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Property Sales - Disclosure

October 15, 2015

The principle of ‘caveat emptor’, or “let the buyer beware”, applies to buying property. Purchasers are always advised to complete their own thorough due diligence investigation before they buy.

It is important however to remember that despite caveat emptor, the people involved in selling a property (i.e. the vendor and in particular, the real estate agent) have significant obligations to disclose information to the purchaser. These requirements are in place to protect the purchaser.

A real estate agent, as a licensee under the Real Estate Agent’s Act (Professional Conduct and Client Care) Rules 2012 (the Act), cannot rely on caveat emptor when involved in the sale of a property. The obligations on a licensee under the Act require, at a minimum, that an agent discloses known defects to a customer. Clearly, where an agent has knowledge of an issue with a property, the only appropriate course of action is to advise prospective purchasers.

In some situations, the Act requires an agent to go further than simply disclosing known defects. Rule 10.7 of the Act states that where it would appear likely to a reasonably competent licensee that land may be subject to a hidden or underlying defect, the licensee must obtain confirmation from their vendor client and expert evidence that the land is not subject to the defect, or ensure the purchaser is informed so that they can commission expert advice should they choose to do so.

An example where rule 10.7 would apply, is where a house was built in a particular time period using particular materials, the combination of which are commonly associated with a risk of weather tightness issues. Regardless of whether a client vendor discusses this issue or not, an agent is expected to take appropriate action as described above to investigate (and possibly disclose) this risk as part of their obligations.

If a situation arose where a vendor directs an agent to withhold information in respect of defects, an agent must stop acting for that vendor as required by rule 10.8 of the Act. Such an obligation should provide some comfort to purchasers that an agent cannot simply stay silent on any issue, even if that is what their vendor client wants.

The provisions of the Act only apply to licensees, so obligations on the vendor in a private sale with no vendor’s agent are not as well defined. However, most sales of real estate use as a template the ADLS / REINZ Agreement for Sale and Purchase form. This form includes a comprehensive list of vendor’s warranties, for example the vendor warrants that building works at the property completed by that vendor have been properly consented.

While purchasers must complete their own investigations on a property, they can take some comfort in the obligations around disclosure on the people involved in selling property. A combination of upfront clear questions about a property and an understanding of these disclosure obligations is the best recipe for uncovering any issues and avoiding problems down the line. 

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