Seller Disclosure in Queensland

10 November 2017

 

Property Law Review

c/- Strategic Policy

Department of Justice and Attorney-General

GPO Box 149

BRISBANE QLD 4001

By email

 

Dear Sir/ Madam,

Final Report: Seller Disclosure in Queensland

The Real Estate Institute of Queensland (REIQ) welcomes the invitation extended by the Commercial and Property Law Research Centre (the Centre) to respond to the proposed statutory seller disclosure regime set out in the 2017 Final Report: Seller Disclosure in Queensland (Final Report).

Executive Summary
The REIQ supports the adoption of a single statutory disclosure regime to improve consistency across all residential property transactions in Queensland and streamline the contractual process. However, our support is given on the basis that the buyer should not be excused from performing their own due diligence to ensure that the property meets their requirements, and that the long-standing doctrine of caveat emptor is not displaced.

The REIO also recommends the consolidation of all disclosure requirements currently contained in various disparate legislation into one single Act. Although the reforms proposed by the Centre are not entirely consistent with our preferred disclosure model, the REIQ does support the majority of the recommendations in the Final Report on the basis that they go some way to simplifying property transactions in Queensland and assisting buyers to better understand the risks associated with such transactions. That said, for the reasons set out below, the REIQ does not agree with the Centre’s view that any such disclosure regime should not apply to matters which may stigmatise a property, or that such a regime should extend to commercial property transactions

Statutory seller disclosure regime and legal framework
As set out in previous submissions made in respect of this matter, the REIQ supports the implementation of a statutory seller disclosure regime in Queensland for residential property transactions. Currently, disclosure for residential property sales arise under a blend of contractual, statutory and common-law obligations. This results in differing levels of disclosures which either favour or disadvantage the contractual parties. It also creates:

• a more complicated conveyancing process for legal practitioners;
• increased costs for buyers and sellers;
• increased liability risk for real estate practitioners acting for sellers; and
• uncertainty resulting in greater potential for disputes.

It is our view that a suitable centralised seller disclosure regime in Queensland may go some way to simplifying property transactions and improving consumer confidence. Such a regime will likely assist buyers to make informed and efficient choices by better understanding the risks involved in such transactions.

It remains the REIQ’s position that any statutory seller disclosure regime implemented in Queensland should be limited to residential property transactions only and not extend to commercial transactions. In this regard, it is the REIQ’s view that commercial property transactions are generally carried out by more sophisticated parties who in many cases engage solicitors to negotiate terms and perform due diligence to protect their interests. In such transactions, the buyer is more likely to be in a position to determine risk through ascertaining value and any issues associated with the transaction without having to rely on the protections afforded through a statutory disclosure regime.

Seller disclosure- Relevant transactions

Although the REIQ supports recommendations 3 and 4 in the Final Report, for the reasons set out above all commercial transactions should be excluded from any such disclosure regime. In the Final Report, the Centre recognises that a public company is a sophisticated party which usually has legal and business advisors and is therefore capable of undertaking inquiries to establish the value of the property and protect their interests¹. It is the REIQ’s view that in many cases such characteristics extend beyond publically listed companies and to many other buyers who engage in commercial property transactions. It is therefore submitted that all commercial property transactions should be classed as excluded transactions as the cost and inconvenience experienced by the seller in carrying out disclosure for such transactions may outweigh benefits experienced by the buyer.

Further, recommendation 5 of the Final Report provides that a separate seller disclosure regime should be maintained for proposed lots under the Land Sales Act 1984 (LS Act), Body Corporate and Community Management Act 1997 (BCCM Act) and the Building Units and Group Titles Act 1980 (BUGT Act), and that a seller of a proposed lot under the BCCM Act should be required to attach a copy of any Building Management Statement (BMS) that will be registered over lots in the scheme.

In this regard, the REIQ agrees with the Centre’s view that:

• Transactions involving proposed lots yet to come into physical existence are unique and present different poljcy considerations due primarily to the buyer being unable to inspect the lot before purchase; and

• There is value in requiring a seller of a proposed lot to attach a copy of the BMS to the disclosure statement required under section 213 of the BCCM Act so as to ensure that the buyer is fully aware of how any shared facilities are to be accessed, maintained, and funded prior to purchase.

Accordingly, the REIO supports recommendation 5 in the Final Report in its entirety.

