Many friends working hard in Australia are finally ready to own their own home. However, during the buying process there may be misrepresentations or false statements that mislead the buyer into signing a contract. This article is for friends who are planning to buy property in Australia or are about to do so. These are the “pitfalls” you need to avoid! Keep your eyes open so you don’t suffer a major loss!

Case 1:

Mr N, a buyer, found an apartment he liked in NSW and readily signed a contract with the agent. Unexpectedly, Mr N later discovered that a homicide had occurred in this apartment a few years earlier, making it a “stigmatised property”. However, during the inspection and in the contract itself, the agent stated that there were no issues with the property’s details and did not disclose to the buyer that a homicide had taken place.

Mr N then wanted to terminate the contract, but the agent refused and would not return the deposit. The agent argued that there is no legal requirement to disclose a property’s history of homicide when selling. With no other option, Mr N lodged a complaint with the relevant authority, which determined that the agent had failed to disclose a material fact about the property to the buyer, misleading the buyer into signing the contract, and that the agent’s conduct constituted misleading and deceptive conduct. After a lengthy process, the buyer recovered his deposit and the agent was fined.

Case 2:

In 2009, the notorious Lin family murders shocked Australia, with five members of the family killed. The house where the murders occurred was put up for auction in 2012. Prior to the auction, the real estate agent set out in the contract the history of the property and the death certificates of the five victims, and informed all prospective buyers. The house was ultimately sold at below market value.

What is misleading and deceptive conduct?

Misleading and deceptive conduct refers to a person engaging in trade or commerce in conduct that is misleading or deceptive, or likely to mislead or deceive.

Under section 18 of the Australian Consumer Law, those engaged in trade or commerce must not engage in misleading or deceptive conduct. This includes:

• commercial advertising that is published;
• any promotional activity that is conducted; and
• anything said or promised to consumers in the course of trade or commerce.

Examples:

• advertising products at an incorrect price;
• inaccurate comparative advertising (i.e., promotional statements comparing your own goods or services with those of a competitor);
• false representations made by a sales representative before a contract is signed; or
• using small, inconspicuous disclaimers that consumers are unlikely to see.

[NS Legal Tip]

If you sell goods or services in Australia, you must comply with the Australian Consumer Law. Under this Act, when a party sells goods online or otherwise in Australia, they make representations about the quality of those goods or services, including their features, contents, appearance, origin, and so on. If false representations are made about goods or services that induce a buyer to purchase them, the seller may be liable for those misrepresentations. This amounts to misleading and deceptive conduct.

What should you do if you encounter misleading and deceptive conduct?

As in Case 1 above, where the buyer was induced into a contract because the agent failed to disclose a “material fact”, the buyer may rescind the contract or claim damages in such a situation.

Do I need to prove that the real estate agent intentionally misled or deceived me?

The agent’s intention is irrelevant to determining whether they have engaged in misleading and deceptive conduct. The question is whether the conduct was objectively misleading; not whether the agent intended to mislead the buyer.

If an agent says a property’s value will go up in the future, is that misleading or deceptive conduct?

Information that a real estate agent provides to a buyer about the future sale price of a property must be based on a reasonable assessment of the market and the area, and there must be reasonable grounds for providing that information. When an agent provides such information or makes such statements, the impression given is that they have reasonable grounds for making that prediction. If there are no reasonable grounds, this constitutes misleading and deceptive conduct.

Other legal matters to watch for when signing a property contract in Australia:

1. Pay attention to the finance clause in the contract (Subject to Finance)

If the buyer’s loan application is rejected and they wish to terminate the contract, the buyer may rely on this clause to terminate the contract and recover their deposit.

2. Pay attention to the building and pest inspection clause (Subject to Building and Pest Inspection)

If the building inspection report indicates that the property has relatively serious structural or other problems, the buyer may rely on this clause to terminate the contract and recover the deposit.

3. Foreign Investment Review Board (FIRB) clause (Subject to FIRB Approval)

Foreign persons purchasing property must obtain FIRB approval. If the buyer’s FIRB application is refused, they may rely on this clause to terminate the contract.

4. Cooling-off period

This refers to the period after the purchase contract takes effect during which the buyer has an opportunity to consider whether to terminate the contract — in other words, an opportunity to change their mind. In Australia, the standard cooling-off period for residential purchase contracts is 5 business days. If the buyer pulls out during the cooling-off period, they may forfeit 0.25% of the purchase price as the deposit.

[NS Legal Tip]

In the interests of both parties, a real estate agent must inform the buyer in advance of any material issues with a property being sold; otherwise the costs of complaints and fines far outweigh any gain. Buyers, too, are advised to carefully research the property and read the purchase contract thoroughly before signing.

Overall, when buying property in Australia — from choosing an area, arranging finance, identifying your ideal home, carefully reviewing and signing the contract, through to final settlement — you need to keep your eyes open at every step and not overlook any detail, so that you can successfully secure your ideal home. Before signing the contract, we also recommend engaging a professional lawyer to review and explain the contract terms for you, to ensure everything is watertight!