Real Estate Liable for Misrepresentations to Purchaser

In the case of Makings Custodian Pty Ltd & Anor v CBRE (C) Pty Ltd & Ors [2017] QSC 80, the Supreme Court of Brisbane was tasked with determining whether a leading Gold Coast commercial real estate agent engaged in misleading and deceptive conduct in the sale of a shopping centre.

The case involved allegations by the purchaser that they were misled by the real estate agent and property manager as to the Centre’s financial performance and worth. The vendor company was in liquidation and subsequently deregistered, and as such no claims were brought against the vendor by the purchaser.

Prior to entering in to the Contract, the real estate agent prepared and provided to the purchaser an Information Memorandum specifically relating to the net rental for the tenancies, total net outgoings of the Centre, the Centre’s liability for outgoings and past rental increases. The agent made particular representations that the existing rent would produce a net rental return in excess of $607,000.00 however failed to understand that this estimate was not accurate as it represented the total net rent that the tenants were obliged to pay as opposed to the actual rent collected by the vendor. In fact, the majority of the tenants were struggling to pay full rent and outgoings as required by their leases.

At trial, the purchaser alleged that they relied on the information contained in the Information Memorandum and given by the real estate agent in verbal and written communications in deciding whether to purchase the Centre and that the information provided failed to disclose the poor performance of the Centre since its opening. The court considered the range of information provided by the real estate agent but paid particular attention to the Information Memorandum, which was collated by the real estate agent using reports prepared by the property manager for the vendor and displayed the agent’s brand, address and contact details on every page of the document.

In its defence, the real estate agent attempted to rely on a formal disclaimer contained in the memorandum which stated that:

• all information in the document and given orally was given without responsibility;
• potential purchasers should not rely on the information and should satisfy themselves as to the accuracy of it and as to any conclusions; and
• the real estate agent gave no implied or express representation, warranty or undertaking as to the truth, accuracy, relevance or completeness of the information.

To bolster its defence, the agent also submitted that the decision in a previous High Court case should be applied by the court, whereby it was held that an agent was not to liable for making misrepresentations to a purchaser where the agent has simply passed on information provided to it by the vendor.

The Supreme Court ultimately rejected the real estate agent’s arguments and held that the agent had made misrepresentations to the purchaser and that the disclaimer contained in the Information Memorandum was not sufficient to alert the buyer that the information contained in the document was simply being passed on from the vendor and as such did not absolve the agent of its liability for the making of the misrepresentations. The Court found in favour of the purchaser and the real estate agent was ordered to pay the purchaser just over $1.6 million dollars, calculated having regard to the difference between the value of the Centre and the purchase price paid.

The purchaser failed in their claims that the property manager contributed to their loss as the Court concluded that the report prepared by the manager which used by the agent for the Information Memorandum, taken as a whole, clearly disclosed the poor performance of the Centre.

This case serves as a caution to agents about the distribution of information supplied to them by vendors. Agent’s should specifically consider whether their disclaimer notices regarding sales information provide sufficient warning to potential purchasers that the information has not been verified and is simply being passed on from the vendor. If you have any queries regarding any of the issues raised in this case, please do not hesitate to contact Renze Verheyen of our office.