In recent times there has been a spike in the number of claims and notifications involving allegations of misleading and deceptive conduct by agents.
Though standard professional indemnity insurance provides agents with protection against many of these claims, agents still need to be extremely vigilant in the conduct of their business to reduce the risk of a costly claim against them.
Professional indemnity insurance provides agents with protection against claims for breach of civil liability and protects your assets against claims for financial loss, injury or damage arising from an act, error or omission in the performance of your professional services.
Civil liabilities covered include cover for misleading and deceptive conduct, which is one of the most common forms of claim against agents.
What is misleading or deceptive conduct?
Although the basic principle of property law is ‘buyer beware’, a real estate agent will be responsible to the purchaser or third party for any loss resulting from a misrepresentation made by the agent.
This may be on the basis of the common law, statutory provisions (Australian Consumer Law and the Fair Trading Act 1987 (NSW)) or both. Generally an agent will not be liable for damages unless it is shown that the purchaser or third party actually relied on the representations of the agent.
Agents must bear in mind that the intent of a person is usually not relevant. The issue is whether the conduct (which can include an act, omission, statement or even silence), when tested objectively, is found to be misleading or deceptive. It is not necessary for a person to have intended to mislead or deceive in order for liability to arise.
Real situations involving real estate agents
Advertising a property for sale in the wrong suburb or a more up-market area
Advertising a property for sale in one suburb when it actually falls within another could be misleading conduct and a breach of the Property, Stock and Business Agents Act 2002 (NSW). Agents should ensure that this practice is not adopted and that all advertising material is 100 per cent accurate. If not, agents could face an investigation and could be fined.
Views or other features not accurately described or depicted
This is particularly relevant in advertising material used in connection with off-the-plan sales, where agents are often relying on information provided by third parties. A recent Federal Court decision (Bennett v Elysium Noosa Pty Ltd (In liq)  FCA 211) emphasises that claims of misleading and deceptive conduct do not end after the settlement of an off-the-plan contract and parties must have clear evidence supporting representations as to future matters.
If agents are making representations relating to future matters, as is always the case in off-the-plan sales, they must ensure that there are precise instructions on what representations can be made.
Agents should always obtain written instructions from the developer/vendor as to what they can or can’t say.
In a recent claim handled by Realcover, the agent had advertised a property depicting flames in a fireplace. This should never be done unless you are sure it is a functional and working fireplace.
Inaccurate land size
Recently there has been a spike in claims relating to misleading and deceptive conduct arising from the incorrect advertising of land size of properties for sale. In all cases the agents have relied on information that has been provided to them via third parties and online portals, which has proven to be incorrect, and the agents have not adequately protected themselves against the claims by taking steps to verify the accuracy of the information and through the use of suitable disclaimers.
Agents must always use caution when making reference to land size, dimensions and any other information regarding the property that may impact on the sale, and verify the accuracy of the information provided and the reliability of the source. The advice Realcover gives to agents to help avoid a claim is to use disclaimers that more clearly reflect that information has been obtained from third party sources. Suggested wording is: “We have obtained all information in this document from sources we believe to be reliable; however, we cannot guarantee its accuracy. Prospective purchasers are advised to carry out their own investigations …”
Further, disclaimers should be printed in the same font size as the main text and should also be included on all documents such as brochures, flyers, signboards and on any online advertising of a property. Where possible, have the vendor or their solicitor verify the details of the property in writing prior to the marketing campaign.
Where information comes from another source, the source should be named. Please note however that a disclaimer in itself may not be sufficient to protect you, as in determining liability a court will consider the agent’s conduct and the particular circumstances of the case as a whole.
This article was first published in the February 2013 edition of the REINSW Real Estate Journal.
The information in this article is of a general nature and individuals should always consider their own circumstances and read the relevant Product Disclosure Statement before making any decision regarding any Realcover product. While care has been taken preparing this article, and the information contained in it has been obtained from sources that Realcover believe to be reliable, Realcover does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose that the article may be used. Realcover accepts no liability for any loss or damage (whether caused by negligence or not) resulting from the use of this article.