Examining alleged misleading conduct in an off-the-plan sale

In the recent Victorian County Court decision of Song & Anor v Brady Lonsdale Pty Ltd [2023] VCC 239, the Court examined alleged misleading and deceptive conduct in relation to the sale of an “off the plan” unit.

BACKGROUND

On 24 March 2017, Evonne Hu (the buyer) entered into a contract with Brady Lonsdale Pty Ltd (the seller) to purchase a two-bedroom unit “off the plan” in a residential complex in the Melbourne CBD.

The seller was the registered owner of the subject land at 374-380 Lonsdale Street, Melbourne and developed the property into dual towers known as ‘380 Melbourne’, which included 728 residential units as well as 312 hotel rooms.

Prior to the execution of the contract, the buyer’s mother, Ying Song, attended the sales office and spoke with the seller’s sales agent. Ms Song alleges that the sales agent told her that the name of the development came from the address 380 Lonsdale Street and that the entrance to the residential units would be from Lonsdale Street.

At that time, Ms Song reviewed promotional materials for the property, including a video, a brochure and a “flipbook”. Ms Song maintains that she was interested in purchasing the property because of the Lonsdale Street address, as it is a famous street and “a lot of people who work there have high status”.

Ms Song wanted to purchase the property in her daughter’s name so that her daughter could access the first homeowner’s grant.

The settlement of the contract was due on 14 September 2020. However, Ms Song was having difficulties raising funds due to the COVID-19 pandemic restrictions, as she was not able to travel to China to sell property she owned there.

In September 2020, Ms Song made a further 10% payment for the purposes of extending the settlement date to 10 November 2020. After further communication between the parties, a settlement date of 21 April 2021 was agreed.

However, an issue arose when the buyer received an email from the State Revenue Office to complete a Duties Form, with the heading of the document identifying the property address as 371 Little Lonsdale Street.

On or around 20 April 2021, the buyer’s solicitors sent an email to the seller’s solicitors regarding the address of the property.

On 22 April 2021, the buyer’s solicitors emailed the seller’s solicitors advising that settlement of the contract failed to take place as no response was received in relation to the concerns raised regarding the registered address of the property. The buyer sought a recission of the contract and a refund of the deposit paid.

The seller subsequently demanded settlement of the contract within 7 days. In response, the buyer alleged that the seller engaged in misleading conduct.On 27 May 2021, the seller sent a “Notice of Default and Rescission” alleging that the buyer defaulted in the performance of her obligations under the contract by failing to complete the contract.

The buyer and Ms Song subsequently commenced proceedings against the seller seeking loss and damage as well as a refund of the deposit paid.

The buyer alleged that the seller engaged in misleading and deceptive conduct and maintained that she would not have entered into a contract to purchase the property but for the seller’s conduct.

ISSUES TO BE CONSIDERED

The issues for the Court to determine was whether the seller’s agent engaged in misleading or deceptive conduct in relation to the property’s address.

The Court considered that there were two sources of alleged misleading or deceptive conduct, including:

• Verbal representations made by the sales agent, and
• Promotional materials, including brochures, a “flipbook” and a video.

DECISION

Verbal representations

The Court held that the verbal representations that the site had a Lonsdale Street address were correct as at the date they were made.

The Court considered that it was Ms Song that drew the inference that the unit would have a Lonsdale Street address from the promotional materials, however found there was no distinct assertion, promise or representation by the agent himself.

Therefore, the Court rejected the contention made by the buyer that the representations relating to the Lonsdale Street address constituted misleading and deceptive conduct.

Written representations

The Court regarded the video as a promotion of Melbourne generally, which did not include any specific reference to Lonsdale Street and was therefore not misleading or deceptive.

The front page of the flipbook referred to the address “380 Lonsdale Street”, which, in 2017, was the address of the entire complex. The flipbook included artist’s impressions of both the Little Lonsdale Street and Lonsdale Street frontages. The Lonsdale Street frontage was shown as the entrance to a hotel, however, the Court considered that this could not be regarded as a representation that the entrance from Lonsdale Street was to be the entrance to the residential units. The Court found that there was nothing in the flipbook suggesting that the Lonsdale Street entrance depicted was anything other than the front door of the hotel to be situated in the north tower.

The front page of the brochure had the numbers ‘380’ in large, stylised font, with the word ‘Melbourne’ in smaller block capitals vertically on the page. The second page had the words ‘380 Lonsdale Street’ in block capitals, and the text ‘Situated in the absolute heart of the city, 380 Melbourne elevates style, amenity and convenience to luxurious new heights.’ The rest of the brochure contained marketing material, including artist’s impressions of the towers, depictions of the Melbourne CBD, and a map purporting to show 380 Melbourne as being at the heart of the CBD. The Court said that, much like the video, the brochure was concerned with highlighting the ‘trendy’ elements of the Melbourne CBD, not specific to Lonsdale Street. The Court, therefore, also concluded that the brochure was not misleading or deceptive.

The buyer further contended that the seller was under an obligation to warn prospective buyers as to the likely address of the units.

However, the Court noted that the buyer could have sought further information or assurances prior to entering into a contract to purchase the property, and ultimately concluded that, the seller had not been negligent in its dealings with the buyer or Ms Song.

COUNTERCLAIM

The seller contended that by failing to pay the balance of the purchase price and settle the contract the buyer repudiated the contract.  The seller sought the following amounts:

• $119,600 for the diminution between the contract price ($849,000) and the value of the property as at 11 June 2021 ($730,000);
• $86,040 for resale costs, which included the agent’s commission, advertising costs and conveyancing costs;
• $19,538.28 for holding costs; and
• interest

The Court found that the evidence clearly showed a repudiation of the contract by the buyer and, in those circumstances, the Court held that the seller’s counterclaim should succeed.

CONCLUSION

In order to minimise agents’ risk of exposure to claims, agents should ensure that all written and oral representations and statements made in relation to properties are completely accurate. All marketing material should be approved by the developer client with the approval recorded in writing on the sales file.

In addition, sales agents should ensure that they make file notes of all discussions and representations made to prospective buyers to document what information has been conveyed and also place them on the sales file.

Agents should also always strongly emphasise to prospective buyers that they ought to undertake their own due diligence enquiries and seek expert advice before entering into a contract to purchase an “off the plan” property.

Read another article case study about off-the-plan property sales here.

Want to learn more about property sales? Check out this blog.