The Misrepresentation guidelines will help agents and certificate holders better understand their legal obligations around misrepresenting properties for sale. The guidelines are not exhaustive nor intended to constitute legal advice. They are provided to clarify the types of statements or actions which could be interpreted as a misrepresentation or concealment of material facts, and to outline some circumstances.
The legislation discussed in these guidelines contains provisions relating to misleading, false, deceptive, or unconscionable conduct in relation to the property services industry.
Section 18 of the Australian Consumer Law deals with the issue of misleading or deceptive conduct and section 30 of the Australian Consumer Law deals with false or misleading representations about the sale of land. Section 52 of the Property, Stock and Business Agents Act 2002 covers misrepresentation by a licensee or registered person.
The Property, Stock and Business Agents Regulation 2014 contains rules of conduct (both general and specific) for agent and certificate holders. Rule 3 of Schedule 1 of the Regulation provides that an agent or certificate holder must act honestly, fairly and professionally with all parties involved in a property transaction. Failure to comply with the rules of conduct also attracts penalties, which from 1 March 2007, increased significantly.
Agents and certificate holders should also take care to familiarise themselves with the requirements of the Australian Consumer Law in terms of misrepresentation, misleading, deceptive or unconscionable conduct.
Publication of false, misleading or deceptive material
Agents should ensure that all information in a publication is accurate and does not create a false impression. To clarify the issue of publishing misleading and deceptive material for those working in the property services industry, guidelines to assist agents when publishing photographic advertisements have been developed. For more information, go to the Advertising guidelines page.
Section 30 of the Australian Consumer Law provides that when a person makes a representation about any future matter without having reasonable grounds to do so, the representation shall be taken to be misleading. In a property services context, predictions about trends in property values or potential returns on development / investments which are untrue or cannot be substantiated constitute misleading conduct.
Sections 72-74 of the Property, Stock and Business Agents Act specifically cover representations as to selling price of residential property. Further information about this can be found under the heading Understating Selling Price Estimates on this web page. An agent may be able to substantiate information about property markets which have a regular, cyclical pattern. However, some markets are particularly volatile and even experts cannot make predictions with any certainty. If clients require an estimate of future trends in these types of markets they should be made aware of the unpredictability of that market before comparing past and future trends.
Concealment and silence
Misrepresentation can be about what is not said as well as what is said. There is no stand alone duty of disclosure, but silence can be misleading in certain contexts, and this should be avoided. There is a need to consider the background of other facts against which the silence occurs. Agents need to consider whether silence in that context can lead reasonable people to believe that a particular state of affairs exists where it does not.
Remaining silent or only telling half the story where there is a reasonable expectation of disclosure means you are breaking the law.
Agent and certificate holders must be open and honest with clients and customers. If information is known to the agent they must not conceal or suppress information about a property if there is a reasonable expectation that the information will be of concern to a buyer or seller and is not readily apparent.
Also, where information provided in an original statement subsequently changes and that change renders the original statement incorrect, the change must be conveyed to the relevant parties.
If a potential buyer asks a question about a property and the agent knows the answer, there is a responsibility to answer the question frankly and fully. If the agent does not know the answer s/he should undertake to obtain the information from the vendor or refer the person back to his or her conveyancer or relevant expert, depending on the nature of the query.
Intention to mislead is not relevant
The intention of an agent or certificate holder in relation to misrepresentation is not relevant under the Property, Stock and Business Agents Act 2002. What is relevant is the impression a client or customer might gain and whether this would be likely to mislead them.
Section 52 (1) of the Act states that it is an offence against the Act if in the course of performing functions as a licensee or registered person, another person is induced to enter into any contract or arrangement through:
- a statement, representation or promise which is false, misleading or deceptive (whether to the knowledge of the person or not) or by
- concealing a material fact (whether intended or not).
A defence exists, however, when the agent / certificate holder ‘…did not know, and had no reasonable cause to suspect’, [that his/her] statement, representation, or promise was false, misleading or deceptive [section 52(3)].
What is a material fact?
Legislative provisions relating to misrepresentation by concealment are based on false and misleading representations involving “a material fact”.
A material fact is a fact that would be important to a reasonable person in deciding whether or not to proceed with a particular transaction.
A recent Administrative Decisions Tribunal appeal decision pointed out that a fact can be 'material' in two ways:
“it can become ‘material’ because in the particular circumstances it is known by the agent to be material to the particular consumer, even though agents and consumers may not typically regard the matter as ‘material’. The other way in which it may become ‘material’ is by the application of an objective standard which has regard to what a reasonably informed consumer with a fair minded understanding of the real estate market, including the role of a real estate agent, would regard as ‘material’” .
Material facts are inherently related to issues of market value. They are facts which:
- may be sufficiently significant or relevant to influence decisions on whether to buy, sell or rent; and/or
- what market value would apply to buying, selling or renting.
