Q&A – Proposed New Seller Disclosure Laws in Qld

Q.1: Why do we need consumer protection anyway?

Answer: Consumer protection law provides a way for individuals to fight back against abusive practices. These laws ensure sellers of goods and services are held accountable when they seek to profit by taking advantage of a consumer’s lack of information or bargaining power. They protect us against unfair conduct, fraud, duress, false and misleading representation and dishonesty. In Australia, our consumer protection laws are in place for every product and service sold EXCEPT for houses.

 

Q.2: What is our current law?

Answer: Our current law is based on the common law doctrine of “Buyer Beware” – it is not a good law – it gives sellers unfair advantage over buyers. It came from England during our colonisation and dates back to the 1500’s in England when it served to protect the wealthy landowners. It does not belong in our modern society – it is, in fact, a legal loophole that allows sellers to get away with dishonest, unethical, unfair and fraudulent conduct yet it has continued to operate throughout Australia (except in the A.C.T.).

In 2003, the A.C.T. (and recently the UK) enacted consumer protection legislation for residential properties.

 

Q.3: Why is it that we have not had consumer protection for buyers of houses?

Answer: Perhaps the reason why the “unjust” buyer beware law has been left unchanged for so long is because of the immense challenge it poses to re-write the conveyancing laws and implement major change to long-standing practices within the conveyancing and real estate industries. Such a change would involve a great deal of expense, education and training. The relevant industries would most likely resist change due to the upheaval it would cause them (without having proper regard to what is in the public interest) and these industries have the ability to exert political pressure to ensure their own interests are protected.

Not only is it the powerful industry groups that resist the change that is needed in the interest of public justice, but the public appear unaware or ill-informed about the lack of protection and merely just assume that the law will “look after them” if they get ripped off. They wrongly assume that because they have lawyers involved in the conveyancing transactions, that the law will protect them should something go wrong. Alas, once the defective house is sold, it is too late for the buyer to come back at the seller. Other people may incorrectly think that because the seller can legally hide defects or be dishonest to buyers that therefore it is morally and ethically right. Definitely this is not the case. Unfortunately for many, the buyer beware doctrine acts as a legal loophole for sellers to use to profit from unsuspecting buyers and cause financial hardship to innocent victims.

Thankfully we can now look at the A.C.T. for guidance and proof for how consumer protection laws can work effectively in the property market ensuring that all the parties are honest, professional and fair. In the A.C.T. the seller must provide to all potential buyers certain documents regarding the condition of the property so that there is transparency and honesty between the parties.

 

Q.4: Why can’t it be up to the Buyer to do due diligence?

Answer: Currently, the buyer, after signing the contract, can arrange for Building & Pest reports to be done within a 7-14 day time frame to determine whether to proceed based on the report findings. The buyer has very little time for the inspections to be arranged and the reports to be completed, explained, digested and understood. The inspections are limited in that they are VISUAL inspections only and in areas that are reasonably accessible. Many defects cannot possibly be detected by the human eye and many can be easily covered up by stored goods, heavy furniture, new render, paint, rugs, paintings etc etc. The Seller can find all sorts of ways to “legally” cover up structural and unsafe defects. This is UNJUST.

 

Q.5: How can the Seller know what the defects are?

Answer: The new Seller disclosure laws will be reasonable so that the seller is obliged to inform the buyer what the seller ought to have reasonably known. In the A.C.T. the seller must provide and attach to the contract certain reports. These reports include a building and compliance inspection report; a pest inspection report; asbestos report for relevant properties and an energy efficiency report. The seller is reimbursed by the eventual buyer for the cost of the reports and the buyer can legally rely on those reports.

 

Q.6: How can we rely on the Seller’s reports?

Answer: With the new Seller disclosure laws (like that in the A.C.T.) the reports can only be prepared by someone who has professional indemnity insurance and cannot be related in any way to the seller or agent and that person must provide compensation to the buyer for a false report. The seller must have the reports available for inspection to all potential buyers or face penalties (up to $1,500 for individuals or $7,500 for agents) and the seller will face penalties (up to $15,000 for individuals or $75,000 for agents) for giving false or misleading reports.

Therefore the buyer can absolutely rely on the seller’s reports. (This has been working effectively in practice in the A.C.T.).

 

Q.7: Can the Buyer still get their own report?

