Why a buyers’ agent can help you find the “material facts” sellers and their agents don’t disclose

Did you know that over two years ago, NSW amended legislation regulating the obligation of agents to disclose ‘’material facts” to prospective buyers?

The amendments were part of a suite of changes described by the REINSW as “sweeping reforms”.

This article explores how and why these reforms are failing to protect Sydney property buyers and how a competent buyers’ agent can help mitigate that failure.

Quick history

Prior to 23 March 2020, the obligation to disclose ‘’material facts” was confined to part of section 52 of the then Property, Stock and Business Agents Act 2002. Directed to sellers’ agents rather than buyers’ agents, that section read:

“[a] person who, while exercising or performing the function of a licensee or registered person, by any…concealment of a material fact (whether intended or not) induces another person to enter into any contract …is guilty of an offence under this Act.”

As the legislation did not define a “material fact”, sellers’ agents were left to decide what was and wasn’t a “material fact” which created a void.

Eventually, the NSW Administrative Decisions Tribunal partially filled that void in the case of Hinton & Ors v Commissioner for Fair Trading, Office of Fair Trading (GD) [2007] NSWADTAP17.

In that case, the regulator successfully prosecuted the seller’s agents with the Tribunal deciding that the contract for sale of the property was induced by their failure to disclose to the buyers that the property had been the scene of three notorious murders.

The Tribunal held:

“[i}t is not possible to determine in advance the scope of ‘material’ for the purposes of s 52 as it will be peculiar to any particular case and fact situation. This does not however render the provision inoperative or requiring a narrow interpretation…

While an agent will not always know the intangible factors that bear on a decision to purchase that is not what is required by the section. Absent a specific question from the purchaser or the independent determination by the agent (as was the case here), the question is an objective one to be viewed in all the circumstances. This will necessarily involve a question of reasonableness providing protection for agents from a purchaser seeking to rely on the provision for whimsical or unreasonable claims of materiality.

It is not necessary now to determine the parameters of what is a ‘material fact’ for the purpose of s 52. Suffice to note that indicia that will be relevant to such a determination include the agent’s treatment of the fact; whether the fact is able to be independently ascertained; whether the fact is likely to impact on price; the reaction of other purchasers to the fact; whether the fact results in the property being in a rare or unusual category or position.”

Hinton still left a lot to the discretion of sellers’ agents.

What are the reforms?

In an effort to remove the uncertainty that remained after Hinton, from 23 March 2020, the obligation, found in section 52(1) (b) of the now Property and Stock Agents Act 2002, was amended to read:

“[a] person (the agent) who is exercising or performing the function as a licensee or registered person must not induce any other person to enter into any contract or arrangement by…any failure to disclose a material fact of a kind prescribed by the regulations (whether intended or not) that the agent knows or ought reasonably to know.”

[A]ny concealment of” has been replaced by the broader “failure to disclose” with the new words “that the agent…ought reasonably to know” confirming that the test is objective which closed a small gate left open in Hinton.

These amendments were a step in the right direction and went further than Hinton in implying that seller’s as well as buyer’s agents now have a positive duty to inquire into possible “material facts” with penal consequences if they don’t do so.

Uncertainty remains

Regulation 54(1) of Property and Stock Agents Regulation 2014 reads:

“For the purposes of section 52(1)(b) of the Act, the following kinds of “material facts” are prescribed:

(a) within the last 5 years the property has been subject to flooding from a natural weather event or bush fire,

(b) the property is subject to significant health or safety risks,

(c) the property is listed on the register of residential premises that contain loose-fill asbestos insulation…

(d) within the last 5 years the property was the scene of a crime of murder or manslaughter,

(e) within the last 2 years the property has been used for the purposes of the manufacture, cultivation or supply of any prohibited drug or prohibited plant within the meaning of the Drug Misuse and Trafficking Act 1985 ,

(f) the property is, or is part of, a building that contains external combustible cladding…

(g) the property is, or is part of, a building where a development application or complying development certificate application has been lodged…for rectification of the building regarding external combustible cladding,

(h) 1 or more of the following orders, within the meaning of the Residential Apartment Buildings (Compliance and Enforcement Powers) Act 2020,  is in force in relation to the property:

(i) a building work rectification order,

(ii) a prohibition order,

(iii) a stop work order.”

(all above emphases ours).

According to the REINSW, Regulation 54(1) is a code that identifies all the “material facts” an agent needs to disclose.

That can’t be right because Regulation 54(1) is not an exhaustive list.

While sub clauses (c) – (g) are specific, all sub-clauses are prefaced by the general words “kinds of” which confirm that all sub-clauses are inclusive and not exclusive.

If Regulation 54(1) was intended to be an exhaustive list, the Regulation would just read:

“For the purposes of section 52(1)(b) of the Act, the following “material facts” are prescribed.”

It doesn’t.

The words “kinds of” therefore can’t be ignored.

