Allens

Real Estate

Focus: Misleading conduct about 'ocean views'

10 May 2012

In brief: A recent case on misleading and deceptive conduct, relating to views from units that were to be constructed, demonstrates that developers must give agents clear directions about the scope of what they can, and cannot, say to potential buyers. Professor Bill Duncan (Consultant to Allens) (view CV) and Partner Tony Davies (view CV) report on the decision and its implication for developers.

How does it affect you?

  • A Queensland Court of Appeal case on misleading and deceptive conduct, Mark Bain Constructions Pty Ltd v Avis and Mark Bain Constructions Pty Ltd v Barnscope 1 (heard concurrently), indicates that:
    • agents generally have authority to make representations about views; and
    • exclusions (or 'whole agreement') clauses in contracts that attempt to prevent buyers from taking action related to misleading conduct that is relied upon will not protect developers.
  • The answer is to have a prescriptive sales manual, and a Q&A that developers require strict compliance with.

The facts

The developer (Mark Bain Constructions) built a unit development known as Number One Park, at Sunshine Beach, Queensland. The buyers (Avis and Barnscope) contracted, in 2003, each to buy a penthouse in the development off the plan.

The purchase prices were $1,200,000 and $1,250,000.

During negotiations with each buyer, the relevant agent made representations that there would be unobstructed ocean views from each penthouse. At the time the representations were made, an adjoining unit development, Splash, was about to commence construction.

After Splash's construction, it was clear that the ocean views from the penthouses were substantially obstructed by this development.

The buyers settled their contracts, even though Splash obstructed their views. This was because either the agent or the developer had advised them that Splash had been built to a height that exceeded council approval. That is, the fault was with the Splash development, not the representations.

After settlement, the buyers engaged a surveyor to investigate whether Splash had breached council height limits. Once it became clear that there was no breach, both buyers brought proceedings against the developer and the agent. The claims against the agents were settled for $200,000 each. The claims against the developer went to trial and were heard together.

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The decision

The Queensland Court of Appeal handed down judgment on 15 April 2012. Its key aspects were that:

  • the agents had actual authority to make representations about views. This did not mean the developer gave express authority but, rather, 'the authority given by Mark Bain Constructions ... conferred actual authority to represent to intending purchasers that the Splash development ... would not interrupt views'. In effect, it could be expected that agents selling such product would make representations about views – although they are not expressly instructed to do so;
  • settlement of the contracts did not prevent the buyers from pursuing their claims. This was because it was not clear at the time of settlement that the representations were misleading (ie Splash was alleged to have been built to a height that exceeded council's approval); and
  • the exclusive clauses in the contract could only preclude a misleading representation claim if the clauses 'demonstrate that the party in question did not, in fact, rely on the conduct or where the "conduct" could not, as a whole, have been seen to be misleading'.

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The decision's relevance

First, agents' authority as to what they can or cannot say about what they are selling needs to be clearly specified. A sales manual, together with a detailed Q&A, is essential, and agents should be contractually obliged to stick to the Q&A. This is now a critical requirement in off-the-plan sales.

Second, exclusion clauses are of very limited value when misleading and deceptive conduct, and reliance on that conduct, can be proved.

Footnotes
  1. [2012] QCA 100.

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