Sell but don’t tell

Introduction 

In 2017, the McEntee family purchased 14 Langbein Avenue, Woodside, SA (“#14”) from Ms Rosewell and Mr Kloostermann (“the Original Owners”).  Soon after settlement, Mr McEntee was visited by Mr Kornelissen, his new neighbour at 16 Langbein Avenue (“#16”).  Mr Kornelissen informed Mr McEntee that the fence between #14 and #16 was not located on the true boundary between them.  Mr Kornelissen also informed Mr McEntee that his new house on #14 encroached over the boundary on to #16.  Shortly after this, Mr McEntee also found out that the Studio, a separate building in the backyard of #14, had structural defects and had been converted by the Original Owners from a garage to a studio without the required Council approval.

The McEntee family negotiated a land swap with Mr Kornelissen and realigned their boundary to resolve the encroachment issues.   The McEntee’s then issued a claim in the District Court for compensation from the Original Owners and the land agent on

the basis that they had not been informed about the encroachment issues and had not been informed about the unapproved building work on the Studio. The trial occupied 11 days in the District Court and was then the subject of an appeal to the Court of Appeal in the Supreme Court.

The background story

During the trial, the extent of the history of the dealings of the Original Owners and their previous efforts to sell #14 became apparent.

In 2002, some 15 years earlier, Mr Kornelissen had decided to replace the rear fence of #16.  He engaged a surveyor to check the boundaries and found that the true boundary of his property (#16) was located up to 2.7 metres inside the neighbouring property (#14). The survey also revealed that the house on #14 was encroaching on to the #16 land by about 0.5 metres at the rear of the house.  Mr Kornelissen approached the Original Owners to discuss these encroachment issues but they were dismissive of the accuracy of the survey.

In 2014, Mr Kornelissen obtained a further survey which confirmed the accuracy of the 2002 survey.  The 2014 survey was also given to the Original Owners.

The first attempt to sell #14

In 2016, the Original Owners decided to sell their home at #14.  They engaged a land agent, Mr Bishop, who commenced a marketing campaign.  When he held initial discussions with the Original Owners, Mr Bishop asked whether there were any encroachments or fences not on the true boundaries and was told there were no issues with the boundaries. 

During one of Mr Bishop’s open inspections for #14, Mr Kornelissen attended and handed out flyers to prospective purchasers informing them of the encroachment issues.  On the rear of the flyer was an extract from the 2002 survey showing the extent of the encroachments.  Mr Bishop then informed the Original Owners that he was unable to market the home until the encroachment issues were resolved and withdrew from the marketing campaign.

The second attempt to sell #14

In late 2016, the Original Owners contacted a new land agent, Sandra Berry of S J Berry Pty Ltd. Ms Berry was told of the visit by Mr Kornelissen to the earlier open inspection held by Mr Bishop where he distributed the flyers. Ms Berry was shown the flyer and the 2002 survey.

Ms Berry drafted the following term for inclusion in the marketing contract:

The Vendor advises that the rural dividing fence between 14 Langbein Avenue and 16 Langbein Avenue may not be on the true boundary and that the residential building on 14 Langbein Avenue may encroach on the land at 16 Langbein Avenue (“the Disclosure”).

Ms Berry then commenced to market #14.  Mr Kornelissen found out that #14 was back on the market and on 2 February 2017, Mr Kornelissen visited Ms Berry’s office.  He took with him the various documents he had gathered over the years relevant to the encroachment issues.  He offered documents to Ms Berry but she refused to accept them saying that she had already seen them.  Ms Berry informed Mr Kornelissen that the property was to be sold and that she had sold “others in worse conditions”.  Ms Berry warned him to not interfere with open inspections and said she would be making potential purchasers aware of the encroachment issues.

On 18 February 2017, Ms Berry held an open inspection at #14.  Mr Kornelissen arrived at the inspection and approached prospective purchasers, offering to them a copy of the flyer showing the encroachment.  Ms Berry came over to him and was abusive towards him, saying his actions were illegal and that she would have him charged.  Subsequently, Ms Berry continued to market the property at private inspections.

In late February 2017, Mr McEntee inspected #14 at a private inspection with Ms Berry.  Ms Berry said to him words to the effect that “there might be a slight issue with the existing boundary fence being over marginally”. Later, Ms Berry said that the encroachment of the fence in the vicinity of the house itself might be “100mm-200mm” and indicated this distance with her hands.  Ms Berry said nothing about the house encroaching over the boundary.  The fence was located about 1.2 metres from the house and Mr McEntee was not bothered by the “100-200mm” possible encroachment.

Mr McEntee made offers on #14 and ultimately was the successful nominee purchaser on behalf of his family.

After the sale

After the sale and Mr Kornelissen’s visit to inform them of the encroachment issues, the McEntee family also became aware of the problems with the Studio. The McEntee family issued proceedings in the District Court against the Original Owners, Ms Berry and S J Berry Pty Ltd seeking compensation for the loss suffered by reason of the failure to disclose the encroachment and the failure to disclose the unapproved status of the Studio. The claim was based on deceit, breaches of the Australian Consumer Law, breach of contract and damages for negligent misrepresentation.

The decision

The District Court upheld all of the McEntee’s claims.  It held that each of SJ Berry Pty Ltd, Ms Berry and the Original Owners had deceived the McEntee family. 

The Court accepted the McEntee’s claim that they would not have entered the contract to purchase #14 if they had been properly informed.  Even though the contract included the Disclosure, the statements made by Ms Berry as to the “100mm-200mm” and the fact that the Disclosure included the words “may not be on the true boundary” and “the residential building on 14 Langbein Avenue may encroach on the land at 16”, when Ms Berry knew of the fact and extent ofthe encroachment meant that the Disclosure was deceitful.

Where deceit is claimed, the test applied by the Court is a slightly higher standard than the usual “balance of probabilities” test.  The test is known as the Briginshaw test.  There are three considerations before making such a finding; the inherent unlikelihood of deceit, the gravity of the consequences of such a finding exposing the individual to exemplary damages, and the likelihood of reputational damage. 

There are four elements necessary for the tort of deceit:

  • There must be a representation of fact made by words or by conduct, which will include a case where the respondent has manifestly approved or adopted a representation made by some third person. Mere silence is insufficient;

  • The representation must be made with a knowledge that it is false. It must be wilfully false, or at least made in the absence of any genuine belief that it is true;

  • It must be made with the intention that it should be acted upon by the applicant in the manner which resulted in damage to the applicant;

  • The applicant must act upon the false statement and sustain loss or damage by doing so.

The Court found that all four elements were made out and that the actions of all respondents were deceitful on the Briginshaw basis.  It awarded damages accordingly.  The appeal by the Original Owners and the land agent to the Court of Appeal was dismissed.

Conclusion

When marketing real estate, it is essential for vendors to fully inform their agents as to any known issues with their property.  Whether there are encroachments, known defective work, or known unapproved development, it is essential to make full disclosure.  Being deceitful as to defects or encroachments with a view to concluding the sale will undoubtedly expose both the vendor and the real estate agent to significant consequences that can endure long after the sale has concluded.

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