One of the more bizarre matters has come Leverage’s way in the past week. A piece of land that has no access!
The property was situated on a main road with an area of 1,200 m2. It was advertising as appropriate for townhouses and villas. It was suggested that four dwellings could be built on this property.
The area did comply with the foot print needed to build townhouses. From the naked eye, it did look a perfect site to develop some well-positioned villas.
The property went to market and sold for $830,000. If you’re building villas, it was the right price for the property. If you’re merely buying it to develop one house, it was well overpriced.
Our client trotted off to the council to have a pre-development approval meeting regarding him building four townhouses. He was then told that there was no access off the main road. Therefore, he could not build any townhouses. In fact, the council had made no provision for access to this piece of land from any street. Our client had purchased a landlocked development.
We didn’t undertake the conveyance, the client has come to us to try and resolve the issue between him and the vendor. That is something at this moment we will not cover in this newsletter. Maybe down the track! What I am concerned about is the agent’s liability.
The agent has advertised our landlocked development as a property fit for four townhouses. In the case of Yorke v Lucas (1985), the courts indicated that even if the agent is telling the truth as they know it, if they are wrong they have mislead and deceived. This has been confirmed in much case law since 1985. In particular, in the case of Zhang v VP302 and Sydney Advanced Realty (2009), the courts specified that real estate agents information should and can be relied on when considering whether the client has been misled or deceived.
Therefore, a representation by agents regarding the use of the property leaves them liable. The misleading and deceptive conduct has two remedies:
- The contract can be rendered void; and
- Compensation can be paid to the purchasers for losses sustained.
In other words, the agent can be personally liable. If the contract falls over, you may be sued by both the vendor and the purchaser for this misrepresentation. In this case, the purchaser has paid too much for the property. If he is not released from the contract by the vendor, the purchaser may lose the deposit and be able to make a claim against the Real Estate agent. Hence, a simple sale becomes a costly exercise. In Zhang’s case, a million dollar sale ended up costing the agency approximately $300,000.
The lesson? Be certain of your statements before you make them. Merely relying on what the vendor tells you is not sufficient. The agent is the expert, not the vendor. It is your licence and your business and you should make all attempts to ensure that what you are saying is true.
Instead of being landlocked, the agents might find themselves locked out.
To avoid uncertainty, we recommend doing a developer’s course with Leverage.