Answer: Of course the buyer can choose to arrange his/her own report and compare it with the seller’s report. However, research has found that in practice (in the A.C.T.) the buyer does not take this step because he/she knows that he can trust the report because of the the penalties under the legislation that apply for non-compliance. The buyer can confidently proceed with the purchase knowing that he has legal protection (consumer protection). The actual buyer reimburses the seller for the cost of the report. It is important to note that, as an added safeguard, in the A.C.T, the seller must provide reports that are dated not more than 3 months prior to the listing date of the property and if other reports have been obtained by the seller during that 3 month period (6 months for pest reports), then those reports must also be shown to potential buyers.

 

Q.8: How do we know if the new Seller disclosure laws will work in Qld?

Answer: The A.C.T. has been operating under their Seller disclosure laws: Civil Law (Sale of Residential Property) Act 2003 for the past 13 years and it has been working very well to protect buyers ensuring transparency, fair bargaining power and professionalism.

A real estate agent, John Buckley from Remax in Queanbeyan (on the NSW and ACT border) works daily with both the NSW “Buyer Beware” system and the A.C.T “Seller disclosure” system and can confirm that he much prefers the ACT system because it actually helps the sale process as the buyers are more confident at buying the property and so the sales are less likely to get held up or terminated. He said that he was initially skeptical of the new Seller disclosure system but now he embraces it and hopes it will “become the national template”.

 

Q.9: Is there really a need to get new Seller disclosure laws?

Answer: Even with our current “Buyer Beware’ Law, according to a survey conducted by Westpac early this year, only 39% of buyers are actually getting professional reports done. So for those remaining 61% of buyers who are not getting reports done – they are putting themselves at serious risk of being stuck with a “lemon” and having no remedy against the seller for not informing them of the structural or unsafe costly defect. This is happening everyday to unsuspecting and innocent buyers who for various reasons decide not to get a building and pest report done. Some reasons could be to save money (as they have already paid for multiple reports on many other properties that they missed out on); they decide to get a builder friend to have a quick look over it; they think the house looks good enough; or the seller/ agent made some verbal assertions as to its good quality etc etc. These buyers can be vulnerable to being mislead by dishonest conduct in order for the seller and agent to get the sale through. These innocent buyers cannot claim compensation from the seller and can suffer serious financial hardship and health and safety issues as a result. Why should our law allow this to happen?

 

Q.10: What are some of the undisclosed defects that have lead to hardship?

Answer: Examples of undisclosed defects causing serious financial hardship: subsidence issues (often cracks that have been patched & rendered for a temporary fix) can cost $100,000+ for underpinning; termite infestations can cost $10,000+ to fix depending on the extent; roof leaks (where leaks have been painted over) could incur $15,000+ for a replacement roof; asbestos – 10’s of thousands $$ & serious health issues; poor drainage (often patched & painted or covered by heavy furniture & stored goods) could cost $10,000 – $20,000 to remedy and will affect health; unsafe structures or DIY builds can cost $$$$ plus safety & health at risk etc etc

 

Q.11: Why do new Buildings need inspections when the private certifier does a final inspection anyway?

Answer: The private certifier’s inspection does not include the quality of the finish and inclusions. For example many items like paint touch ups, plasterboard defects, inclusions, fittings etc are not included in his check. For new buildings, the seller should provide to the buyer an independent building inspection report that includes a quality check against the QBCC guide to Standards and Tolerances and the accepted good trade practices.

 

Q.12: What are the main benefits of a new Seller Disclosure system?

• Only 1 set of reports per property (not multiple reports for multiple potential buyers);
• Saves the buyer money as they only pay for the report if they actually buy it;
• The seller is not out of pocket as the buyer reimburses the seller for the report;
• The buyer can legally rely on the report/s because the seller/agent and the person responsible for the report/s face hefty penalties and/or must compensate the buyer if they do not comply with the legislation;
• The buyer can still elect to get his own report/s done (if he wishes) but in practice buyers have not been doing this (according to the practice during the past 13 years in the A.C.T);
• The buyer can make a confident decision about buying the property if there is transparency and honesty about the true condition of the property;
• The house prices will more accurately reflect what they are really worth – this could make the property market more affordable for first home buyers;
• There will be more trust between the parties, more open and honest communication and transparency rather than the current adversarial environment;
• The building inspectors and other report writers will need to be more professional and accountable, they will need to be sufficiently insured and licensed ensuring high standards in the building inspection industry;
• The real estate agents will need to be more professional, honest and fair in their dealings with buyers and sellers ensuring better standards in the real estate industry;
• Ultimately houses will be safer and healthier for buyers and for the public in general;
• The real estate sale process will proceed more smoothly & efficiently reducing time, cost and stress for all the parties to the transaction;
• More work will result for trades people engaged in repairing and replacing defective items so that houses are better maintained especially before their sale;
• The seller will not need to provide pest reports for brand new unoccupied properties.