A recent High Court case (Mitchell v Zhang [2015] NZIT3208) clarified a vendor’s obligation to disclose information about land to a purchaser – and serves as a reminder of how critical timely due diligence and legal advice is when buying property.
Background
Ms Zhang made an unconditional offer to buy the Mitchell’s property for $5.8m on the same day she first inspected it. Later that day, Ms Zhang discovered the Auckland Unitary Plan showed an indicative road running through the eastern boundary of the property. Ms Zhang claimed that the Mitchells should have told her about the indicative road, and that the agent misrepresented the property to her. Ms Zhang refused to complete settlement of the purchase and went to court to ask to be released from the contract.
Ms Zhang wanted to purchase the property to subdivide. Ms Zhang had previously tried to buy a nearby property at auction, but was unsuccessful. That property sold for $5.86m. A week later, Ms Zhang visited the Mitchell’s property and was told by the agent that the property was, in all material respects, similar to the property she had missed out on, and was suitable for immediate subdivision. She made an offer that was accepted. On finding out about the indicative road just hours later, she also learned it would reduce the number of sections that could be formed by subdividing the property.
Legal issues
The court case centred on the effect of clause 7.1 of the standard Auckland District Law Society/REINZ form of agreement for sale and purchase.
Clause 7, which lists the vendor’s warranties and undertakings, states:
7.1 The vendor warrants and undertakes that at the date of this agreement, the vendor has not:
(1) received any notice or demand and has no knowledge of any requisition or outstanding requirement:
(a) from any local or government authority or other statutory body; or
(b) under the Resource Management Act 1991; or
(c) from any tenant of the property; or
(d) from any other party; or
(2) given any consent or waiver, which directly or indirectly affects the property and which has not been disclosed in writing to the purchaser.
The court said that the general rule is that, unless a contract provides otherwise, a vendor is not under an obligation to disclose information that they may hold about the property. It is the purchaser’s responsibility to carry out their own research and obtain their own information about the property. The general rule is that silence is not a misrepresentation.
However, section 7 of the standard agreement states that, in certain circumstances, a vendor is required to provide details of notices received which are relevant to the property, but not general information. The court said that the detail of the provisions of the Auckland Unitary Plan relating to the use and potential subdivision of the property is information, rather than a notice, as that phrase is used in clause 7.1. In this case, there was nothing in the nature of a formal requirement or demand that specified action be taken.
The fact that if the property was to be subdivided in the future it must comply with the requirements of the Auckland Unitary Plan was not something that was required to be disclosed. That was public information that any interested party could have obtained for themselves with a normal amount of due diligence. There was no communication from council to the Mitchells of any demand, requisition or outstanding requirement in relation to the property.
Ms Zhang also alleged that the real estate agent had made a misrepresentation about the value of the property, and that it was, in all material respects, similar to the property she had missed out at auction, especially regarding subdivision potential. A valuer gave evidence that the value of the property, with the inclusion of the road, would have been $4m. The court found that the real estate agent had only advised the purchaser that the Mitchells were seeking $5.8m – he did not tell her that $5.8m was what he thought the property was worth. The court said that the passing on of the vendor’s expectations as to the price was not an actionable misrepresentation.
The court found that the real estate agent’s advice to Ms Zhang as to the subdivision potential of the property was limited to the fact that the property had a certain zoning subject to resource consent and council approval, and that it had sewage and drainage approved.
Ms Zhang also argued that the Mitchells had engaged in misleading or deceptive conduct in breach of the Fair Trading Act 1986. The court accepts that the FTA only applies if the person engaged in the deceptive conduct is “in trade”. The court’s view was that a person who engages in a one-off transaction for the sale of land may, in some circumstances, be acting “in trade” for the purposes of the FTA. However, the definition of “in trade” means that there must be some element of commercial dealing in the disposition. Not every sale of land will include that element and be “in trade” – the sale of a family home, for example, cannot be “in trade”.
Upshot? Ms Zhang was ordered to complete the purchase of the property.
Summary
This case clarifies what a vendor is required to disclose under clause 7.1 of the agreement, and shows that the purchaser must still undertake their own due diligence review of a property, and not make assumptions based on what they may or may not have been told about the property.
