Property problems: Agents must not misrepresent properties

Each week national law firm Simpson Grierson answers commercial property questions which can be emailed and headed "property problems". This week's question is answered by senior associate Daniel Kelleher and solicitor Kim Wight who can be contacted at daniel.kelleher@simpsongrierson.com and kim.wight@simpsongrierson.com

Q. I own a series of investment units. During negotiations to buy the units the real estate agent outlined the annual return I could expect. However, the units do not return nearly as much as was stated in the information provided by the agent. Subsequently, the vendors have said they did not know about the agent's statements regarding the annual return and the agent has said he thought the returns he provided were correct. Do I have any remedies against either the vendors or the real estate agent?

A. There are a number of remedies available for this type of problem. Unfortunately, these remedies tend to rely on the facts of the particular case. Your success will therefore depend on the particular facts in your case. We can however, outline general options, but recommend you seek more formal advice tailored to your specific circumstances.

One option is for you to seek to cancel the contract or obtain damages under the Contractual Remedies Act. Under this act, you may cancel the contract or obtain damages where you have been induced to enter into it by a misrepresentation made by, or on behalf of, another party to the contract.

In your case the misrepresentation would be the information the agent gave you regarding the annual return you could expect.

If this information led you to enter into the contract then you may be able to pursue a claim under this act. It does not matter whether the misrepresentation was intentional or simply a mistake. The agent's claim that he thought the returns were correct will not provide a defence.

The vendors are not protected in claiming they were unaware of the agent's statements. The agent was speaking on behalf of the vendors when he gave you the information about the returns.

This act also covers misrepresentations made on behalf of a party to the contract. So both the vendor and agent are potentially caught.

However, you will also have to prove the information given to you by the agent has substantially reduced the benefit of the contract for you. This will require more information about the level of returns you were promised compared with what you have received.

If you are successful, the courts can go so far as to reverse the transaction but ultimately the court will order what is just and practical in the particular circumstances.

You may also be able to pursue a remedy against the agent under the Fair Trading Act which prevents a person in trade from engaging in misleading and deceptive conduct. It is also possible the vendors are liable under the Fair Trading Act if they aided and abetted the agent in his misrepresentation. This is quite a technical point and requires much more information about the knowledge and behaviour of the vendors.

If you are successful in proving a breach under the act, there is a wide discretion to grant relief, including the ability of the court to declare the contract void.

Alternatively, you may also have a course of action against the agent for his statements regarding the rental return.

Estate agents owe various duties, one of which is a duty of care not to make negligent misstatements. It is possible the agent has breached this duty by giving you incorrect information regarding the level of returns you could expect.

In addition to this, a thorough analysis of your actions will be necessary to rule out any fault on your part.

It would be necessary to look at any contribution you may have made to your own loss as this would impact the relief you would be entitled to if any breach was found on the part of the agent and vendors. An example of this sort of contribution would be where a person had independent advice on the transaction which they chose to ignore.

More information is needed for a comprehensive answer. However, the remedies outlined are hopefully a helpful, albeit general, overview of the options that may be available.

The information contained in Commercial Property is intended to provide general information in summary form current at the time of printing. The contents do not constitute legal advice and should not be relied on as such. Specialist advice should be sought in particular matters.