Timing of disclosure
The REIQ agrees that balance is required between providing relevant information to a buyer at a point in the sale process where it will inform a buyer’s decision and the difficulties for a seller in accessing and collating such information. In this regard, the REIQ reiterates its previously stated position that any obligation of the seller to provide information to a buyer should not occur as a pre-condition to marketing the property as any such requirement may unintentionally disadvantage a seller by not only delaying advertising, but also placing unnecessary costs on sellers, particularly in circumstances where:

• The seller may only be ‘testing’ the level of interest in the property from prospective buyers; and/or
• There may not be a genuine buyer for the property.

In some parts of Queensland, particularly certain regional areas, it is not uncommon for property to remain for sale for extended periods of time. Information collated prior to marketing is therefore not always current at the time of the buyer entering the contract.

The REIO agrees with the Centre’s recommendation that a seller disclosure statement should be provided to a buyer at any time prior to entering into the contract (including at the same time the contract is given to the buyer for execution). In addition, we submit that it should be permissible for a seller to provide such statement to a buyer after execution provided this occurs within five clear business days after the contract was entered into unless the property is being sold at auction. This is consistent with the current position in South Australia which provides that a seller may serve the relevant disclosure statement on a buyer at any time provided that service occurs no later than 10 clear business days prior to settlement².

Also, in some instances a seller may procure a buyer faster than expected and therefore not have sufficient time to properly prepare a disclosure statement prior to the contract being formed. Alternatively, some sellers may not want to incur the expense and administrative burden of preparing a disclosure statement unless a genuine buyer has been identified and certainty of contract has been established. For these reasons, it is the REIQ’s view that greater flexibility in respect of service timing should be allowed. To ensure that buyers are not unfairly impacted, it is suggested that service of the disclosure statement could be linked to the commencement of the statutory cooling off period so that the buyer is permitted to terminate the contract without penalty if something unforeseen is identified in the disclosure statement. Again, this is consistent with the South Australian position³.

Form of disclosure
The REIO supports recommendation 7 in the Final Report that a seller disclosure statement in plain English and prescribed form (and otherwise containing attributes similar to those described therein) should be adopted.

Although a prescribed certificate attaching certificates and/or searches such as current title search, registered plan, pool safety certificate, contaminated land and/or biodiversity should be included in any prescribed certificate, given the time and financial cost associated with obtaining such information, it is submitted that the seller should only be required to provide the prescribed certificate at any time prior to entering into the contract, or within five clear business days of the contract being entered into.

The REIO also supports recommendation 8 in the Final Report that an approved form of body corporate certificate containing prescribed information should replace the disclosure statement and body corporate information certificate currently required by section 205 and 206 of the BCCM Act.

Content of disclosure
As stated in the Final Report, the REIO supports the 1ntroauction of a seller disclosure statement in its simplest form, similar to that annexed at Attachment D of the Interim Report.

The REIO agrees that a seller disclosure statement should be consistent with Guiding Principles 1 and 2, and that most of the information specified in recommendation 10 of the Final Report should be disclosed by the seller to the buyer prior to entering into the contract. However, the REIQ does not agree with the Centre’s recommendation that there should not be a positive obligation placed on a seller to disclose past events or crimes within a seller’s personal knowledge which may stigmatise the property. Generally, matters such as these are neither on the public record, nor discoverable through standard searches.

It is the REIQ’s experience that agents regularly encounter difficulties with sellers when engaged to sell stigmatised property. In this regard, sellers are often reluctant to volunteer information that may result in stigmatising the property, and if they do, often instruct the agent to conceal or moderate offending subject matter. Awareness and concern for this issue has only heightened amongst agents since a highly  publicised  matter  arose  involving the fining of an agent  for failing  to  disclose  that a property had been  the  site  of a triple murder4    Further,  due to  perceived ambiguities  in  the law in Queensland regarding:

• what constitutes a fact material to the sale of the property which a prudent agent is required to verify in accordance with the Property Occupations Regulation 2014 (Qld)5;  and
• the extent to which any failure to disclose may result in the agent unwittingly engaging in conduct that ls misleading or deceptive in breach of Australian Consumer Law6

Many agents are uncertain of the liability they may incur for failing to disclose material information to a seller. Both our member agency support service and legal assistance program has identified this issue as a key concern and source of frustration for real estate practitioners.

It is submitted that past events such as a serious crime or untimely death which has occurred within the property is information of significance to a buyer in considering whether to purchase a property as such information may not only impact the value of the property but also cause emotional or psychological discomfort affecting a buyer’s use and enjoyment of the property. It is the REIQ’s view that disclosure of such matters Is, at the very least, consistent with Guiding Principle 2.

