Stigmatised properties: what is a stigmatised property and what do agents need to consider?

Stigmatised properties are properties which have been affected by an event that may cause emotional or psychological discomfort to a buyer or detract from the appeal of the property, such as the scene of a violent crime, murder or suicide, alleged paranormal activity, excessive noise or undesirable neighbours.

Stigmatised properties may not exhibit physical defects which are required to be disclosed to a potential buyer. Rather, the “defect” can often be extraordinarily subjective and sometimes extremely difficult to ascertain through ordinary due diligence.

In this article, we outline what may be classed as a stigmatised property and what agents should consider from a legal and ethical point of view when selling these properties. 

Stigmatised properties

A property may be considered to be stigmatised if it carries a negative “stigma”, such that there is some defect that may be considered undesirable by a potential buyer.  For example, a property may be stigmatised if it has been the scene of a violent crime, murder or suicide, has been reported to be “haunted”, or is affected by excessive noise or undesirable neighbours. 

A psychological stigma can fade overtime, depending on the severity of the event which affected the property. The length of time a property might be affected by a stigma will be determined by how long the stigma will continue to affect the decision of a potential buyer to purchase a property (or what price to pay).

Misleading and deceptive conduct

Agents will be aware that they are prohibited from engaging in misleading or deceptive conduct, or conduct that is likely to mislead or deceive a potential buyer, when selling a property. [1] It is generally irrelevant whether an agent acted honestly when making a representation that had a tendency to lead someone into error. [2] 

An agent may engage in misleading or deceptive conduct by “silence” if they fail to disclose to a potential buyer any “material fact” that may influence their decision to purchase a property.

The rules around stigmatised properties are not clear because what may constitute a “material fact” to one person may not influence the decision of another. The effect of the knowledge of an undesirable circumstance on the buyer is subjective and can differ from one person to the next. Is the buyer looking to make the property their family home? What are their religious beliefs? Is the buyer a property developer seeking undertake a subdivision and development project?

A buyer must also demonstrate that they would have acted differently if they were aware of the circumstance affecting the property. For example, a buyer might demonstrate that they would not have purchased a property if they were aware that the property was the scene of a recent homicide, or they would have purchased the property for a lower price had they known that the neighbours were disorderly.

If an agent is not aware of the existence of a stigma affecting the property, and there are no circumstances such as to put the agent on notice that a stigma might exist, liability for a buyer’s loss arising out of a failure to disclose the existence of a stigma affecting the property may rest with the seller (particularly if they were aware of the circumstance giving rise to the stigma and failed to disclose this information to the agent).

Examples

In 2004, the Commissioner for Fair Trading in New South Wales fined two agents who failed to disclose that a property was the scene of a triple murder. [3] In that matter, the buyers (a Buddhist couple) had attempted to withdraw from a contract of sale upon discovering the property’s past on religious grounds. In the circumstances, the buyers were led into error, and the violent murders that had occurred at the property were a “material fact” that influenced the buyers’ decision to buy the property. If the buyers had been aware of the murders, they would not have entered into the contract of sale.

In contrast, in 2010, a buyer of a large area of vacant land in Ballarat, Victoria commenced a proceeding against a seller for misleading and deceptive conduct arising out of a failure to disclose that a suicide had occurred on the land two years prior and there was a memorial near the scene of death. [4] The buyer purchased the land for the commercial purpose of subdivision and development of the land. The seller advised that he did not intend to hide the fact that a suicide had occurred, but, rather, did not think that it mattered to the buyer. 

Two months after the contract was due to settle, the buyer became aware of the suicide. Despite its knowledge, the buyer entered into a deed with the seller for an extension of the completion date of the contract. The buyer failed to complete the contract and the seller terminated the contract for breach before the proceeding was commenced. 

The claim was summarily dismissed on the grounds that the suicide was not a “material fact” that influenced the buyer’s decision to buy the property. The Court said that the buyer could not assert that it was misled or deceived into entering into the contract of sale when it chose to proceed once it was aware of the very same facts. [5] In a misrepresentation by silence case, it must be the case that, had there been disclosure of material fact, the plaintiff would have acted differently. [6]

Conclusion

When it comes to what an agent should consider when selling a stigmatised property, they should adopt a conservative approach and disclose all matters within their knowledge which they consider may affect the decision of a potential buyer to purchase the property.

Of course, agents have a duty to act in accordance with the instructions of their client, and should first obtain written permission from their clients before disclosing the circumstance to potential buyers. It is best practice for agents to keep written records of all dealings with their clients and potential buyers.

Agents should also encourage potential buyers to conduct their own investigations before entering into a contract of sale, place a disclaimer on all marketing material and make it clear that all information disclosed has been derived from the sellers of the property. 

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