Full Disclosure Still Not Required In Property

by Tim O’Dwyer

Full disclosure is still not required by law in Queensland when entering into property transactions. What does this mean?

Can flood-prone Queensland homes be sold without sellers or agents volunteering the soggy truth? Yes!

What if sellers don’t ‘fess up if there’s no record of council inspections? They can sell regardless!
What if a seller’s carport, garage or deck was built illegally? No selling worries!
What if a home is termite-riddled? Don’t tell!
And if sellers obtain a pre-sale building report showing heaps of problems? Don’t mention the report!

Full Disclosure Is Not Required By Law

This is why ‘buyer beware’ is the first unwritten rule of real estate in Queensland, and it’s likely to stay that way. Queensland’s government refuses to legally oblige home sellers to disclose material information to prospective buyers.
Several years ago the ACT Government introduced reforms which require sellers, before putting a property up for sale, to give to buyers details of building approvals and inspections together with current building/pest inspection reports. The New South Wales Government requires sellers to give buyers building/ pest inspection reports.

full disclosure, real estate, buying a propertyWhen a disgruntled homebuyer complained to then Queensland Fair Trading Minister Peter Lawlor about expenses needlessly incurred because a seller and an agent failed to disclose building defects and illegal structures, the Minister’s unsympathetic reply merely stated the problem:

“While a real estate agent needs to verify the material facts when selling a property and encourage the seller to disclose all information, there is no obligation or legal requirement for the agent or seller to conduct building and pest inspections, or conduct council approval surveys prior to listing a property for sale.”

Pest and building inspections and council approvals are the responsibility of the purchaser, he unhelpfully explained.

The Queensland government has always said that, with the regulation of property transactions being subject to a complex range of local and state legislative requirements, the government would not consider placing a full disclosure onus on sellers: As the circumstances surrounding individual property sales are so diverse, this form of disclosure could not be readily prescribed or guaranteed.

The government believes that legally requiring pre-contract disclosure would shift costs to sellers without any guarantee of independence or accuracy. Not only would a further layer of costs be added to the sale process but also buyers might still have to conduct their own independent enquiries.

Full Disclosure of Flood Affected Properties

After minor flooding in Brisbane some years ago the Beattie government knee-jerked a new rule for motor auctions: auctioneers must announce if a vehicle is water-damaged.

No government ever wanted comparable flood disclosure in real estate sales. Yet home-sellers must inform buyers about electrical safety switches and smoke alarms.

Meanwhile, auctioneers and agents can freely sell flood-affected properties without having to disclose the soggy truth.  The buyers’ council search may show past flooding, but the standard Real Estate Institute of Queensland contract contains no opt-out flood clause.  Unless agents, auctioneers or sellers falsely represent properties as flood-free, buyers cannot withdraw.  Flood-prone sellers have no worries – provided you’ve sold after the clean-up and before the next flood.

full disclosure, real estate, buying a property, buyer bewareThe Beattie government’s first Fair Trading Minister, Judy Spence, said in 1999 that, because of the State’s potential for flooding, her department had concerns about real estate practices and “disclosure in the standard form of contract”.  But nothing changed.  Auctioneers, agents and sellers of flooded properties have largely kept buyers in the dark, while standard contracts remain flood-clause-free.  Conveyancing solicitors rarely see an agent-prepared contract where a property’s flood history is revealed.

There are no legal restrictions on selling flood-affected properties, although councils may require people building or extending to place floor levels above specified flood levels.  Incidentally, council flood search replies invariably give “no warranty” on the “accuracy of the information”.

When I pressed the Law Society about a consumer-protective flood clause I received this unhelpful reply:  “Whether or not the standard contract included a clause which in effect said the sale was subject to the property not being flood-affected was considered.  It was decided that such a clause would be extremely difficult to draft given the nature of flooding records kept by various local authorities and that, in the standard contract, the clause was probably not necessary.”

At the same time I asked the Office of Fair Trading if agents should be required to provide full disclosure of flood information.  The answer was no more helpful:  “You have raised concerns that the contract entered into by your client related to property which was found to have been substantially flooded and this information was not provided to her… It is considered it is not generally the function of an estate agent to provide information available from searches of local authority records.”

When Fair Trading prosecuted an agent for not revealing what he knew about a property’s termite damage, the Queensland Civil and Administrative Tribunal ruled that the “prudent course” for the agent was “to remain silent” and let the buyers pursue their own enquiries.  The Tribunal failed to consider that, by law, misleading conduct includes “willful concealment of a material fact”.

So, if you are looking to buy, remember to ask about flooding.  No matter what reply you receive, have your solicitor add a special condition permitting you to cancel if your search reveals the worst.

Full Disclosure of Structural Defects

A Queensland man who had been living and working overseas thought about buying an investment property on the Gold Coast. Eventually he signed up to buy a tenanted apartment on Chevron Island.  It was one of 30 units in a 4-storey block built some 5 or 6 years ago.

full disclosure, property, real estate, buying a propertyQueensland’s Body Corporate and Community Management Act implies in every unit and townhouse sales contract a seller’s warranty that there are no “latent or patent defects” in the common property, as well as no “actual, contingent or expected liabilities” of the body corporate, other than what may be disclosed in the contract.  A buyer has 14 days to cancel for any breach of these warranties.  Under the same Act sellers are taken to have knowledge of body corporate matters that might materially prejudice buyers where sellers ought reasonably to be aware of those matters.

In this case, the relevant standard “Seller’s Disclosure” items in the contract were left blank – which effectively meant that no defects or liabilities were being disclosed.  Meanwhile the selling agents had their own statutory Code of Conduct obligations not only to “encourage” the sellers “to disclose to the agent all relevant facts about the property”, but also to verify themselves “facts material to the sale”.

Of course my investigations soon uncovered some very material and relevant facts.  My body corporate records search revealed that the last annual general meeting of the body corporate had considered a report regarding cracks in the external walls and water leaks.   I immediately wrote to the sellers’ solicitors, asking not only for a copy of this report but also what action had been taken about it.  No reply ever came.

At my request my search agents urgently secured me a copy of the report.

The report to the body corporate was from a registered professional engineer (also a registered master builder).  He described severe cracking and movement to a driveway side wall, and attributed this to movement, settlement and “rotation” of footings.  The building’s swimming pool tiled surround areas also showed evidence of settlement.  The engineer’s opinion was, simply, that “settlement and movement” had occurred.  Moreover, the extent of settlement in the pool area constituted a safety hazard.  Urgent rectification works were recommended to prevent possible injury and insurance claims.

Settlement had also caused additional pressure to a side retaining wall which, as a result, had moved outwards towards the driveway.  The report indicated there might be “either damage/water leaks to the stormwater drainage line and pit located within the pool surrounds or possible broken pool pumping pipework”.

The driveway sidewall, in the engineer’s opinion, required “stabilization”.  This could be achieved by “installing bored and grout inspected piers to the pool surround area with large anchor rods installed between the piers and the external wall line to prevent any further movement.”  In the engineer’s opinion, leakage had occurred over “a long period of time” with the “potential for further damage and concrete cancer”.

On considering the report’s findings and recommendations, the body corporate’s meeting minutes and the financial records, the buyer was quite annoyed that nothing had been disclosed to him, despite the presence of serious structural defects in the building.

And the moral of this story?  Buyer beware remains the first rule if you are purchasing real estate anywhere.  Never expect full disclosure from sellers or their agents. In the meantime, we can only continue to lobby the government to make changes to the legislation so that full disclosure becomes a requirement when selling a property.

If you’d like help with a real estate transaction, please contact us.