In respect of recommendations 11 and 12 of the Final Report, the REIQ supports the Centre’s recommendations to require a seller to of an existing lot in a community titles scheme or body corporate to provide to the buyer a body corporate certificate prior to entering into the contract which contains specific information and prescribed Information informing the buyer about their responsibilities of living in a community titles scheme.

The REIQ also supports recommendation 13 of the Final Report on the basis that most of the information recommended for inclusion into the proposed warning statement, except information about structural soundness and pest infestation, is already on the public record. In contrast to the seller disclosure statement, information in the proposed warning statement does not impact title to the property, and in most cases can be accessed and reviewed by a buyer at minimal cost.

Although information about the structural soundness and pest infestation of a building is not on the public record, the standard form REIQ contract, which Is used by majority of residential buyers in Queensland, contains a ‘ready-made’ special condition relating to pest and building inspections.

Accordingly, a buyer can easily make the contract conditional upon obtaining a satisfactory building and pest inspection. This provides an additional layer of protection to the buyer for property purchases in Queensland.

Compliance by seller with disclosure obligation
The REIQ supports recommendation 14 of the Final Report that any disclosure legislation should authorise a seller disclosure statement to be given to a buyer in paper or electronic form (via electronic communication) or made available to the buyer by providing a link to a website or other shared location to allow for delivery using an electronic repository such as Dropbox or DocuSign. In this regard, any steps taken by Government to improve efficiencies in real estate transactions more generally is welcomed by the REIQ.

In respect of a sale by auction, the REIQ agrees that a seller disclosure statement should be given to a buyer by being put on conspicuous display on the day of the auction, and that such disclosure statement could be displayed in a way that the buyer could review before bidding on the property,  only if reasonable to do so.

Finally, the REIQ also agrees with the Centre’s recommendations that the seller disclosure statement should be accurate only at the time it is given or made available to the buyer, and that the onus of proving that the seller complied with the statutory disclosure regime should rest with the seller.

Failure to comply
The REIQ supports recommendation 17 of the Final Report only insofar as the agent’s failure to provide the buyer with the seller disclosure statement prior to the buyer entering into the contract is an offence, and does not extend to accuracy of such statement. In this regard, the REIQ reiterates its previously stated position that in most cases an agent’s role in the real estate transaction is limited to marketing and facilitating the sale of the property only.

Although an agent should retain the right to prepare real estate contractual documentation (including any seller disclosure statement and prescribed certificate), such documentation is generally prepared based on information obtained from the seller, who then certifies the accuracy of such information. Accordingly, in circumstances where the seller disclosure statement is prepared under instruction of the seller, it is submitted that liability for the accuracy of the document should not extend to the agent at all.

In circumstances where the buyer does not receive the seller disclosure statement prior to signing the contract and/or within another timeframe for a non-auction sale as discussed above, any offence arising from such matters should not be attributed to an agent who is only acting on behalf of the seller.

Otherwise, the REIQ also supports recommendations 18 and 19 of the Final Report.

Conclusion
Although the REIQ agrees with the majority of the recommendations made by the Centre, it is the REIQ’s ultimate preference for all matters required for disclosure to a buyer to be eventually the subject of one single Act. The REIQ also reiterates its position that all matters affecting title ought to be disclosed on the certificate of title so as to ensure that all interested parties are made aware of such matters prior to purchase. However, we are concerned that the Final Report does not properly address disclosure of unregistered encumbrances, and therefore repeat our previous submission that any seller disclosure regime should also require a seller to disclose such matters.

The REIQ’s support for the centralised statutory disclosure regime proposed by the Centre in the Final Report is based on the assumption that such a regime is structured in a way that is cost effective, efficient and easy to understand for both buyers and sellers alike. It is the REIQ’s view that these factors are critical to ensuring that parties receive maximum benefit from the proposed regime.

We appreciate the further opportunity afforded by the Centre to provide submissions on the Final Report and looks forward to engaging in further consultation on this matter.

If you have any queries in respect of the above matters please do not hesitate me on 1300 MY REIQ.

Antonia Mercorella

Chief Executive Officer

^{1) Refer paragraph 3.2.5 of the Final Report}

^{2) Refer section 7 of the Land and Business (Sale and Conveyancing) Act 1994 (SA)}

^{3) Refer section 5(8) of the Land and Business (Sale and Conveyancing) Act 1994 (SA)}

^{4) Refer to Hinton v Commissioner for Fair Trading [2006] NSWADT 257}

^{5) Refer regulation 20 of the Property Occupations Regulation 2014 (Qld)}

^{6) Refer section 18 of Schedule 2 of the Competition and Consumer Act 2010 (Cth)}