Apart from individual circumstances where an agent understands that a particular issue is ‘material” to an individual, for the purposes of generally understanding the requirements of the law, agents should concern themselves with considering issues which are sensitive for a significant proportion of the population.
‘While an agent will not always know the intangible factors that bear on a decision to purchase, that is not what is required by the section . Absent a specific question from the purchaser or the independent determination by the agent…the question is an objective one to be viewed in all the circumstances. This will necessarily involve a question of reasonableness, providing protection for agents from a purchaser seeking to rely on the provision for whimsical or unreasonable claims of materiality.’
The Administrative Decisions Tribunal Appeal Panel pointed out the role of agents, as professionals in the real estate market, having market knowledge to assess whether particular aspects of a property are going to have an effect on its market value, and therefore whether it is ‘material’ to the market. Accordingly, the Tribunal further ruled that indications which would be relevant to determining whether something is a material fact could include:
- the agent’s treatment of the fact
- whether the fact is able to be independently ascertained
- whether the fact is likely to impact on price
- the reaction of other purchasers to the fact
- whether the fact results in the property being in a rare or unusual category or position.
Purchasers still need to take reasonable steps to inform themselves about a property. However, as the Tribunal appeals decision points out, ‘requiring a purchaser to raise all relevant issues in order to have them answered would be to subvert the intention of the section.’ The emphasis of section 52, as highlighted in the same Administrative Decisions Tribunal appeal decision, is on the agent informing the purchaser ‘of matters which could not be revealed through undertaking usual enquiries.’ Usual inquiries may include a physical inspection of the property, professional building and pest inspections, searches conducted by the purchaser’s solicitor or conveyancer.
Some ‘material facts’ about a property which may not be readily apparent could include:
- whether a property is Roads and Maritime Services affected
- whether the property contains asbestos, including loose-fill asbestos insulation. You can view a Loose-fill asbestos insulation guide, or visit the Loose-Fill Asbestos Insulation section on the NSW Fair Trading website for more information.
- whether the property has a current DA approval – this might be a positive selling point for some
- if an agent had shown a property in the past that had water damage at the time, even if it was not there later, the agent should disclose it to other potential buyers
- aspects of the recent history of use or activity in a dwelling
- crown land affecting vehicular access to a property
- aspects of the neighbourhood surrounding the property which may not be immediately apparent upon inspection
- potential psychological stigma attached to a property which is likely to be shared by a significant proportion of the population. For example, property which has been the scene of a serious crime during the current or previous occupation. While such circumstances may not represent a physical barrier to the use of the property, they may significantly affect the extent to which occupants would be comfortable using the property.
In terms of a property which is to be put on the market, attention should be given to material facts which relate to the period during which the seller was the owner. Agents must conduct a physical inspection of the premises which are to be marketed for sale and obtain all relevant information necessary to complete the sales inspection report, as required by Rules 1 and 2 of the Rules of Conduct set out in Schedule 2 of the Property, Stock and Business Agents Regulation 2014.
Agents should discuss with sellers any market sensitive matters that are likely to be the subject of statements or representations by the agent in the course of marketing the property. During this process, it is important for the agent to gather information on aspects of the property which are sensitive to the market which will assist him/her in accurately and honestly representing the property.
Having gathered the relevant information necessary to market and promote a property, the agent must then ensure that this information is provided to potential purchasers.
At what point should a material fact be disclosed?
Agents need to use their judgement when discussing material facts. Timing may depend on the nature of the material fact. Facts of a non-sensitive nature such as the area of the land on which the property stands, would be provided as part of the standard marketing campaign. Disclosure of more sensitive information may be more appropriately revealed when there are indications that a person is seriously considering purchasing the property.
Difference between personal information and material facts
When marketing or managing a property transaction it is important to remember that there is a difference between personal information and material facts. Material facts relate to the property and personal information relates to the individual parties involved in a property transaction.
Selling price, price range and method of sale
It is an offence for an agent or agent’s employee to make a false representation to a seller or prospective seller of residential property as to the agent’s or employee’s true estimate of a property’s selling price.
The same requirements apply to advice about method of sale – relevant factors such as the current state of the property market and demand for the type of property to be marketed will need to be researched and discussed openly with the seller / potential seller.
Understating selling price estimates
Sections 73 and 73A of the Property, Stock and Business Agents Act states that during the marketing of a property for sale an agent must not falsely understate his/her true estimate of the selling price of that property. This understatement could be in the form of written or verbal advice to a prospective purchaser or in an advertisement which the agent published or caused to be published.
Loose-fill asbestos insulation register
The addresses of specific properties containing loose-fill asbestos insulation should be on the loose-fill asbestos insulation register.
From 30 May 2016, it is a material fact if a property is listed on the public register. This means that, if a premises is listed on the LFAI register, this information must be disclosed by the property manager or private landlord to new tenants.