Kapiti Coast Real Estate Ltd and Kapiti Homebuild Ltd were sentenced today in the Wellington District Court for breaching the Fair Trading Act by misleading a home owner about a fee included in the cost of building his home.

The Commerce Commission prosecuted the companies.

Commission Chairman Dr Alan Bollard said that the home owner involved approached Kapiti Homebuild to build a home for him on land that he already owned. During negotiations Kapiti Homebuild did not disclose that a $4,154 fee had been included in the cost of the house. The fee was payable to Kapiti Coast Real Estate.

It was only after entering into a contract with Kapiti Homebuild that the home owner learned of the extra fee. He queried it, and Kapiti Coast Real Estate stated that it had a right to claim a $4,500 franchise fee from him.

The home owner had not entered into any agreement with Kapiti Coast Real Estate nor did Kapiti Homebuild enter into any agreement with Kapiti Coast Real Estate on his behalf. Kapiti Coast Real Estate had no right to represent to the home owner that they were entitled to charge the fee.

Dr Bollard said that after receiving a complaint from the home owner, the Commission investigated and discovered that the companies had a franchise agreement under which Kapiti Homebuild would pay a "service" fee of $4,000 plus GST to Kapiti Coast Real Estate when it received the deposit to build a house.

Dr Bollard said the agreement in itself may not have breached the Fair Trading Act, but not disclosing that an extra fee was being charged and later falsely claiming a right to charge the fee did breach the Act.

"All fees should be clearly disclosed before a sale goes ahead," Dr Bollard said. "Anything else risks breaching the Fair Trading Act."

In sentencing Kapiti Homebuild Judge Beecroft said that this case involved a misleading representation in respect of the most important investment a New Zealander makes in their life - the purchase of a house. He said that in this case 5% of the price was represented by a fee that was not disclosed and that the contravention must be judged in the context that there was no transparency and no fairness.

In sentencing Kapiti Coast Real Estate, Judge Beecroft said that Kapiti Coast Real Estate had no contractual relationship with the home owner and should not have sent the invoice. He said that the real estate company should have known better.

His Honour Judge Beecroft fined Kapiti Coast Real Estate $2,000 and ordered that they pay $1,000 plus GST to the home owner involved. He fined Kapiti Homebuild $6,000 and ordered that they pay $3,000 plus GST to the home owner involved. Both companies were ordered to pay $95 court costs and $150 solicitors fees.

Media contact: Communications Officer Vincent Cholewea

Phone work (04) 498 0920, home (04) 479 1432