Off-the-plan unit sales: Don't be accused of misleading conduct

In the recent New South Wales Supreme Court decision of Lonergan v JQZ Eleven Pty Ltd [2022] NSWSC 1461, the Court examined alleged misleading and deceptive conduct in relation to the sale of an “off the plan” unit.

BACKGROUND

On 11 November 2016, David and Victoria Lonergan (the buyers) entered into a contract with JQZ Eleven Pty Ltd (the seller) to purchase a three-bedroom unit ‘off the plan’ on level 18 of the unit complex for $1,518,000. In accordance with the contract, the buyers paid a deposit of $151,800.Shortly prior to entering into the contract to purchase the unit, the buyers inspected a completed display suite with the seller’s sales agent.

Almost three years later, the buyers inspected the completed unit. Immediately after inspecting the unit, the buyers complained to the seller that there were no black privacy shutters installed on the balcony and there were structural columns in the living room and on the balcony that were not in place when they inspected the display suite or viewed the floor plan of the unit.

The buyers allege that when they inspected the display suite, the seller’s agent represented to them that the subject unit would have black shutters installed on the balcony. As a design feature, the three-bedroom units on every third floor of the unit complex were to have black privacy shutters installed on their balconies.

This feature was particularly attractive to the buyers because Ms Lonergran suffers from a skin condition that is exacerbated by direct sunlight. However, as the development was to be marketed to Chinese purchasers, the seller decided that level 14 would not be constructed as the numeral 4 is considered unlucky in Chinese custom.

The sales agent advised the buyers that level 18 would have black privacy shutters installed. However, the sales agent mistakenly failed to consider that there was not going to be a level 14, which resulted in the shutters be installed on level 19 instead of level 18.In addition, the buyers claimed that there was no structural column in the display living room, nor was any column depicted in the floor plan the sales agent provided to them.

Also, the floor plan did not depict any columns on the balcony. The buyers also complained that the air conditioning unit blows air into the middle of the balcony rendering it an unusable space. However, the sellers argued that the unit had been completed in accordance with the contract.

The buyers subsequently requested an extension of the settlement date and a reduction in purchase price of 2%, an amount of $30,360. However, the seller sought to rely upon the terms of the contract that excluded the buyers’ right to make any claims based on marketing materials or agent representations. The seller subsequently issued the buyers with a Notice to Complete requiring them to complete the contract on or before 30 December 2019.

In turn, the buyers sought to rescind the contract based on the above misrepresentations and requested the return of their deposit. In response, the seller sent a further Notice to Complete to the buyers requiring them to complete the contract on or before 21 January 2020.The buyers disputed the validity of the Notice to Complete and the seller subsequently served a Notice of Termination.

The buyers then served the seller with a Notice of Termination asserting that the seller’s Notices to Complete were invalid and argued that the effect of the seller’s Notice of Termination was that the seller “unequivocally represented that it would not complete the Contract and thus repudiated its obligations under the Contract.”

The buyers again requested that the seller refund their deposit in the amount of $151,800.Whilst the buyers and the seller agreed that the contract had been terminated, a dispute arose as to which termination was effective. The buyers sought a declaration that they validly terminated the contract, an order that the seller return their deposit with interest, an award of damages for breach of contract and an order restraining the seller from enforcing the contract.

The seller sought a declaration that it had validly terminated the contract, a declaration that the deposit and interest on the deposit have been forfeited to it and either judgement in respect of any deficiency on resale or an award of damages for breach of contract by the buyers.

ISSUES TO BE CONSIDERED

The issues for the Court to determine was whether the seller engaged in misleading or deceptive conduct in relation to:

• The privacy shutters representation;
• The columns representation; and
• The air-conditioning representation.

The privacy shutters representation

The Court found that there was no error in the sales agent’s representation that black shutters were to be installed on every third level of the unit complex starting from level 6, rather, the error flowed from the fact that there was not going to be a level 14.

The Court did not accept the argument put forth by the seller that their conduct was merely confusing. The Court noted that whilst the information put forth by the seller was confusing, the representations by the sales agent about the black shutters were more than confusing and was in fact misleading or deceptive.

The Court found that the floor plan did not remedy the misleading effect of the advice given by the sales agent to the buyers.

The columns representation

The Court held that substantial structural columns located in the living areas, in places which impede on the living space, are the kind of feature a potential buyer would assume would be included in the display suite or floor plan if they were in fact needed.

The Court noted that, alternatively, a potential buyer would assume that they would be provided with a clear warning that structural columns would or could be constructed in places that the developer could not yet identify.

The air-conditioning representation

The Court held that it would not be fair to find the air-conditioning representation was misleading or deceptive because the issue in dispute was where the air-conditioning was to be situated rather than whether there was to be air-conditioning at all.

RELIANCE UPON THE REPRESENTATIONS

The Court accepted the buyers’ evidence that they entered into the contract believing that the unit would be constructed with black shutters and that there would not be substantial structural columns in the living room and on the balcony. The Court accepted that if the buyers had known the truth, they would not have entered into the contract for the purchase of the unit.

In turn, the Court found that the buyers suffered loss as a result of the misleading or deceptive conduct of the seller and were entitled to relief.

ORDERS

The seller was ordered to refund the buyers’ deposit plus interest and were precluded from enforcing the contract or making a claim for breach of contract. The seller was also required to pay the buyers’ costs of the proceedings.

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. In particular, sales agents of off the plan properties should act as a mere conduit of the information provided by their developer client.

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. 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 more about misleading conduct in off-the-plan sales.

Read more articles about property sales.