commerce Commission Director of Fair Trading. “Consumers should get independent legal advice before they sign up for any property agreements and they need to be sure that the agreement they are entering has been properly explained to them.”

“People entering into arrangements with Invercargill Property Management Ltd were dissuaded in some cases from seeking independent advice. Obtaining independent advice before entering into any financial transaction, especially a large one, is something that the Commission strongly encourages,” said Mr Sparrow.

“We are pleased to see that the companies have not only been fined, but have also been ordered to pay reparation to the people affected. In setting the level of reparation, Judge Phillips has explicitly recognised the emotional harm and stress suffered by the complainants in this case,” said Mr Sparrow.

The Commerce Commission is continuing to take action against another company that is part of the Invercargill scheme, CMA Property Investments Limited, and is involved in other cases dealing with similar schemes. As these matters are still before the courts, no further comment will be made at this time.

Background
The Fair Trading Act. Court penalties for breaching the Fair Trading Act can include fines of up to $200,000 for a company and $60,000 for an individual. Only the courts can decide if the Fair Trading Act has been contravened and set appropriate penalties.