Strong position or strongarm? Stepping over the legal line in property transactions

Melbourne, 24 February 2005: A senior property litigation lawyer warns real estate agents of the potential legal pitfalls when driving a hard bargain on behalf of their clients.
Speaking at a property seminar today, Kym Fraser of national law firm Clayton Utz, says a lack of legal understanding may leave the industry at risk of costly disputes. Key areas include obligations under sections 51AC and  52 of the Trade Practices Act 1974 involving unconscionable as well as deceptive or misleading conduct.

"We see too many disputes where agents simply don't know if they are on the right or wrong side of the law and it's an issue that becomes heightened when the market gets tough.

"What many people don't realise is that one third of the cases involving unconscionable conduct actually relate to retail tenancies. Common areas where claims arise include the interpretation of lease terms, representations as to future earnings, rent reviews and discrimination between tenants.

Fraser suggests that hard bargaining can err toward unconscionable conduct under some circumstances:

"The danger zones are when you know that the other person doesn't fully understand a transaction, when you are dealing with a disadvantaged person or where a contract is one-sided and where there is no real opportunity to bargain. Unconscionable conduct may also come into play where you are terminating a relationship, when the conduct is calculated to harm or secure a collateral advantage."

Fraser says the charges of deceptive or misleading conduct are similarly misunderstood and agents can unwittingly find themselves on the wrong side of the legal line.

"The property industry does generate a large number of complaints for deceptive or misleading conduct, but this doesn't necessarily mean there was an intention to deceive in these cases. What many people don't seem to realise is that a statement may be misleading or deceptive, even if it is made honestly, innocently and without any intention to actively mislead, and this alone will not exclude liability."

Mr Fraser says that confusion often stems from situations where agents act as an intermediary, passing on information provided by the vendor or an expert, "for what it's worth".

This principle was tested in a recent High Court decision, involving Butcher v Lachlan Elder Realty Limited. In this case, the purchaser of a waterfront property took action against the vendor as well as the agent, over an incorrect survey diagram reproduced on the sale brochure. The purchasers claimed that an incorrectly placed high water mark on the survey, subsequently affected their ability to redevelop the property, thereby reducing the value of the site.

"In this instance, the agent did not commission the diagram, but obtained it from the vendor's solicitors. It was then reproduced on the sale brochure with a disclaimer. The high court had to consider whether the information that had been provided by the agent was sufficient to allow him to avoid liability on his disclaimers."

The High Court found that the agent's disclaimers were effective in preventing liability. However Mr Fraser says simply adding a disclaimer is far from foolproof.

"While the case judgment was in the agent's favour, it is still cold comfort for the property industry. The High Court decision was split 3-2, which indicates considerable uncertainty over the effectiveness of disclaimers to avoid liability, in event of a claim of deceptive or misleading conduct."

False statements about previous sale prices can also be misleading, but Fraser says another common situation agents need to be mindful of, is failing to disclose information that may not suit the purposes of the vendor or landlord.

"In certain circumstances, a failure to speak will also be taken as misleading or deceptive. Additionally, if the facts change during the course of the negotiation, the person making the statement has an obligation to change it."