Court considers purchaser’s rescission rights and decides in favour of vendor4 April 2018 | Insurance Issues
This case considered a vendor's liability to a purchaser in failing to disclose a previously rejected planning permit and VCAT decision in a section 32 statement. This decision clarifies the operation of section 32K of the Sale of Land Act 1962 (Vic) and the nature of agency relationships between lay persons and trained professionals.
- Whether purchaser entitled to rescind the contract?
- Whether vendor responsible for agent’s failure to include relevant information in section 32 statement?
- Whether vendor acted honestly and reasonably?
- Whether purchaser incurred a detriment?
On 19 March 2016, Mr Lau was the successful bidder at an auction over a property in Kew, which he allegedly intended to develop into seven or eight units. Mr Lau signed a contract of sale of real estate at the auction (contract), agreeing to purchase the property from Mrs Downing for $3,050,500. He handed a cheque for the deposit of $305,050 to Mrs Downing’s real estate agent.
The next day, Mr Downing emailed a Dropbox link containing documents about the property to Mr Lau. Relevantly, the link included a VCAT decision of two years prior, permitting only a four building development, and a subsequent planning permit reflecting the VCAT decision.
On or around 21 March 2016, Mr Lao cancelled the deposit cheque. His solicitors subsequently sent a letter to Mrs Downing to advise he intended to rescind the contract, because the Sale of Land Act 1962 (Vic) (Act) section 32 statement (vendor statement) attached to the contract of sale did not disclose the planning permit.
This notice was treated as a repudiation of the contract and the property was re-sold at a later date for $185,000 less than the original sale price. Mrs Downing sued the purchaser for the deposit due under the contract, or alternatively for breach of contract damages.
The parties agreed that the planning permit ought to have been disclosed in the vendor statement, as it fell within the description of an approved proposal directly and currently affecting the land, pursuant to section 32D of the Act. However, Her Honour Judge Marks applied the two limbs of section 32K(4) in ultimately deciding that the contract could not be rescinded. As a result, Mr Lau was ordered to pay the deposit amount, in the sum of $305,050 and interest on the lost deposit.
At the time of the trial, claims initially brought by Mrs Downing against both her real estate agent and conveyancer had settled.
Limb 1: Acting honestly and reasonably
Her Honour found that Mrs Downing acted honestly and reasonably and ought to be excused for failing to disclose the planning permit in the vendor statement. In reaching this decision, Her Honour considered that Mr and Mrs Downing did not intend to deliberately withhold the planning permit from prospective purchasers. In fact, it was found that Mr Downing had provided a copy to Mrs Downing’s real estate agent one day prior to the auction and intended to be helpful by sending additional information to Mr Lau the day after the auction.
Her Honour considered agency principles and was ultimately unwilling to find that Mrs Downing acted unreasonably, simply because her conveyancer, being a trained professional engaged to prepare the contract and vendor statement:
- failed to ask Mr or Mrs Downing about the existence of any planning permits; and
- did not include the planning permit in the vendor statement.
Her Honour also confirmed that the non-disclosure of the documents relating to the previous VCAT decision was not actionable.
Limb 2: Detriment
The court rejected Mr Lau’s late closing submissions that the planning permit had adversely affected the value of the property and that he would not have purchased the property for the same price, had he been aware of the planning permit.
Interestingly, these points were not pleaded and necessary valuation evidence on this issue was not sought, nor tendered. In the absence of such evidence, Her Honour could not accept that Mr Lau was substantially worse off and that the property value had been adversely impacted. Relevantly, it was held that both parties had lost the opportunity to call evidence which may have addressed the impact on the property’s valuation.
On that basis, Her Honour found that Mr Lau was in substantially as good a position as if the planning permit had been disclosed, and had therefore not suffered the essential detriment required to entitle him to rescind the contract.
Implications for you
This decision clarifies the operation of section 32K of the Act, the nature of agency relationships between lay persons and trained professionals. Importantly, while the planning permit ought to have been included in the vendor statement, the same did not apply to the prior VCAT decision.