Duty of Disclosure

In a radio interview recently, I was asked about agent’s informing would-be buyers about a neighbours’ anti-social behaviour and if this information should be disclosed.

It was a tricky question because agents are normally acting for the seller and therefore have a legal obligation to act both under their instructions and in their best interests. Agents also have a fiduciary obligation to obtain the highest and best selling price. Yet this can conflict with the Australian Consumer Law which is designed to protect buyers. There are strong requirements to disclose “material facts” in a transaction and heavy penalties exist for those that fail to disclose such matters whether or not there was intent or not to mislead through a non-disclosure.

Under law, the agent is only obliged to be “fair” to a buyer and a duty to disclose material facts are part of this obligation. Whilst there is worthy discussion to be had about what constitutes “material fact”, broadly it can be defined as any piece of information about a property or the transaction that could reasonably impact upon a buyer’s purchasing decision or on the value of the property. For example, if the agent is aware that the rear studio has been built without local government consent then it is reasonable that the buyer should be told.

REIWA agents will make enquiries about a property when listing it for sale and then determine which bits of information justify disclosure being careful not to undermine their duty to act in their sellers’ best interests in the process. For example, is the sellers’ pending divorce really relevant to the transaction? Whilst none of the buyer’s business, there is a perception that the property might be purchased for less if the owners are being cajoled to sell due to separation.

Difficulties arise in determining what is a material fact and therefore a disclosure and what is not. Back to our anti-social neighbour, it is my view that informing would-be buyers of this is subjective and therefore non-disclosable, yet the Consumer Law rules could require agents to disclose possible physical and “psychological” impacts of neighbouring properties. Does this mean then that agents are be obliged to tell a buyer that next door is tenanted, are young folk, have children or are of a certain ethnicity?

The line between agents firmly acting for their seller and being fair to the buyer has blurred in recent years and I encourage buyers to take responsibility when making a buying decision and not rely on what are often unclear duties of disclosure.

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