Also, sub clauses (a) and especially (b) would not be worded as broadly as they are and give rise to these questions:

As to sub-clause (a):

• does the past tense “has been subject to” mean ‘actually flooded or actually burnt by bushfire’ within the last five years or is disclosure required where properties have become prone to such risks in the last five years?
• are climate change induced sea level rises, now projected to render 1 in 25 Australian properties uninsurable by 2030, a “natural weather event?”

As to sub clause (b):

• does the present tense “is subject to” include future significant health or safety risks such as unfiltered particulate from freeway ventilation stacks which are under construction? What about climate change induced future flooding or bushfire risks?
• what is a “significant health or safety risk” ? And to whom? Only healthy adults or ones with pre-existing health conditions? What about older people, young children or infants? What about a health risk of soon having no sewerage system? Or the safety risk of having a hostile neighbour?

In reality, does this matter?

Yes. Absolutely.

Discussed below are some “material facts” found by the Curtis Associates team and disclosed to several of our residential and commercial property buyer clients.

These cases were spread throughout Greater Sydney and all occurred after 23 March 2020 except for the Hawkesbury River region case which occurred on 2 March 2020. Three weeks before the reforms came into force, that case involved an email from the seller’s agent that was potentially incriminating under the principles in Hinton.

None of these facts was disclosed either by the sellers or their agents and all such facts had a material bearing on the buying decisions made by our clients:

• predicted climate change induced flooding of properties in numerous Sydney suburbs including Five Dock, Wareemba, Double Bay, Woolloomooloo and Drummoyne
• proven child hood leukaemia risk from electromagnetic radiation emitted by the Gore Hill and Chatswood TV towers affecting Naremburn, Greenwich, Artarmon and Willoughby
• health risks from high voltage transmission lines in Jannali
• a likely irreplaceable and soon to be prohibited on site sewerage system in Katoomba (read more about this case here.)
• water inundation risk from undisclosed subterranean stormwater drainage systems in Marrickville and Lewisham
• lung, heart and cardio vascular disease risk especially to children, caused by unfiltered particulate emitted from freeway ventilation stacks including:
  –  existing stacks affecting parts of Milsons Point, Kirribilli, Paddington, Darlinghurst, Surry Hills, Five Dock, Rodd Point and Haberfield
  –  stacks under construction and likely to affect Cammeray, Cremorne (north), Crows Nest, Glebe, Annandale, Balmain, Birchgrove, Rozelle, Lilyfield and Alexandria
  –  proposed stacks which if built, will likely affect Frenchs Forest, Forestville, Killarney Heights, Balgowlah and Seaforth
• property cracking risks posed by the Westconnex tunnel passing beneath a Newtown property
• extensive soil and water contamination from previous industrial uses in the Hawkesbury River region and
• disharmony in a lower north shore strata complex caused by an owner whose behaviour (also not disclosed in the vendor provided strata report) had caused a sale in the complex two months’ earlier and according to the Owners’ Corporation’s solicitor, had for years caused several other owners to “feel threatened, intimidated, bullied and harassed”.

Just how “sweeping” are these reforms?

No more sweeping than their predecessor legislation under which Hinton was the only decided case.

Moving in the same direction as the amended legislation, Regulation 54(1) still has not been judicially considered after more than two years.

Time will tell if that’s because buyers have chosen not to complain, don’t yet know about “material facts” affecting their properties or whether, because of the uncertainties discussed in this article, the regulator is reluctant to test Regulation 54(1) in a court.

Either way, if the above case studies are any guide, the reforms are failing Sydney property buyers.

New reforms are needed to protect those buyers and to start the long overdue process of rolling back caveat emptor (buyer beware) as the premise that still underlies buying Sydney property – the same premise explaining confidential prices which Curtis Associates has been railing against for over 12 years! https://www.curtisassociates.com.au/sydneys-property-market-and-the-curse-of-the-confidential-price/

How can buyers find their way without new reforms?

Mitigate your risk by retaining an exclusive buyers’ agent.

An exclusive buyers’ agent owes no loyalties to a ‘listing’ and is not paid by the party whose “material facts” that party’s agent is obliged to disclose.

Given that there is no inherent conflict between the interests of a buyers’ agent and a buyers’ agent’s obligations under Regulation 54(1), it makes powerful sense to retain an exclusive buyer’s agent who will be your independent advocate every step of the way.

While Sydney buyers’ agents can’t find and advise on all “material facts” and their role isn’t to underwrite those risks, competent ones will make all reasonable efforts to find them and to refer you to relevant experts where required.

The key is to find a buyer’s agent who asks the hard questions and completes comprehensive due diligence so that you, the property buyer, are well informed.

Curtis Associates clients can attest that finding and disclosing these “material facts” was a vital step in deciding whether or not to buy a Sydney property.

For in-depth property buying advice, analysis and research from a team that doesn’t manage property or act for vendors – get in touch. We’ll send you our Curtis Associates Newsletter – Monthly Sydney Property Insights, complimentary.