Misleading and deceptive conduct: Don't downplay unfavourable terms of a sales contract

Real estate agents are inevitably required to represent a property in a way which showcases its best attributes and attracts potential buyers or tenants.

While in most cases detailed written terms and conditions are not normally advertised to buyers or tenants, it is important for agents to acknowledge that when advertising a property, they must not represent anything that is false and misleading. In circumstances where unfavourable terms in relation to the property are within the knowledge of the real estate agent, it is important that these terms are not overlooked, or "downplayed" to buyers or tenants in the course of advertising the property.

Jonval Builders Pty Ltd and Others v Commissioner for Fair Trading [2020] NSWCA 223

A recent decision of the New South Wales Supreme Court of Appeal demonstrates that while a buyer or tenant may be required to carry out their own due diligence before entering into a contract to purchase a property, they were not excluded from relying on the seller's intimation that the property was able to be used as a permanent residence.

The Commissioner of Fair Trading in New South Wales commenced proceedings against Jonval Builders Pty Ltd, Hacienda Caravan Park Pty Ltd and John Allan Willmott (the 50% owner of the builder and Hacienda) (respondents), in relation to the sale of seven moveable dwellings permanently located in the Hacienda Caravan Park, South East of Tweed Heads.

The dwellings, advertised as "Marina Villas", were moveable dwellings which had been placed on footings, connected to various services, and sold for around $200,000 each.

The buyers of the dwellings were required to enter into two contracts, a sale agreement with the builder, and an occupation agreement with Hacienda Caravan Park. The occupation agreement contained terms that an occupant was not permitted to reside in the dwelling for any continuous period greater than 28 days without the caravan park's permission, and in no circumstances for more than 180 days each year. These terms corresponded with the local council's development consent for these sites.

During the advertisement of the dwellings, the respondents and/or their employees allegedly indicated to the buyers that these terms would not be enforced after the purchase of the dwellings. The buyers gave evidence at the trial that they intended to live in the dwellings permanently and would not have purchased the dwellings if they knew the terms would be enforced.

At first instance, the New South Wales Supreme Court held that the respondents' conduct had been unconscionable, causing the buyers stress and anxiety after they learnt of their precarious position in occupying their dwellings, and made declaratory and compensatory orders against the respondents.

The respondents were ordered to pay compensation in amounts ranging from $224,380.63 to $387,883.62 per dwelling, on the condition that the dwellings would be returned to the builder. The compensation orders were made up of the original purchase price of the dwellings, 85% of the cost of renovations and improvements undertaken by the buyers throughout their ownership of the dwelling, along with interest.

The Court of Appeal upheld the first instance decision and noted that whilst the buyers had enjoyed the dwellings without being removed by the caravan park or local council, it did not overshadow the fact that the terms entered into were now causing them distress as to their ability to live in their dwellings.

The Court of Appeal acknowledged that Mr Willmott had been involved in the contravention of the relevant NSW legislation at the time[1] by entering into the contracts. In addition, the Court held that Mr Willmott had engaged in unconscionable conduct by allowing the sale of the dwellings to elderly people who clearly intended to reside permanently in them, with no doubt that the sales had been achieved by "downplaying" the terms of the occupation agreements.

The fact that the buyers had enjoyed uninterrupted possession and occupation of the dwellings for nearly 10 years did not prevent the Court of Appeal from finding that the respondents' conduct had been unconscionable, particularly in light of the distress that was now being caused to the buyers who had an insecure occupation of their dwellings. The appeal was dismissed with costs awarded to the Commissioner.

The respondents attempted to appeal the Court of Appeal's decision to the High Court of Australia in February 2021, however, the High Court dismissed the respondents' application with costs again being awarded to the Commissioner.

The Queensland Legislation

In Queensland, section 212 of the Property Occupations Act 2014 (Qld) (PO Act) stipulates that a licensee or real estate salesperson must not represent to another person anything that is false and misleading relating to the letting, exchange or sale of real property. The maximum penalty for breaching the section is $72,063 (540 penalty units).

Section 212(3) of the PO Act states that a representation is taken to be false or misleading if it would reasonably tend to lead to a belief in the existence of a state of affairs that does not in fact exist, whether or not the representation indicates that the state of affairs does exist.

If a person makes a representation relating to a matter that they do not have reasonable grounds to make, the representation is taken to be misleading according to section 212(4) of the PO Act. The onus of establishing whether the person had reasonable grounds is on the person making the representation pursuant to section 212(5) of the PO Act.

Further to the PO Act, section 18 of the Australian Consumer Law (ACL) prohibits conduct that in trade or commerce, is misleading or deceptive, or is likely to mislead or deceive. Misleading and deceptive conduct is a broad concept which includes words, actions, and pictures. It is not relevant whether there is an actual intention to mislead. The overall impression created by the conduct and its actual or likely effect on the target audience is the only relevant consideration.

Conclusion

Whilst buyers of property are clearly required to carry out their own due diligence before entering into a contract to purchase a property, offhanded remarks, or the "downplaying" of unfavourable terms by a sales agent may entice a buyer into purchasing or leasing a property based on that representation. In circumstances like those in Jonval Builders Pty Ltd and Others v Commissioner for Fair Trading, agents and sellers alike may be held responsible for any unconscionable conduct which might entice a buyer or tenant into believing that a property and its terms are more favourable than they are.

This case is a timely reminder for agents that there is a very fine line between advertising the best attributes of a property, and "downplaying" what might be unfavourable to a prospective buyer or tenant. In circumstances where it is unclear, agents should disclose any and all relevant information, and ensure that all important terms are clearly considered by the buyer or tenant without any misleading representations.

[1] Fair Trading Act 1987 (NSW).