Sales agents' disclosure obligations to buyers revisited

In previous editions of the REIQ Journal, we have discussed the Property Occupations Form 8 – Disclosure to prospective buyer (Form 8) and the obligations pursuant to the Property Occupations Act 2014 (Qld) (the Act), to disclose particular relationships or benefits that sales agents may receive in connection with the performance of their duties.

In this article, we revisit the relationships that are required to be disclosed by sales agents to prospective buyers and the potential consequences for failing to disclose certain relationships.

Disclosure by Sales Agents

Section 157(1) of the Act states that:

“A residential property agent for the sale of residential property must disclose the following to any prospective buyer of the property—

1. any relationship, and the nature of the relationship (whether personal or commercial), the agent has with an entity (a referred entity) to whom the agent refers the buyer for professional services associated with the sale…”

Examples of relationships which may need to be disclosed include, but are not limited to:

• a family relationship;
• a business relationship, other than a casual business relationship;
• a fiduciary relationship; and
• a relationship in which 1 person is accustomed, or obliged, to act under the directions, instructions, or wishes of the other.

An agent is required to disclose information about any benefit they expect to derive from the referred entity because of the referral. The agent must disclose the amount, value or nature of any benefit the agent has received, receives, or expects to receive in connection with the sale, promotion of the sale, or for providing a service in relation to the sale of the property.

Section 157 of the Act applies only to the sale of residential property. However, this includes the sale of a proposed home that is to be erected or constructed under a domestic building contract and is being marketed in connection with marketing land.

The Form 8 assists agents by allowing them to disclose all relevant information in a straightforward way on the form. The Form 8 requires the buyer to acknowledge that the document has been explained to them, and that they understand the nature and effect of all disclosures made by the agent.

In order to comply with section 157 of the Act, the Form 8 must be completed before a contract of sale for the property is entered into. Therefore, the buyer must be provided with the completed Form 8, and must acknowledge their receipt of the same in writing, before entering into a contract of sale.

A failure to comply with the Act in relation to section 157 may result in a fine of up to 200 penalty units (which equates to $30,960).

Disclosure of relationship with seller

It is not uncommon for sales agents to be asked to sell a property on behalf of a family member or an employee of the agency.

The Act does not specially require sales agents to disclose to prospective buyers that they are selling a property on behalf of a family member or an employee of the agency. However, prospective buyers may consider the agent’s non-disclosure of the relationship between agent and seller as misleading and deceptive conduct.

Section 18 of the Australian Consumer Law (ACL) (which is found in schedule 2 of the Competition and Consumer Act 2010) states, inter alia, that:

“A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”

In addition, section 212 of the Act relates to false representations about property. Section 212 (1) states that a licensee or real estate salesperson must not represent to someone else anything that is false and misleading relating to the letting, exchange or sale of real property.

The maximum penalty for breaching this section is 540 penalty units (which equates to $83,592).

Generally speaking, it is irrelevant whether an agent intended to mislead another party, or whether the agent acted honestly and reasonably in their conduct as sales agent. The underlying issue is what circumstances constitute a material fact, that is, a fact which may have a bearing upon a reasonable person’s decision to proceed with a transaction.

Whilst sales agents have an obligation to act in the best interests of their clients and to obtain the best sale price achievable, they also have obligations of disclosure to prospective buyers.

In addition, silence (that is, the failure to advise a party of a material fact) can also amount to misleading and deceptive conduct.

The EF214 Disclosure of relationship with seller to prospective buyer form is now available in Realworks. This form can be utilised by selling agents to meet consumer law disclosure requirements when selling their own property or a property owned by a person who the selling agent, or agency, has a family or business relationship with.

Case example

As solicitors for the AON Real Estate Professional Indemnity Scheme, we have recently assisted with the defence of a claim where a sales agent had been engaged to sell a property on behalf of her parents.

After entering into the contract to purchase the property, the claimants became aware that the agent was the daughter of the sellers. The claimants made a complaint against the agent to the Office of Fair Trading (OFT) in relation to alleged breaches of sections 157 and 212 of the Act for failing to disclose the agent’s relationship with the sellers of the property.

The OFT ultimately determined that there were no breaches of the Act in this particular case, however, matters will be decided on a case-by-case basis with regard to the individual circumstances of the matter.

In the circumstances we recommend that agents adopt a conservative approach and disclose any family or business relationship with prospective buyers in order to avoid any complaints being made against them.

Conclusion

Sales agents are reminded that they have a duty to disclose all facts which may materially affect a prospective buyer’s decision to purchase a property. Remember, silence is not golden. If an agent has any information about a property which may affect the decision of prospective buyers to enter into a contract of sale, that information should be disclosed.

In order to avoid claims being made by prospective buyers, agents should adopt a conservative approach and disclose all matters within their knowledge and expertise which they consider may affect the decision of prospective buyers to enter into a contract in respect to the property.

If sales agents are in any doubt about what their obligations are, they should refer to the relevant legislation and, if necessary, should seek legal advice.

Read more from Carter Newell Lawyers: The risks of unfair contract terms.

Or browse our suite of property sales articles.