By Russell Cocks, Solicitor
First published in the Law Institute Journal
The Vendors Statement required by the seller of real estate pursuant to s 32 of the Sale of Land Act is a fundamental document in the conveyancing process. Designed as a consumer protection mechanism, the statement requires the vendor to disclose certain items of relevant information to a prospective purchaser.
Perhaps reflective of a ‘boom market’ in real estate in the new millennium, there have not been many recent cases that have considered this section. Purchasers in such a market are less likely to complain and more likely to take a long-term view that capital growth may remedy minor blemishes. Add to this the uncertainty of legal proceedings and enormous cost consequences of failure, and it is little wonder that contested cases are rare. Nicolacopoulos v Khoury [2010] VCC 1576. The writer’s firm acted for the purchaser plaintiff), therefore comes as a rare treat for the property connoisseur.
The vendor instructed a conveyancer to prepare a Vendors Statement, which formed part of a contract of sale. The property was a lot on a plan of subdivision and it was, as a matter of law, affected by an owners corporation. This was an agreed fact at the hearing but the conveyancer had incorrectly taken the view that the property was not affected by an owners corporation as there was no ‘common ground’. This was apparently a reference to the fact that the subdivision was a two-lot subdivision with both lots having separate road access, so there was no common property. Nevertheless, there was an owners corporation, even if in name alone – the euphemistic ‘inoperative owners corporation’.
In those circumstances s 32(3A) Sale of Land Act 1962 requires the vendor to include in the Vendors Statement an Owners Corporation Certificate issued pursuant to s.151 Owners Corporations Act 2006 and accompanying documents. Failure to do so entitles the purchaser to rescind the contract pursuant to s 32(5), subject to the limitation created by s 32(7). There was no contest that there was a breach of s 32(3A) and a consequent right to rescind pursuant to s 32(5), but the vendor argued that the vendor was saved by s 32(7). To come within the protection of ss (7) the vendor had to prove:
- that the vendor had acted “reasonably”; and
- that the purchaser was “substantially in as good a position as if all relevant provisions had been complied with”.
The first question raised the issue of the vendor’s liability for the statements in the Vendors Statement. This issue had been the subject of conflicting authority, with Payne v Morrison [1991] V ConvR 54-428 holding a vendor vicariously responsible for the unreasonable (negligent) conduct of an adviser and Paterson v Batrouney [2000] VSC 313 suggesting that vicarious liability was not appropriate and that only personal liability was relevant. Fifty- Eighth Highwire P/L v Cohen [1996] 2 VR 64 had also considered the issue, without needing to reach a decision on the point.
Ultimately Ginnane J. adopted a similar course to Fifty-Eighth Highwire P/L v Cohen and avoided deciding whether vicarious liability was sufficient as he was satisfied that the vendor had been personally negligent and therefore had not acted reasonably. Unlike Paterson v Batrouney, where there had been total reliance on the adviser, Ginnane J. held that the vendor should have been aware of the existence of the owners corporation and therefore bore personal responsibility for ensuring adequate disclosure.
The second issue concerned the consequences of the breach on the purchaser. The vendor made two arguments on this point:
- that the Vendors Statement had not mislead the purchaser.
The purchaser’s evidence was that she was particularly interested in the property because the sales brochure began with the words “Say good-bye to the body corporate”. She presently owned a property subject to a body corporate (owners corporation) and she was very concerned that a new property should not be affected by an owners corporation. The vendor argued that the purchaser purchased the property because of the brochure and that the absence of the Owners Corporation Certificate in the Vendors Statement had not influenced the purchaser’s decision.
Ginnane J. held that if the information required by ss (3A) had have been included in the Vendor Statement, then it was likely that the purchaser would have been made aware that the property was subject to an owners corporation and would not have purchased the property.
- that the owners corporation was dormant.
The vendor gave evidence that the owners corporation had never met and that no levies had been struck. For all intents and purposes, the owners corporation did not exist.
This argument was not accepted. The mere existence of the owners corporation and the possibility that it could be enlived was sufficient to establish a detriment.
Whilst the issue of detriment was to be determined objectively, the purchaser’s subjective characteristics were a relevant consideration. So too was the fact that Parliament had decreed that certain information was required and, it may be presumed, such consumer protection aspirations are not to be lightly ignored.
The matter came before the Court as a Vendor-Purchaser Summons based on s.49 Property Law Act. As such, the issue for determination was limited to the issue arising from s.32 Sale of Land Act and the question of the negligence of the conveyancer or misrepresentations of the agent were not matters before the Court. Nevertheless, the purchaser was able to establish that the agreed breach of ss (3A) was not saved by ss (7).
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.