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Agent fined and ordered to pay costs after not returning buyer’s deposit

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It is important to always be aware of the laws real estate agents must abide by, and how your conduct and actions may have expensive legal consequences. Attwood Marshall Lawyers Property Lawyer, Raphaelle Worrall, reviews a recent case where a real estate agent was convicted and fined after failing to return a buyer’s deposit.

The Facts – Prestige & Rich Pty Ltd & Anor v Chief Executive, Department of Justice and Attorney-General, Office of Fair Trading & Anor [2018] QCAT 436

In the case against Prestige & Rich (trading as Stephanie To Realty), the real estate agent found themselves in hot water after the sale of a block of land in Brisbane fell through and the agent failed to return the buyer’s deposit.

The buyer purchased the block of land and entered into a Contract of Sale with the seller which was subject to a finance clause. The buyer paid a deposit of $24,500.00 into the real estate agent’s trust account and the Contract entitled them to the return of the deposit if the Contract was terminated without default on the buyer’s behalf. Ultimately, the buyer elected to terminate the Contract pursuant to the finance clause, and the seller accepted that the Contract was terminated on this basis. As the Contract was at an end, the seller authorised the agent to release the deposit back to the buyer, and the buyer also requested the deposit be released to them.

The Issue

Although both parties had acknowledged the Contract was terminated and both parties had requested the full deposit be released to the buyer, the agent refused to do this and instead transferred the whole of the trust fund amount into their general account, deducting their commission. The agent then sent the balance of the deposit of $4,500 to the seller. The agent claimed their commission on the basis that the Contract had not been terminated on the grounds stated by the buyer and seller, but had rather been terminated by a mutual agreement, or under circumstances where the deposit was liable to be forfeited.

How the issue unfolded

The real estate agent misunderstood their obligations which caused significant consequences and court proceedings. This is how it played out:

  1. an extension of time to obtain finance had been sought by the buyer, but had not been agreed to by the seller;
  2. the buyer advised that their finance had been declined, and they terminated the Contract and sought the refund of their deposit;
  3. having sought a copy of the letter declining finance, the seller nonetheless told the agent on settlement day that, upon advice from their lawyer, a decision had been made to send an email accepting the termination of the Contract;
  4. acceptance of the termination was not actually communicated on that day;
  5. later, but still on settlement day, the buyer sent a copy of the letter declining finance, and sought a confirmation of termination and refund of the deposit;
  6. in that state of affairs the agent sent a notice under s26 of the Agents Financial Administration Act 2014 (Qld) (“the Act”), notifying that they considered a dispute about the release of the deposit had arisen or might arise; that notice nominated the seller as the party entitled to the deposit, on the basis that the buyer had failed to demonstrate that they had taken all reasonable steps to obtain finance. The agent also gave notice that they would be authorised to pay the amount in dispute at the expiry of 60 days, unless certain factors outlined in s26 had occurred;
  7. two weeks later the agent was notified that there was no longer any dispute between the seller and buyer. The seller confirmed that the Contract was terminated, and instructed the agent to release the deposit to the buyer;
  8. when the agent did not do as they had been instructed, the buyer started Supreme Court proceedings against the real estate agent for various orders. There was no adjudication on the rights in that case, as the view was taken that it should be in the Magistrates Court; and
  9. on the same day as the Supreme Court proceedings were dismissed (two days after the 60 day period specified in the notice under s26 of the Act), the agent advised both the seller and buyer that the amount had already been released to the seller.

How the agent got it wrong

Following the agent giving notice under s26 of the Act, both the buyer and seller had each sent written communications to the agent requesting or directing repayment of the full deposit to the buyer. The buyer requested the return of the deposit in the termination letter, prior to the agent’s notice and again on the same day as the notice. The seller instructed the agent to release the deposit to the buyer, in a letter accepting that the Contract was terminated under the finance clause.

Accordingly, under s27(2)(a) of the Act, the agent had a notice from all parties to the transaction stating the buyer was entitled to the disputed amount. The agent, however, did not obey the notice and paid the money to the seller.

The Outcome

In the Magistrates Court the real estate agent was convicted of an offence under s28(2)(a) of the Agents Financial Administration Act 2014 (Qld). They were fined $5,000 and ordered to pay costs totalling $2,223.75. In the District Court, the agent was ordered to pay costs in excess of $3,000.

The real estate agent appealed the decision and took its appeal all the way to the High Court of Australia, where the matter was then dismissed. After challenging the decision made following an Office of Fair Trading investigation, the High Court rejected the request determining that there was no error in the decision of the Court of Appeal and urged real estate agents to be aware of the laws and seek legal advice or call the Office of Fair Trading before taking actions in circumstances that are out of the ordinary.

An important warning to all agents

It is important that real estate agents are aware of the laws involving property transactions and potential claims and disputes that may follow from the termination of a Contract. If an agent is not familiar with, or does not obey, laws and requirements surrounding property transactions, they may find themselves involved in legal proceedings against them and be faced with substantial penalties.  

How Attwood Marshall Lawyers can help

If you are unsure which action to take when a Contract has fallen through, or if a dispute arises between the buyer and seller, we can assist you in determining the best course of action. Speak to one of our experienced property lawyers who can help you navigate the complexities of property law and manage any risks you are faced with.

Attwood Marshall Lawyers are a leading e-conveyancing law firm. For legal help with property matters, contact Property & Commercial Department Manager, Jess Kimpton, on 07 5506 8214 or email jkimpton@attwoodmarshall.com.au

With conveniently located offices at Coolangatta, Kingscliff, Robina Town Centre, Brisbane, Sydney, and Melbourne, you can make an appointment at a location closest to you. If you need advice outside of regular business hours, our Robina Town Centre office is open until 9pm on Thursday nights and from 9am to 12noon on Saturdays.  

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