IT SEEMS innocent enough. Telling a buyer there is someone else ‘interested’ in the same property they just signed a contract for, except the other party is willing to pay more or would agree to more favourable terms for the seller.
But be warned, telling mistruths to prospective buyers as well as those who have just signed a contract in order to manipulate them into changing their terms can amount to misleading and deceptive conduct which can have dire legal consequences.
One case to ring alarm bells for real estate agents involves a Victoria Supreme Court ruling in 2011 which voided an $8.6m property contract to purchase a property at Lake Wendouree because the real estate agent involved was found to be deceptive.
The Casey Group put down a 10% deposit and entered into contract to purchase the property with the Seller’s real estate agent, Andrew Lewis. The director of the Casey Group, Clint Casey, personally guaranteed performance of the Buyer’s obligations.
In marketing the property, Lewis, built up quite the rapport with General Manager of Property for the Casey Group, Scott Mitchell, calling him “tiger boy” and signing off his email: “The Gunstar over and out”.
After the contract was entered into the real estate agent left a telephone message for Mitchell with words to the effect the “offer is no longer acceptable. There is another purchaser. You will have to make an unconditional higher or better offer”, and the message was played back to Casey who agreed to an unconditional contract.
Later in court, Lewis said he was “trying to do the right thing by … keeping the offer sort of exclusive…” and Casey said he believed the real estate agent because he was told by Mitchell that Lewis ‘could be trusted’.
In the end, the Seller admitted there was no other Buyer interested nor was there “… a need to go unconditional”. There was in fact no other Buyer at that point willing to enter into such a contract and the property was not at risk of being sold to another Buyer, if the Casey Group did not make an unconditional offer that day.
The Victorian Supreme Court accepted Casey’s evidence that “unless told that there was another Buyer prepared to make an unconditional offer …he would not have agreed to the unconditional offer” and found Lewis made a false statement.
The Court held that the statement made by the Seller’s agent was misleading. The Court declared that the contract for sale entered into by the Buyer and the guarantee and indemnity given by Casey to be void. The Court ordered repayment of the deposit ($860,000) and an extension fee paid by the Casey Group ($100,000) and interest since the date of payment.
Not only did the seller lose a buyer, the Agent might be liable for damages suffered by the Seller. Nobody wins in these circumstances.
The same principals apply to real estate practice in Qld and in NSW
In 2017, the Queensland Supreme Court ordered Ray White Commercial to pay a Queensland investor the deficiency in value of a commercial property resulting from an ambiguity in its Information Memorandum (‘IM’) on similar principals.
The agency’s David Djurovitch sent an IM to investor Brian Makings in August 2009 and shortly after contacted him to advise the retail centre at Robina had been passed in at auction at $6.7m.
The buyer was attracted to the Piazza by its advertised total net rent return of $607k and statements from Djurovitch that a forthcoming rent review would escalate the figure.
The agent stated the existing rent and a 9% yield the buyer was seeking would “would give you a purchase price of $6.9m” so Makings agreed on the spot to buy the property at that price and signed a draft contract with no due diligence clause.
In reality, all tenants were struggling, the actual rental received was just $298k and the recoverable outgoings had also been overestimated to the extent of 100%.
Makings then sued the Centre Manager, who he named as first defendant in his Supreme Court lawsuit, and Ray White Commercial.
Ray White relied on a disclaimer in its IM and contended Makings was himself responsible for having failed to “employ an accountant to look at the actual financials”.
A finding of misrepresentation was made despite the fact that the IM contained a disclaimer to the effect that the agent had not verified the information, was merely passing it on, and that the Buyer should not rely on the information, but should satisfy themselves as to any conclusions.
The court found the “net rent” statements were misleading and Ray White was liable to the buyer as a consequence.
The Court held that the centre was valued as at the date of settlement of the contract in September 2009 at $4.91m yielding a loss of $1.99m. Judgment was awarded in favour of the Buyer for approximately $1.6m.
Putting Pressure on a Buyer to enter into a sale contract, even where the Buyer is an experienced property developer, must be avoided at all costs and instead a sensible and strategic negotiation through the Buyer and Seller’s legal representative should take place.
The outcome is optimal and legal for all parties, and real estate agents who encourage this type of negotiation build their integrity and professional reputation.
If you have any doubt on what you can tell a buyer, or what you have to disclose to a buyer please contact our Property & Commercial department and we will provide you with professional guidance. Phone: 1800 621 071.