To disclose or not to disclose? That is the question. Although the concept of ‘buyer beware’ is widely prevalent in Victoria, there are nevertheless numerous legal obligations imposed on vendors to ensure they are making complete and accurate disclosures on the sale of property. Recent amendments to the Sale of Land Act 1962 (VIC) (the Act) see vendors facing heftier penalties for failure to comply with these obligations. It is undoubted that striking a balance between complete transparency and maximising the marketability of a property is a difficult one to ascertain.
“So how do we avoid penalties for non-disclosure, whilst at the same time maximising the profitability of our property?”
The answer is simple: Don’t risk it. Disclose it.
Disclosure as a matter of legal obligation
Section 32 of the Act mandates the information required to be provided to prospective purchasers prior to the execution of the contract of sale. Although a section 32 statement is annexed to the contract, it is a separate legal document.
The general contents of a s 32 statement will vary depending on the particulars of a property. Listed below are the usual terms you’d see in a vendor’s statement.
A typical section 32 will enclose the following:
- Title document;
- Mortgages and other charges;
- Easements, covenants, or similar restrictions (and any other existing failure to comply);
- Rates, taxes, charges, or other similar outgoings;
- Zoning and applicable planning schemes;
- Whether the land is in a bushfire prone area, or liable for a Growth Areas Infrastructure Contribution;
- Any notice or order from a government department or public authority affecting the land;
- Any intention to compulsorily acquire the land;
- Any owner’s corporation affecting the land;
- Owner-builder warranty insurance;
- Building permits;
- Connection of services (electricity, gas, water, sewerage and telephone);
- Any proposed subdivision; and
- Livestock disease or contamination for agricultural purposes.
In addition to the disclosure requirements in section 32, section 12(d) of the Act makes it an offence for any person who, with the intention of inducing any person to buy any land:
- makes or publishes any statement promise or forecast which he knows to be misleading; or
- deceptively or knowingly conceals any material facts, or recklessly makes any statement or forecast which is misleading or deceptive.
Although a vendor or selling agent is generally not required to advise a potential purchaser of any serious defects in the property of which they are aware, they cannot fraudulently (meaning, knowingly with intent to deceive) and actively conceal defects. In addition, a vendor may commit the tort of deceit if they fail to answer any question about the structural soundness or quality of the property honestly and completely.
A failure to disclose a fact alone is not sufficient to establish an offence under section 12(d), rather, the relevant fact omitted must be material.
A material fact is a fact that would be important to a potential purchaser in deciding whether to buy land. Within the context of a proposed sale of land, a material fact is one that is reasonably capable of influencing a purchaser in deciding whether or not to buy the land at all, or to buy land only at a certain price.
A fact may be ‘material’ in two ways:
- Generally: a fact that an average, reasonably informed purchaser with a fair-minded understanding of the property market, including the role of an estate agent, would generally regard as material in their decision to buy land.
- Specifically: a fact about the land that is known by the vendor to be important to the specific purchaser is a fact that has the quality of materiality. The ‘known’ element could arise if the particular purchaser:
(a) asks a specific question about the land; or
(b) informs the vendors of their intended use of the land.
Consequences for breaching of Section 12(d)
The penalty for breaching section 12(d) of the Act is 120 penalty units (in 2023 this is equivalent to $23,077.20) or up to 12 months imprisonment.
A breach of section 12(d) may often be accompanied by a cause of action for breach of the Australian Consumer Law prohibition against misleading and deceptive conduct, it does not, however, give a purchaser the right to terminate the contract.
Don’t Risk It, Disclose It.
As a precaution, a vendor should always seek to disclose all material facts to their agent or solicitor prior to the preparation of a sale of land contract. Vendors should be vigilant in ensuring they answer any queries put forward by potential purchasers truthfully. Open communication is key.
Questions should be answered irrespective of whether the relevant questions were directly addressed to the vendor or came indirectly through the agent. Vendors should communicate to estate agents any material facts that are likely to be subject of statements or representations by the estate agent during the marketing of the property.
To avoid contravening the vendor’s disclosure obligations, it is prudent to err on the side of caution.
In other words, Don’t Risk It, Disclose It.
For further information regarding the above, please contact the authors or any member of our Property team.
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.