Property & Commercial Lawyer Andrea McGarry discusses what real estate agents have a duty to disclose to the prospective buyer of a property.
Real estate agents have a duty to disclose a number of clearly set out matters when they are appointed as the sales agent for the sale of a property in both QLD and NSW. The Australian Consumer and Competition Commission (‘ACCC’) sets out clear guidelines on what those matters are. Failure to comply with the guidelines can not only potentially allow the buyer to terminate the sale contract, but, it can even lead to actions against the agent for professional or unsatisfactory misconduct.
What do real estate agents have a duty to disclose to prospective buyers?
1. Duty to Disclose Council Approvals (or lack of)
Councils require various approvals for projects. Some projects or works require development approval, others require building approval and some are classified as ‘accepted developments’. Types of works where the relevant approval should be disclosed to the buyer include approvals for structures (car ports, garages or sheds, retainer walls) driveways, fencing and dwellings (secondary dwelling or conversion to dual occupancy). If the relevant approvals have not been obtained, this can have serious implications for the Buyer.
2. Duty to Disclose Disputes – Trees and Fences
The Real Estate Institute Queensland (‘REIQ’) Contract requires disclosure of whether or not the property is affected by any application or order made by Queensland Civil and Administrative Tribunat (‘QCAT’) in relation to a tree. Section 83 of Neighbourhood Disputes (Diving Fences and Trees) Act 2011 states that a failure to give this advice gives the Buyer the right to terminate. If agent is aware of any potential issues it is best to disclose to prospective buyers prior to contracts being signed. Agents should use their best endeavours to ensure the Seller disclose any information likely to influence a purchaser’s decision as to whether or not to purchase.
3. Duty to disclose Body Corporate Matters on special levies, ongoing issues etc.
The REIQ Contract requires a number of statutory warranties when completing the contract for sale of a Unit in a Community Title Scheme. This can be detailed on the Contract or a Disclosure Statement annexed to the Contract. Agents should be mindful of disclosing information which may affect purchasers in the future, for example, if the body corporate has extensive works planned to the common property which is likely to result in additional levies known as special levies for the purchaser.
4. Duty to disclose history of the property, including murders and suicides
Agents need to be extremely careful when they know of some history associated with the property which might lead the purchasers to decide not to go ahead or the history affects the value of the property in a fundamental way. Perhaps the best policy in these circumstances is to disclose the issue to any prospective buyers. If you do not disclose the history, you risk the prospect of being prosecuted for this conduct and possibly being joined in court proceedings issued by the purchasers if they wish to overturn the contract.
5. Duty to disclose ‘material fact’
Agents should be aware that it is not just the violent history of a property which must be disclosed. The duty of disclosure relates to any issue which is false, misleading or deceptive. Real estate agents need to be aware that if they fail to disclose a “material fact” to a prospective purchaser which might mislead them into purchasing a property. A material fact is one which should have been disclosed to the buyers, which may have led them to not proceed. This applies equally to agents who remain silent about certain issues.
What happens if a real estate agent does not fulfil his or her duty to disclose?
Real estate agents are under clear obligations not to mislead, give a wrong conclusion, give a false impression, leave out important information or make inaccurate claims to the buyer of a property. A court could set aside the Contract and award damages in favour of the Buyer. Agents could also be subject to disciplinary action or civil claims for breaching relevant consumer protection laws. There are various State and Federal laws which could be relied upon by purchasers to substantiate claims of this nature and these will vary depending upon the circumstances and which state you are in.
Duty to disclose Court Cases
- Explored the issues that can arise when an agent is accused by a purchaser of misleading and deceptive conduct under section 18 of the ACL.
- The court decided the agent’s advertising of the property was deceptive and misleading however this conduct did not cause a ‘loss’ to the purchaser.
- Recent case explored the breach of a statutory warranty of a Seller by failing to disclosure a third bedroom did not have the relevant council approval
- Resulted in the Buyer terminating and having their deposit refunded in full
- Lesson: To avoid issues after contracts are signed and give the contract every chance of settling, agents should ask the appropriate questions of their seller’s to ensure all relevant matters are disclosed to prospective purchasers.
- Agents were fined $10,000.00 for failing to disclose a triple murder on the premises.
- The purchasers also had the contract rescinded.
How Can Attwood Marshall Lawyers help?
If you are unsure of any circumstances which you should be disclosing to prospective purchasers or are having problems with your vendors as to whether something should be disclosed, please contact our Property & Commercial Department on 1800 621 071.