Leverage has recently done some work for a client who got in trouble because he failed to satisfy himself as to what he was selling. He is now under investigation by Fair Trading and may face potential litigation.

I will keep the facts vague to protect the innocent. The real estate Agent was approached by a builder who advised that he was developing a block of units in the centre of Sydney. The agent was appointed to sell the properties off the plan. An agency agreement was executed between the parties and a set of plans were provided. Without revealing more details, the best way to phrase it, could be that the developer came up with an innovative strategy to allow for better returns for both himself and the investor.

The real estate agent successfully sold 25 of these innovative units. The last few sales being after the building was completed. You may think that what was promised wasn’t delivered, but this is not the case. The plans, which were provided to the real estate agent, were a replica of what was built. Therefore, what the agent promised the consumer they would receive, was indeed received.

Two years have now passed since the development was completed. One of the purchaser’s solicitors made enquiries at the council to ensure that the units could be sold legally. It was identified that the innovative units did not comply with the development approval. In fact, the builder did not receive a development approval to build these innovative units. The council have now moved in and instructed that the innovative units must be rebuilt in accordance with the development determination and gave notices to the tenants indicating that an order may be issued terminating their residential tenancy agreements. These innovative units were delivered, and did deliver better returns to their purchasers, but it was totally unlawful.

The Office of Fair Trading is investigating the real estate agent regarding false statements.

Where the agent is particularly vulnerable is that he may have misled and deceived. I heard him say defensively that the builder built what was promised.

The principles of misleading and deceptive conduct are these:

  • The agent needs to be wrong;
  • The purchaser must rely on the wrong statements; and
  • It must be reasonable for the purchaser to rely on it.

Considering the Supreme Court case of Zhang, it is reasonable for a purchaser to rely on the statement of a real estate agent when purchasing property.

Hence, the agent was wrong, the purchaser did rely on them and it was reasonable for the purchaser to rely on them. Therefore, the agent does carry liability. The only useful defence for the agent, is that they made the representations on reasonable grounds.

The question will arise whether the agent did enough to satisfy themselves on what they were selling. The plans were provided and the contracts were so vague that no reasonable person would have picked that what was being sold, was any different from the plans provided to the agent and the contract.

The first question is whether the agent should have sought a copy of the development determination. Previously, I would’ve thought not. We are now of the belief that it is prudent to not only get a copy of the plans but to get a copy of the development determination. This ensures that you are lawfully getting what they are promising.

If you fail to satisfy yourself, you may be satisfying others by paying compensation.

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