Somewhere along the way, a kind of urban legend has developed in the land of real estate.
This one sounds something like this:
Once a property transaction settles, the buyer has no rights to sue the seller for anything
Like most legends, this one has an element of truth and a whopping big dose of untruth.
Important Note: This article is general information only. If you’re talking about potentially suing someone, there are always more questions and specifics that will affect your situation, so don’t make any huge decisions based solely on the big picture comments here.
What you Probably Can’t be Sued For – Buyer Beware
There are certain things that a property buyer (most of the time) doesn’t get to sue a seller for after the contract settles.
Why?
The fundamental principle of property transactions is “buyer beware”. That is, as a buyer of residential property it’s your problem to make any necessary enquiries to satisfy yourself that you want to proceed with the transaction.
Of course, it’s not quite as severe as the basic principle might sound. Legislation and contracts offer many protections for buyers that attempt to ensure that major issues associated with the property don’t go un-noticed, so that a buyer can’t generally be totally bamboozled into buying something completely different than want they thought.
So having gone through initial property visits, formal inspections by building and pest inspectors, seller contract disclosures (if given at all as Contracts are often prepared by real estate agents who are unaware of what disclosures are) and solicitors for your conveyance, in allowing the contract to settle you’re generally taken to have agreed to most things that might have come up along the way.
This means you can’t turn around after settlement and sue the seller because the floor boards are worn, or the doors squeak, or there is no insulation in the roof – because you knew about (or ought to have known about) all those things and decided to carry on anyway.
However, there are some exceptions to this rule.
The Typical Contract
The common contract used in Queensland says this:
“Despite settlement and registration of the transfer, any term of this contract that can take effect after settlement or registration remains in force.”
Of course, the debate is then sometimes about which terms of the contract “can take effect” after settlement.
But, in principle, this term allows specifically for the continuation of rights under the contract, even after it has settled.
As we’ll see, the most likely post-settlement scenario to come up is when the seller didn’t say something they should have, or said something that turned out to be false. Many of these are covered by contractual clauses, but not all.
Failure to Disclose or Wrong Disclosure
Sellers have positive obligations to disclose several critical elements relating to the property in the contract itself.
Most notably, this includes encumbrances (even those that don’t appear on title) which can have a significant impact on future property use, and its associated market value.
If the seller fails to disclose something that they were obliged to disclose (which is not everything, by the way) then a buyer might have some recourse if they later discover the truth of it.
Breach of Warranties
The typical contract used in Queensland contains a list of “warranties” that the seller gives to the buyer about the property at the time of entering into the Contract.
These include (but are not limited to), for example:
1. There are no current or threatened claims or proceedings that might lead to a Court order affecting the Property (for example, family law proceedings); and
2. That the seller is not aware of any circumstances that might lead to the land being classed as “contaminated land”.
The seller also gives the buyer warranties that when the contract settles, the seller can actually deliver ownership of the property to the buyer.
So unless the seller specifically discloses information to the contrary, the seller is taken to have given warranties about these and other topics in the contract.
If, as it turns out, one or more of these warranties are untrue, then the buyer might be able to seek some kind of damages from the seller even after the contract settles.
Misleading or Deceptive Conduct
Australia has robust laws concerning “misleading or deceptive conduct”.
These laws typically apply to someone engaged in “trade or commerce” (which may or may not include the seller personally, but probably would include an agent), and say that such a person must not “engage in conduct that is misleading or deceptive, or that is likely to mislead or deceive”.
As you can see, it’s broad, so we’re not going to explore all of the “ifs and buts” here.
However, if a seller’s agent makes a positive representation to you, that you rely on and act upon that reliance, and it turns out to have been untrue, then you might have some ability to utilise this consumer protection legislation and recover some losses. That being said, misrepresentation is also covered under the common law.
There is a whole world of law relating to misleading or deceptive conduct, so we’ll leave this one just as a general comment for this article and might deal with it in more detail another time.
But What Would you Sue the Seller For?
So we’ve looked at three potential areas where a buyer might be able to sue after the contract settles.
But what, exactly, would you be suing for?
Unless there was a unique set of circumstances, you probably can’t sue the seller to unwind the transaction completely and get your money and costs back. We’re not saying it’s impossible, but it would be uncommon.
More likely than not, you would be seeking compensation for loss or damage that you can attribute specifically to the breach in question.
So let’s say that you purchased a property on which there was an undisclosed statutory encumbrances in favour of your local water utility. You find out about the easement a few months later when chatting to a neighbour.
The most likely measure of your loss is going to be something like the difference in market value between the property you thought you were buying (no easement) and the property you in fact bought (easement). This will obviously require an expert valuer to give a persuasive report. Of course, there might be other things you can include as “losses”, but there might not be – it’s very situational!
So before getting too far down the path of trying to sue sellers, it’s important to figure out (with legal advice!) what your losses actually are. The reality is that suing people is expensive and much of the time and cost involved might not be worth the losses you have actually suffered.
Did you Get Stung in a Property Purchase?
The best disputes are the ones you never have. Getting comprehensive legal advice throughout your property purchase (and preferably before you enter into the Contract) is going to avoid many problems before they happen.
It is often the case that not much can be done after you have signed a contract of sale and most buyers do not have the appetite or the money to fund litigation, so retaining a good property lawyer is key on the outset.
However, if you did end up buying a property only to find out that all was not what you thought – get legal advice as soon as you can to help you make a good decision about your next step.
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