Disclosure of “Material Facts” When Selling Real Estate

On 1 March 2020 new disclosure obligations upon Vendors and their agents came into effect with changes to the Sale of Land Act 1962 (Vic) (Act).

Vendors and their agents must now disclose “material facts” to interested parties during negotiations for the sale of real estate (Material Facts).

New section 12(d) of the Sale of Land Act states:

Any person who, with the intention of inducing any person to buy any land—

(d) makes or publishes any statement promise or forecast which he knows to be misleading or deceptive or knowingly conceals any material facts or recklessly makes any statement or forecast which is misleading or deceptive

shall be guilty of an offence against this Act…

Knowingly concealing a material fact in breach of section 12(d) of the Act, can result in a penalty of 120 penalty units ($19,826.40) or up to 12 months imprisonment.

What is a material fact?

The legislation does not provide clarity on this.

However, Consumer Affairs has specified two categories of facts which are intended to be captured:

Generally: a fact that an average, reasonably informed purchaser with a fair-minded understanding of the property market, including the role of an estate agent, would generally regard as material in their decision to buy property. 

Specifically: if a fact about land is known by the vendor (or the vendor’s agent, including an estate agent) to be important to a specific purchaser, it can be material, even if other agents and consumers would not generally consider that fact to be important or of significance to them. This knowledge could arise if (for example) a particular purchaser:

  • asks a specific question about the property of the vendor or the vendor’s agent (including their estate agent), and/or

  • where a purchaser informs the vendor/agent of their intended use of the property.

  • A material fact is a fact that would be important to a potential purchaser in deciding whether or not to buy any property. In the context of a proposed sale of property, a material fact is one that influences a purchaser in deciding whether or not to buy any property at all, or to buy property only at a certain price. 

Further indications which would be relevant to determining whether something is a material fact include:

  • whether the fact is only known by the vendor
  • the reaction of other potential purchasers to the fact, including whether knowledge of the fact may impact a potential purchaser’s willingness to buy land, and
  • whether the fact results in the property being in a rare or unusual category or position.

Examples of established Material Facts are:

  • that the property was the site of a murder or other major crime;
  • combustible cladding or asbestos being located on or in the property;
  • prior use of the property as an illicit drug laboratory; and
  • building work on the land that does not have the required building or planning approvals.

A positive obligation

Vendors and their agents can no longer rely on purchasers “discovering” Material Facts through their inspections and due diligence such as described in the Due Diligence Checklist included in Vendors Statements.  

Vendors and their agents now have an obligation to not conceal Material Facts and as such, careful consideration will need to be given in all cases as to whether a Material Fact exists in relation to a Property and if so, the appropriate manner in which this fact should be disclosed (such as in direct negotiations with the purchaser and/or in the contract itself for the purposes of clearly recording the nature of the disclosure).

Some examples of Material Facts are included in the Consumer Affairs material which advises vendors and their agents to disclose Materials Facts as early as possible in the selling process when negotiating with potential purchasers. 

To assist our clients and their agents to ensure Material Facts are identified early in the selling process we have developed a “Material Fact Checklist” which we will complete with Vendors and provide to agents when supplying the Vendors Statement.

Please contact the Beck Legal Property team on 54453333 if you require any further information.

 

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