Real Estate agents often look bad due to the Vendors they represent. This story is one of greed and one where the agent lost out.

In Curtis Road Kellyville, a Vendor/Developer subdivided land into 15 lots. He sold this land in mid 2013 to a number of mum and dad purchasers. The mums and dads sold their properties so that they could build on the land as soon as they settled on the purchased subdivided property.

The contact of sale had the standard sunset clause. Each party was permitted to rescind the contract if the developer was unable to register the subdivision by 30th of June 2014. The developer was required to use his best endeavours to have the properties registered prior to the sunset clause.

The Vendor/Developer did not obtain registration by the sunset date. Although the DA was approved in 2011, the section 96 amendment was lodged in January 2013 and all works had been completed by 2013, the 30th of June was not met. Ironically, after the enhanced valued in the Hills District in October, November and December 2013, the Vendor/Developer conveniently took 6 months to have the property ready for registration.

On 2nd July 2014, the Vendor/Developer rescinded all contracts except for 2. Based on early estimates, the property value has increased by $80 000 – $100 000. The windfall for the Vendor/Developer is in the vicinity of $1.5 million. The property has returned to the market through Castlehaven Real Estate within 2 weeks of the rescission.

Many of the mum and dad investors may be completely shut out of the market. Those people sold before the increased values in late 2013, and will not have the resources to purchase anywhere else in the market place. One of the consultants put it in a nutshell when he said that “the developer has acted completely immorally”

There are 3 issues here;
1. What can the purchasers do?
2. What’s going to happen to the first agent’s commission?
3. What will the second agents, Castlehaven, have to do when selling the properties?

There is no doubt that, this will create a legal mess. Once the property is registered, all purchasers will lodge a caveat on the property. The vendor has an opportunity to lapse that caveat by giving the purchasers 3 weeks’ notice that the caveat will lapse. The purchasers will then have an opportunity to appear before the Supreme Court to seek specific performance of the contract.

A case called Hall vs. Foster (2012) considered a similar situation. In that case, the vendor was unable to obtain his windfall by rescinding the contract. The court ordered the developer to pay all the increased value to the purchasers.

Purchasers are now joining together to conduct a class action against the developer to either:
• Obtain specific performance of the contract: or
• Cause damaged to be paid by the developer

The first agent is entitled to the commission if their agency agreement has been correctly drafted. The agency agreement should state that “The agent is entitled to commission upon settlement or upon the termination of the contracts of sale.” If this type of clause had been inserted into the agency agreement, the agent is still entitled to the commission.

Finally, what does Castlehaven have to do? The fact that any consequential sale may be held up based on a court action, must be considered a material fact. Material fact is set out in Hinton vs. Commissioner of Fair Trading (2005) defining material fact means something that is “significant or relevant.” The upshot of the Hinton case was that section 52 of the Property, Stock and Business Agents Act 2002 requires an agent to disclose anything with a significant relevance to the perspective purchaser. Castlehaven will therefore be required to disclose to all perspective purchasers to possible delays and the possibility of the sale not being achieved.

The Vendor/Developer’s action will and has caused problems for the purchasers, the first agent and the second agent. Presently, it appears that all those parties have acted appropriately and will continue to act appropriately. Agents need to be papered in relation to their agency agreements and their disclosure so they do not face business, legal or personal risk.

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538