Get me out of the Contract to buy House of Horrors!

By 9 October 2017Property Law

No-one ever sets out to buy the “House of Horrors”!

What if you only discover this after you have already entered into a Contract to buy the house or, even worse, you have already moved in?

Our firm had a “House of Horrors” issue a few years ago. After Contracts had been entered into the local television news showed footage of police raiding it because of suspected methamphetamine manufacturing activities.

Purchaser not happy!

What can the unhappy purchaser claim against the vendor?

The first issue to determine is “has the vendor actively misled the purchaser?”

This is unlikely. For this to be so the vendor would have to positively assert the “un-stigmatised” character of the property.  Silence by the vendor will not be enough.

The second issue is “has the vendor failed to ‘disclose’ as required by legislation?”

Vendor disclosure obligations for Victorian properties are set out in Section 32 of the Sale of Land Act 1962 and for New South Wales properties in Section 50 of the Conveyancing Act 1919. Neither legislation imposes an obligation to disclose a “stigmatising” activity or event in its own right, unless it is the subject of a notice or order which the relevant legislation requires be disclosed.

However estate agents, at least those practising in New South Wales, are subject to regulations which might oblige them to make such a disclosure.

Pursuant to Section 52(1) of the Property Stock and Business Agents Act 2002 agents are under a duty to disclose any “material fact”. A “material fact” can be difficult to define, but generally speaking is a “fact” which if disclosed to the purchaser would be likely to have a significant impact on the price the purchaser would be willing to pay for the property.

Sef Gonzales murdered his family in their home. This triple murder was not disclosed by the agent to the purchasers of the home. This fact was “material”! The purchasers were able to rescind the Contract. The agent was heavily fined.

The decision as to whether or not to disclose will be difficult, particularly if it is not obvious that the possibly stigmatising fact is “material”, as often the vendor will not want it disclosed so as to protect the price.

Any such reluctance may place the vendor’s agent and indeed the vendor’s solicitor in a very difficult position. The decision as to whether or not to disclose will need to be carefully considered and if the decision to disclose is made, care taken to ensure that the disclosure is undertaken in such a way as to clearly meet the obligation to disclose but not unduly “panic” potential purchasers.

Seek good advice if you encounter a “House of Horrors”.