(21.08.2015) Pitfalls: Precontract Representations

In a recent decision of the District Court, a Buyer  of  a  unit  on  the Gold Coast was successful in avoiding the purchase as a result of representations that were made by a Real Estate Agent prior to entering into the Contract.

In 2009, Mr Goode and Ms Barber lived in New Zealand.

In July 2009, they were on holidays at Surfers Paradise. Ms Barber went for a walk and saw large billboards advertising the Hilton Hotel and residences that were to be built in Surfers Paradise. She went into a sales centre and was shown some displays.

At that time, building had not commenced and the Developer was selling lots “off the plan”. A sales person showed Ms Barber a promotional video. According to Ms Barber she was told that she would get $1,000.00 a night at eighty percent (80%) occupancy once the building was complete. These figures were written on a brochure that Ms Barber took away with her. This was a crucial issue at the trial of the matter.

After discussing the matter with her partner, they decided to proceed with the purchase.

The Real Estate Agent then accompanied the Buyers to a Solicitor who was associated with the Developer.

The sales person delivered a large bundle of papers to the Solicitors office and Mr Goode and Ms Barber then had a consultation with the Solicitor.

There was little interaction between the Solicitor and the Purchasers and ultimately, the Contract was signed.business law

The units were then constructed and subsequently, the Buyers inspected the unit  in August 2011. They became concerned that the unit was not going to achieve $1,000.00 per night. The Buyers refused to settle the Contract alleging that they had been induced by misleading and deceptive conduct.

The Plaintiff then resold the unit for substantially less and sued Mr Goode and Ms Barber for the difference.

Mr Goode and Ms Barber counter claimed seeking a Declaration that the Contracts were void and that they should be released from the transaction and receive the deposit back.

At Trial, the Agent’s version of events was that she had not made the representations alleged but rather had referred the buyers to tariffs of other properties such as the Radisson or the Versace. She said that she also referred to the Australian Bureau of Statistics in relation to occupancy rates.

Ultimately, Mr Goode and Ms Barber were successful in their action and avoided the Contract. The claim against them for damages was unsuccessful.

The Judge was critical of the Agent and the Solicitor involved in the matter. The Judge found that the Agent had been misleading and deceptive in representations given in relation to the amount that could be obtained per night for the unit and the occupancy rate. The fact that Mr Goode and Ms Barber had independent legal advice did not protect the Agent or the Developer from the action that they faced. The Judge said that “given that the Defendants were purchasing the unit as an investment, the crucial issue as to the value of the unit as an investment was the financial return, which might be expected in light of the way in which it was going to be operated. That was precisely the point which the representations that I have found were directed”.

This decision highlights the importance of ensuring that any representations that are made by Developers, Agents, or Sellers in relation to a property pre contract are accurate as otherwise the Buyer may be able to avoid the transaction.

See Orchid Avenue Pty Ltd v Goode & Barber [2014] QDC 217

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