May 14, 2009

In September 2003 two Chinese buyers signed an off-the-plan contract for an apartment in an inner-city development. When the plan was finally registered in late 2005, the buyers failed to complete, claiming misrepresentations in the agent’s newspaper advertisement.

The ad credited the development as being in the Sydney Morning Herald top-ranked suburb for growth among three suburbs that were going to double in value in five years.

The buyers also claimed that the agent assured them on site on several occasions that the apartment would have a higher value by the time they were required to complete.

The Court had misgivings about the credibility of both the agent and the buyers. The buyers conceded that they did not have sufficient funds to complete the purchase nor did they have any likelihood of being able to borrow, when they signed the contract.

The NSW Supreme Court* recently decided that the agent’s advertisement overstated the application of the newspaper’s study. Among other things, the SMH article predated the newspaper ad by nearly 1 year and the market had already moved upwards in value substantially in that time.

The agent and the seller had, as a result of the agent placing the advertisement, engaged in misleading and deceptive conduct contrary to the Trade Practices Act 1974(Cth) and an order rescinding the contract was made.

This was so even though the seller had no part placing the newspaper advertisement.

In addition, the Court held that the buyers were misled by the agent into over-optimistic confidence that residential values for the location would continue to rise.

For developers, this case illustrates that developers must exercise tight control over marketing materials and statements that are made by their marketers. For agents, it demonstrates the importance of using only verified data if giving projections as to future values. Prominently placed disclaimers of the possibility of projections not being met, should be included in all marketing materials.

* Zhang v VP302 SPV & Others [2009] NSWSC 73

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