Competition and Trade Practices Alert: Avoiding claims of misleading and deceptive conduct when selling off-the-plan properties - 23 Jan 2012

A recent Supreme Court of Queensland decision is a timely reminder of the serious consequences of making misleading or deceptive representations during pre-contractual negotiations.

In a tight property market where it can be a struggle to sell properties off-the-plan, it's important that if developers express opinions or make predictions or forecasts about future events, they have reasonable grounds for doing so.

Here, special counsel Brett Bolton and solicitor Peter Travers review the facts of Nifsan Developments v Buskey & Anor and outline what developers and their agents can learn from this case.

Key points

In Nifsan Developments Pty Ltd v Buskey & Anor [2011] QSC 314, the court found that the developer was guilty of misleading and deceptive conduct after its agent confirmed that the buyers of a unit would have unrestricted views from that unit, when in fact the developer had applied for approval to build another development which would restrict those views.
This case confirms that a buyer will not be denied a remedy under Australian Consumer Law (ACL) merely because they failed to check the accuracy of a representation. Buyers are entitled to a full refund of all deposits paid if a contract is declared void, and developers may also be liable to pay compensation for any loss suffered as a result of the misleading or deceptive conduct.

Nifsan Developments v Buskey & Anor

In January 2008, buyers Mr Buskey and Ms Tuominen visited developer Nifsan Developments' sales centre to enquire about property that Nifsan was advertising off-the-plan. During the initial negotiations, the buyers told Nifsan's agent that they wanted unrestricted views from their unit, with privacy from other units looking in. The agent took the buyers to one of their other units and made certain representations about the views that the buyers could expect, including confirmation that their views would be unrestricted. The buyers signed a contract for the purchase of the penthouse unit in February 2008.

In September 2008, the buyers learned that Nifsan had applied in October 2007 for approval to build the Porto Grande building, which, if built, would restrict the views from their unit. The agent who sold the buyers the unit, however, was not aware of Nifsan's application. After the buyers terminated the contract, Nifsan sued for specific performance. In court, the buyers argued that the contract should be set aside on the basis of misleading and deceptive conduct.

The court's decision

The court found that the agent's representations, for which the developer was responsible, were misleading, and in breach of the Trade Practices Act 1974 (as it then was). The court declared the contract void.

The Competition and Consumer Act 2010, which encompasses the ACL, commenced on 1 January 2011. It superseded the Trade Practices Act 1974, and carries over the provisions relating to misleading and deceptive conduct.

When determining whether representations are misleading, the court will consider whether the developer had reasonable grounds to make the representation, and whether there was reliance by the buyer.

The question is not whether the reliance was reasonable, but whether there was reliance in fact. In this case, although the court felt that the buyers were probably naïve and could have taken steps to protect their interests, they did in fact trust and rely on the representations of the developer's agent. The court's decision confirms that conduct of an agent, if they act within their actual or apparent authority, will bind the developer.

For more information about misleading and deceptive conduct, please contact HopgoodGanim's Competition and Trade Practices specialists.