Real estate does not sell itself. Properties are advertised for sale on websites, on signs, in newspapers and in brochures to attract potential purchasers.
Real estate advertisements must comply with the Australian Consumer Law which prohibits false or misleading representations in connection with the promotion of the sale of land, with a focus on –
the nature of the interest [title] in the land;
the price payable for the land;
the location of the land;
Section 152 (1) makes contravention a criminal offence. Section 30 (1) is in the same terms, but with a civil pecuniary penalty. And section 18 (1) contains a broad prohibition against misleading conduct.
Two recent decisions of the Supreme Court of Western Australia, eight days apart, provide a guide as to how the Australian Consumer Law applies to advertising real estate for sale with a focus on price, location and title representations.
Misrepresentations on location and price
Barr and Standley is a reputable and long established real estate agency based in Bunbury, WA. Consumer Protection WA laid criminal charges under section 152 (1) Australian Consumer Law against the partners of Barr and Standley over two property sales advertisements placed on a real estate website. The first was for a false or misleading representation as to location, the second price.
They were acquitted by the magistrate after a trial at Bunbury. The appeal by Consumer Protection WA was refused by the Supreme Court of Western Australia, Criminal Division, for the reasons given by Justice Allanson in Commissioner for Consumer Protection v Standley [2014] WASC 45.
LocationThe first website advertisement was for the sale of ‘47 Hardwick Street, Harvey, WA 6220’. The use of ‘Harvey’ was deliberate, even though the property was located in a township of Cookernup, 12 km from the township of Harvey, because Harvey was a significant and well-known town, while Cookernup was not. Consumer Protection WA alleged that naming Harvey as the location was a false representation.
The Court examined the website page and found that ‘the address cannot be separated from the other information on the page’. In particular, the Google map on the page will direct the user to the correct location even though it is described as in ‘Harvey’ at the top of the page. Therefore, given that the consumer can do an internet search for a property at leisure, the Court concluded that the location was not false or misleading to the ‘reasonable consumer’.
Comment: Use the actual address, and add ‘near Harvey’ to avoid problems.
Price The second website advertisement was for the sale of a property at Pelican Point in the ‘price range $1.5 million to $2.5 million’. This was allegedly misleading because the seller was not prepared to sell at a price of less than $2.2 million.
The Court said that in the absence of evidence about an adverse reaction from the target audience or advertising practice, it was wrong to assume that ‘the target audience for that internet advertisement’ would have understood the price range ‘to represent that the seller would accept or consider offers in the lower part of the range’. Therefore, it was not false or misleading.
Comment: If the price was advertised only as $1.5 million, it would have been underquoting and therefore be misleading. Advertising a price range avoids this problem.
Conclusion: Consumer Affairs WA failed to prove that the advertisements were false or misleading.
Misrepresentations on title and price; and misleading conduct
Bryan and Patricia Susilo were not real estate agents, and were not promoting the sale of property for a cash price on standard terms. They were real estate investor novices who promoted Rent to Buy arrangements to sell property to ‘people who wanted to purchase a home but had difficulty qualifying for a conventional bank loan’. Their advertisements were different from standard real estate advertisements. For instance –
OWN MY HOME – No Banks Needed $558 p.wk + outgoings
Consumer Protection WA took civil prosecution proceedings under sections 18 (1) and 30 (1) Australian Consumer Law alleging that the advertisements, which were displayed on websites and on house signs, falsely claimed: they had an ownership interest; that homes could be purchased with no bank loan; and the price disclosed was all that was payable.
The Susilos admitted they made misleading representations in four of their advertisements. And so Justice Beech in the Supreme Court of Western Australia, Civil Division, was concerned only with the declarations, injunctions and pecuniary penalties that should be made, in the decision of Commissioner for Consumer Protection v Susilo [2014] WASC 50.
Title - Nature of interest The Susilos did not have freehold title to the properties they advertised for sale as ‘Own my home’. Their ‘sale interest’ was an equitable interest either through taking a vendor option to purchase a property, or by entering into a joint venture with an owner to sell.
The Susilos were unable to defend against the Commissioner’s assertion that their advertisements would mislead the public. Their junior barrister who acted pro bono had no choice but to agree that the advertisements were misleading, rather than arguing they had a ‘sale interest’, because the Susilos could not afford to fund the legal fees. His role was to make submissions as to penalty. It is regrettable that Consumer Protection WA did not offer to fund the Susilos’ defence as a test case, similar to what the ATO does when it wants to set a precedent, because this devalues the decision as a precedent.
Comment: The misrepresentation was minor and could have been cured easily – by substituting ‘Own this home’ instead of ‘Own my home’.
Misleading conduct The related misrepresentation on the advertisement was ‘No Banks Needed’. The Susilos sold the property as a Rent to Buy, which means that a prospective purchaser does not need bank finance immediately to purchase the property.
Comment: The misrepresentation was minor and could have been cured easily by adding ‘to move in’ to conform with the practice that purchasers pay out Rent to Buy arrangements a year or two later on, using bank finance.
Price The advertisement disclosed only the ongoing Rent to Buy payments – it did not fully disclose the full price payable for the home.
Comment: The misrepresentation was minor and could have been cured easily by adding ‘+ moving in and price payments’.
Other misrepresentations The Susilos made other misrepresentations, such as that they ‘bought houses fast’, they were part of a ‘group of investors’, and they ‘charged no commissions or fees’. They carried on a real estate business by marketing and selling properties for reward without holding a real estate agent’s licence.
Penalties In imposing pecuniary penalties, the Court took into account that there was no evidence that anyone was actually misled by the conduct, or suffered loss or damage, the nature and extent of the conduct, no previous contraventions, the small scale of the business, the genuine belief that taking an option or entering into a joint venture was sufficient to give an interest in a property to sell, their co-operation in admitting the contraventions rather than contesting them, and their youth and inexperience.
The penalties imposed were much lower than the WA Commissioner had sought. They were $17,500 for Ms Susilo, $12,000 for Mr Susilo (both with time to pay) and the agreed legal costs of $8,000.
How does the Susilo decision affect the vendor finance industry?
Justice Beech had in mind: “there is, or is likely to be, an active rent to buy industry” in Australia, which needs to comply with the Australian Consumer Law.
The Commissioner for Consumer Affairs did not challenge the legality of the rent to buy / vendor finance arrangements used. This is because Rent to Buy arrangements for residential property in the form of Leases with an Option to Purchase (if back to back – Sandwich Lease Options) and Instalment Contracts (Terms Contracts) are legal in Western Australia, and indeed throughout Australia, although with limits in South Australia.
The Susilo decision provides a clear warning that vendor financiers need to avoid false or misleading information in their advertisements. And they need to hold a real estate agent’s licence if they are carrying on a business of marketing and selling properties.
Source - Anthony Cardato Cardato Partners www.lexology.com
i like your post
ReplyDeleteproperty for sale holt