24 June 2021

Limitations on rewards for referrals

Consumer Protection recently became aware of some people in the real estate and settlement industries who are attempting to get around the prohibition on rewards for referrals. This bulletin aims to remind real estate agents, sales representatives and property managers of their obligations under the law. A similar bulletin has been sent to the settlement industry.

What is a reward for referral?

We consider a 'reward for referral' to be where a person, including a real estate agent, sales representative or property manager, receives a reward, benefit or incentive for the referral of business to a settlement agent.

The reward is not limited to monetary payment. It can be indirect and include:

• distribution of income via company and unit trust structures
• free title searches
• gifts such as wine, football tickets, or holidays
• free secretarial services
• free office space and equipment or
• paying more than market value to real estate agents for rental of office space.

What does the law say?

Section 44(7) of the Settlement Agents Act 1981 (SA Act) prohibits any person, including a real estate agent or sales representative, from directly or indirectly demanding, receiving or holding any rewards for referring business involving the performance of the functions of a settlement agent.

Section 44(8) of the SA Act prohibits a licensed settlement agent from paying or giving any direct or indirect reward to a person in return for referrals of business relating to the functions of a settlement agent.

In addition, an inducement to refer business to a settlement agent constitutes a conflict of interest under section 64(4) of the Real Estate and Business Agents Act 1978 (REBA Act).

What if I breach the law?

It is important that you do not demand or receive a reward for referrals of business to a settlement agent, regardless of whether the client knows or consents to the payment of the referral.

Consumer Protection may investigate an allegation of agents engaging in the practice of rewards for referrals.

Offences under the above section of the SA Act can result in criminal or disciplinary action, such as the possibility of the cancellation, disqualification or suspension of a licence. It can also attract a fine of up to $20,000.

An agent who breaches the provisions of the REBA Act in relation to a conflict of interest, may face criminal or disciplinary action for these breaches as well as penalties of $5,000 for each contravention.

Property managers or sales representatives who breach the requirements may also be subject to an investigation and either criminal or disciplinary action.

Agents or sales representatives who become aware of rewards for referrals arrangements are invited to lodge a complaint with us.