Buying Off-The-Plan Apartments – Have You Done your Market Research?

by Andrew Lind on 3 July, 19

Purchasing an off-the-plan apartment for the view? It may be necessary for you, the buyer, to undertake your own market research to confirm that any views will not become obstructed by other developments, and that any such research may be prudent regardless of what has been “represented” to you prior to entering into the sale contract. In Orchid Avenue Pty Ltd v Hingston & Anor [2015] QSC 42 (6 March 2015), a recent Queensland Supreme Court decision, a married couple who contracted to buy a 52nd floor apartment in Surfers Paradise for over 3 million dollars pulled out after discovering Soul, a 77 storey development, would partially obscure their view. The Supreme Court held that the buyer was not misled or deceived into the contract for the apartment pursuant to s52 of the Trade Practices Act 1974 (Cth)( “TPA” ) (now the Competition and Consumer Act 2010 (Cth) Schedule 2 The Australian Consumer Law s18 ( “ACL” ). Rather, the couple should have completed market research to ensure the validity of the unobstructed view they desired.

S52 of the TPA

S52 of the TPA provided that:

  • A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive.
  • Nothing in the succeeding provisions of this Division shall be taken as limiting by implication the generality of sub-section (1).

S18 of the A C L

S18 of the ACL now provides that:

(1)  A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

(2)  Nothing in Part 3-1 (which is about unfair practices) limits by implication subsection (1).

Facts of the Case

In 2008 the defendants, Mr and Mrs Hingston, contracted to buy a $3,150,000 off-the-plan apartment in the “Orchid Tower” in Surfers Paradise.

The Hingstons claimed that prior to entering into the contact they were told that the east-facing view of their apartment would be unobstructed by any other building, and that council would not be able to approve any other buildings which would be high enough to obstruct their apartment’s view.

The Hingstons also claimed that the plaintiff’s agent showed the couple two models of the project, both of which presented their view as not being obstructed by any other building, and showed them brochures in which concept drawings omitted any other buildings.  In addition, Mr Hingston claimed that the sales staff had assured him that he could not be built out.

The Hingstons asserted that the above “representations” induced them to enter into  the contract.

Just before settlement in 2011 the Hingstons terminated the contract. By that time, the market value of the apartment had reduced to $1,650,000, which was $1,500,000 less than the $3,150,000 contract price.

The plaintiff claimed damages for the breach; the Hingstons counter-claimed that they had been misled and deceived into entering the contract.

Issue Before the Court

The Supreme Court had to decide whether the Hingstons had been misled and deceived into contracting for the property (under s52 of the TPA) or whether they were liable for damages due to breach of contract.

What the Court Held

The Supreme Court found for the plaintiffs. As such, the Hingstons were liable to pay $1,117,350 in damages, which amount comprised the market value at the time of termination less the deposit paid and commission fees.

On the issue of s52 of the TPA, Justice McMurdo found that the Hingstons were not misled or deceived in entering into the contract.

McMurdo J indicated that as the Hingstons were experienced property investors it would be unlikely that the sale representatives made assertions that the apartment could not be built out. His honour considerered that as the Hingston’s were experienced investors then any such statements made by the sale representatives  would have been  “obviously false” and therefore not capable of being considered misleading. What’s more, His honour further considered that the Hingston’s were in a position to know that the Soul building was being constructed.

McMurdo J suggested it would be “remarkable if, as he appears to suggest, [Mr Hingston] decided to purchase an apartment off the plan at the price of more than $3 million without giving any consideration to what was otherwise available in the same market.” In short, His honour found that a reasonable person in Mr Hingston’s position would have engaged in market research.

More importantly, Mr Hingston had walked past the Soul development site and knew that the building was being constructed. Newspaper articles were also published about the 77-storey building and Soul went under construction at around the same time as the contract formation.

There was also no evidence put forward which would cause a buyer to think that there had been some recent change in the planning laws such that a nearby building could be prevented from being built to a height taller than the “Orchid Tower”. As Surfers Paradise is a portion of the Gold Coast with an already high percentage of apartment buildings, the onus was on the Hingstons to undertake their own market research and ensure that their apartment’s view was not going to be blocked.

Lessons

Buying an off-the-plan apartment or house can be risky, particularly when contracts are being entered into based off project models or brochures. For buyers, it is particularly important to engage in thorough market research about the lot being purchased before entering into binding contracts.  It appears that if faced with similar circumstances to this case, it would be difficult for a buyer to terminate or avoid the contract after it has been formed, at least not without costly implications. It is clear that relying solely on models or brochures shown during the course of enquiries and on sales pitches may not hold up in court as a legitimate basis for a buyer defending the  termination of an otherwise valid contract. Of course, that is unless the seller meets the threshold of deceptive conduct under s18 of the ACL.

The important overall message to take away is that if you, as a buyer,  are unsure of your legal obligations or what is prudent in any given circumstance(s), it is essential that you contact a solicitor to act on your behalf and step you through the searches and any additional research that needs to be or may need to be conducted.

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