Section 32 Statements – Vendor beware.
Caveat Emptor, the Latin phrase for “buyer beware” is no doubt a term that is on the minds of every purchaser when they are deciding whether or not to purchase a property. However, a recent case in the Supreme Court of Victoria highlights that vendors should also beware or at the least be careful when advertising their property and making disclosures in Section 32 statements.
The case in question involved the sale of the Albert Park Beach Hotel. The Hotel was leased to the Collingwood Football Club (“the Club”) on a lease which was due to expire in 2021. The contract of sale and Section 32 statement provided a copy of the lease, however, it did not disclose that the Club had entered into a conditional assignment of lease to another party. The purchaser refused to settle alleging that the vendor had mislead the purchaser by failing to disclose the proposed assignment to another party who was not considered by the purchaser to be a “AAA” tenant. There was no dispute that the vendor knew of the proposed assignment.
Interestingly the Court found that as the assignment was conditional there was no guarantee that the Club would continue to be the tenant, particularly as it could assign its lease at any time pursuant to the terms of the lease. It also found that the purchaser’s main reason for not settling was not the potential misleading conduct but rather the inability to obtain finance to settle.
The vendor in this case was found to not have mislead the purchaser and sued the purchaser for the failure to settle and successfully obtained orders for $500,000 in damages from the purchaser. Notwithstanding the outcome of the case, there are lessons which can be learnt:
- For Purchasers. Notwithstanding what is enclosed in the contract and Section 32 statement it is important to undertake a thorough due diligence before agreeing to purchase the property. Purchasers should make all due and necessary enquiries to attempt to ascertain whether key tenants are satisfied, the leases are valid and binding and the tenants are not in default of the lease. It is also prudent to ask the vendor (or agent) to confirm in writing any key representations made in respect to the property and attempt to verify such representations independently.
- For Vendors. Whilst the vendor in this case was not found to have misled the purchaser, a different outcome may have occurred if the assignment was not conditional and not disclosed in the Section 32 statement. It is important that vendors make appropriate and correct disclosure of all material items required to be disclosed in Section 32 statements. In addition, vendors need to provide accurate and complete information to their agents and vendors should carefully review marketing material to ensure all statements and representations made about the property on their behalf are true and accurate in all respects.
- For Agents. Be careful when making representations about properties on behalf of vendors. Agents have a duty to ensure that they do not mislead or deceive purchasers and agents should independently verify information provided to them by vendors to ensure it is true and accurate in all respects otherwise they too may be pursued by a disgruntled purchaser.
It is important that the contract of sale and Section 32 statement is carefully drafted if you are a vendor or carefully reviewed if you are a purchaser. We recommend contracts be reviewed and due diligence be undertaken prior to the contract being signed.
For expert advice please contact Phillip Leaman or a member of our Property Law team.
