Australia: When can a real estate agent be liable for statements made to a property purchaser? - 23 August 2017

Last Updated: 25 August 2017
Article by Richard Gardiner

The Supreme Court of Queensland has recently determined a dispute in relation to the sale of a shopping centre, in a decision of Makings Custodian Pty Ltd & Anor v CBRE (C) Pty Ltd & Ors [2017] QSC 80. The decision is particularly relevant to real estate agents, property managers and property owners.

Background

The proceedings related to the sale of the Piazza Shopping Centre at Varsity Lakes, Queensland. Makings Custodian Pty Ltd (the purchaser of the centre and custodian of a superannuation fund) and Makings Pty Ltd (the trustee of the superannuation fund) alleged that information that was provided about the financial performance of the Centre was misleading. There were various claims made within the proceedings. The main claims by the purchaser were against the property manager of the Centre (CBRE (C) Pty Ltd), who kept financial records, and the real estate agent who acted for the seller (Orchid Avenue Realty Pty Ltd). No claims were made by the purchaser against the seller, due to the seller being in liquidation and subsequently deregistered.

Before deciding to buy the centre, the purchaser made some enquiries with the seller's agent and a brochure was supplied which listed the Piazza for sale (amongst other properties). The purchaser then asked the agent for further information. The agent sent a number of emails to the purchaser with further information, one of which included an Information Memorandum (IM). Amongst other things, the IM contained information about the net rental for the centre, the rent payable under each lease and a notice to tenants containing the annual estimate of outgoings for a financial year. The agent also made some verbal representations to the purchaser during the sale process. At the time, the Centre was not performing well.

The purchaser gave evidence that it relied upon information contained in the IM and the representations made by the agent. While the Piazza was not trading well, the IM contained no information as to the poor performance of the Piazza as against its budget.

The IM contained a formal disclaimer clause and also a paragraph headed "sources of information", which stated that:

  • information supplied in the IM had been provided by the seller;
  • the agent had not independently checked the information, merely passed it on;
  • prospective purchasers were advised to rely upon their own enquiries; and
  • the agents made no comment on, and gave no warranty as to, the accuracy of the information.

The disclaimer and sources of information clauses were contained in an annexure to the IM, at pages 38 and 39 of the document. The purchaser said he did not see those clauses when he read the IM.

Agent's arguments

The agent sought to rely on a High Court decision of Butcher v Lachlan Elder Realty Pty Ltd [2004] 218 CLR 592 in which an agent was found not to have engaged in misleading or deceptive conduct in circumstances where it had merely "passed on" information from the seller, without adopting or endorsing it. The Court found that the circumstances here were different to those in the Butcher decision because:

  • the agent was one of the leading commercial real estate agents on the Gold Coast;
  • the IM stated on the front page that it was prepared by the agent, displayed a large banner of the agent with the address and contact details of the agent and was branded on every subsequent page with the logo of the agent. In that regard, the agent was putting forward the information as its own;
  • while one of the annexures to the IM showed the logo of the property manager, it also contained in much larger letters at the bottom, the name of the agent;
  • as annexures A and B to the IM bore the agent's logo, the purchaser believed that the agent had verified the information contained within them;
  • in discussions with the purchaser, the agent made statements which went well beyond the information in the documents, amplified information that was in them and endorsed that the net rent figures were actual income, net of all expenses received;
  • the disclaimer and sources of information clauses were in formal legal language and were at the end of a long document;
  • the representative of the purchaser said that he did not see those clauses when he read the IM and it was not put to him in evidence that he had read them; and
  • the Judge found that the clauses were not effective to alert a reasonable person in the purchaser's position that the information in the document was simply being passed on from the sellers "for what it was worth without any belief in its truth or falsity".

Ultimately, it was found by the court that the agent had made certain representations itself, rather than simply "passing on" information supplied by the seller.

The court also found that the purchaser relied on the information supplied by the agent and that the representations made by the agent were false. Judgment was awarded in favour of the purchaser against the agent for approximately $1.6 million. The purchaser's claim against the property manager was unsuccessful.

The agent sought to rely on statutory provisions in order to apportion its liability against the seller company (which was in liquidation). However, the agent was unsuccessful with that argument.

Appeals have been filed in respect of the decision, and we intend to monitor the outcome of the appeals.

Practical application

This case is important to sellers of commercial properties and their agents. It serves as a reminder that where an agent prepares a brochure such as an IM, they can be found liable to a purchaser if the brochure is not accurate. This can even be the case in circumstances where the brochure contains a disclaimer or an express clause which identifies the sources of information contained in the brochure. To the extent that agents prepare or provide brochures, information or IM's to potential purchasers, they should be aware of a risk of being found responsible for misleading or deceptive conduct to a purchaser if the information is later found to be wrong. In considering such a claim, a court will look at the extent to which an agent prepared, adopted or endorsed the relevant information.

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