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A Timely Reminder – Disclosure and Representations

7 March 2018

The principle of caveat emptor, “Buyer Beware” usually governs all property purchases. However, licensed real estate agents are bound by the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012.

Specifically, all licensees are under a positive obligation “not to mislead a customer or client, nor provide false information, nor withhold information that should by law or fairness be provided to a customer or client.

Rule 10.7 states:

A licensee is not required to discover hidden or underlying defects in land but must disclose known defects to a customer. Where it would appear likely to a reasonably competent licensee that land may be subject to hidden or underlying defects, a licensee must either –

(a)   Obtain confirmation from the client, supported by evidence or expert advice, that the land in question is not subject to defect; or

(b)   ensure that a customer is informed of any significant potential risk so that the customer can seek expert advice if the customer so chooses.

Rule 10.7 applies when the circumstances are such that it should appear “likely” that the property may be subject to a hidden or underlying defect. This requires a significant potential risk of a defect as opposed to a mere possibility.

In addition to the Real Estate Act Rules 2012, licensees will also be bound by the legislation as detailed in the Fair Trading Act 1986 and the Contract and Commercial Law Act 2017.

Section 11 of the Fair Trading Act 1987 provides:

No person shall, in trade, engage in conduct that is liable to mislead the public as to the nature, characteristics, suitability for a purpose, or quantity of services.

As real estate agents are in trade, the provisions of the Fair Trading Act 1987 will apply and govern the representations a licensee makes to a potential purchaser.

Prior to 2017, contractual mispresentations were governed by the Contractual Remedies Act 1979, however, with the passing of the newly consolidated, Contract and Commercial Law Act 2017, misrepresentations will now be governed by the latter Act.

Section 35(1) of the Contract and Commercial Law Act 2017 provides:

If a party to a contract (A) has been induced to enter into the contract by a misrepresentation, whether innocent or fraudulent, made to A by or on behalf of another party to that contract (B),—

(a) A is entitled to damages from B in the same manner and to the same extent as if the representation were a term of the contract that has been breached; and

(b) A is not, in the case of a fraudulent misrepresentation, or of an innocent misrepresentation made negligently, entitled to damages from B for deceit or negligence in respect of the misrepresentation.

If potential purchasers are induced to enter into a contract by a real estate agent’s representations they will be given the right to damages or to cancel the contract if misrepresentation is found.

Accordingly, in addition to the Real Estate Agent Act Rules 2012, real estate agents will be scutinised under the the Fair Trading Act 1986 and the Contract and Commercial Law Act 2017 which requires real estate agents to accurately represent the property and disclose known defects.

Although there is no requirement for a real estate agent to voluntarily disclose known defects, they are under a positive obligation to answer a potential purchaser’s questions honestly, must not do or say anything that is potentially misleading, and further disclose any likely hidden or underlying defects.

This means greater transparency and protection for property purchasers but also means real estate agents will be held to a higher standard given the three enactments governing the representations made by real estate agents.

Source: Agent Brief

Agent Brief March 2018