New Zealand Law Society - Lawyers Complaints Service: Full advice about KiwSaver required for first home buyers

Lawyers Complaints Service: Full advice about KiwSaver required for first home buyers

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A lawyer, B, has been censured and fined by a lawyers standards committee after he failed to explain what the application of KiwiSaver Rules would mean to his clients.

B was acting for clients who were first-time house buyers. His failure to explain what the application of the KiwiSaver Rules would mean in their situation meant that the clients were unable to access the KiwiSaver funds to assist in the purchase. A lawyers standards committee decided this was unsatisfactory conduct.

One of B’s clients wished to use her KiwiSaver funds towards the purchase. Under the KiwiSaver Rules, this was possible only under certain circumstances, as explained in the KiwiSaver withdrawal application form. Most significantly in this case, the form warned that the funds must be accessed on or before settlement.

The transaction was a straightforward purchase, and initially there was nothing to prevent one of the clients accessing her funds. However the clients wished to bring the settlement date forward. As a result, the application for withdrawing the KiwiSaver funds was only completed two days before the settlement date and B was concerned that the KiwiSaver funds would not be available in time.

To meet this concern, the clients obtained the equivalent of the KiwiSaver funds from other sources. In their minds they were doing this to bridge the gap between settlement date and the availability of the KiwiSaver funds.

B later claimed that he had understood they no longer wished to access the KiwiSaver funds for the purchase but the standards committee said that claim lacked plausibility.

After applying the KiwiSaver Rules, the KiwiSaver fund manager declined the application to make the funds available because they were being applied to repay a loan not to purchase the property. This did not comply with the Kiwisaver Rules.

After the clients complained, B confirmed that he knew that the rules would prevent the KiwiSaver funds being accessed after settlement. However he had not specifically made this clear to the clients. At the standards committee hearing he submitted that this point was clearly made on the withdrawal application form, and so the clients should have known.

The standards committee disagreed. It said “the committee takes the view that the role of the lawyer is to guide the clients through the (in this case) first home purchase using his knowledge, experience and expertise”. The committee added that it was B’s role to advise them on all aspects of the transaction. He had not specifically advised them that bringing the settlement date forward and settling the transaction before the KiwiSaver funds were released may prevent the funds being accessed at all.

B noted that the clients had not frankly disclosed to him where the bridging funds were coming from, and therefore he could not have advised more clearly of the effect of their actions. The standards committee noted however that “it was [B’s] job to make the position quite clear. He did not do so.”

Because B appeared to have knowledge of the consequences of the early settlement, and because he had not clarified ambiguous statements of intention by the clients, the standards committee said his conduct fell below the standard of competency and diligence a member of the public is entitled to expect of a competent lawyer.

The committee found this was unsatisfactory conduct, and censured B. He was ordered to refund the clients $200 of the fee they had paid and was ordered to pay $500 costs. 

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