Recent Case Update regarding 9AC and Misleading Deceptive for Off the Plan Contract

Developers Beware! Importance of checking your plans, marketing renders and ‘finalise’ materials before going public!

If you are still thinking changes less than 5% of the overall area isn’t material change? You are WRONG!

Have you checked your plans?

Burger & Ors v Longboat Holdings Group 2 Pty Ltd [2021] VSC 469 involved a two-bedroom off-the-plan contract of sale whereby the purchasers successfully rescinded their contract due to material changes to the property under s 9AC(2) of the Sale of Land Act 1962 despite the change of overall area was less than 5%.

The changes made included:

Decreasing the usability area of the apartment (mainly the master bedroom) from 95sqm to ~90sqm (by 4.4%)
Construction of a wall in the master bedroom which affects both the use of the room and natural light in the room;
Reducing the availability of natural light in the master bedroom; and
Reducing the rights of use to common property by allocating part of it to local council, and also converting part common property into a roof terrace which could not be accessed by the purchaser.

Material Change: The usability of the property and area decrease was seen as important as the reduction in area was all focused in the master bedroom. Although less than 5% of the overall property, 5sqm difference was comparably one-quarter of the bedroom size and was seen as material. In addition, the enjoyment of light although independently was not material however combining the decrease of area was also held to be material. The creation of council reserve meant that the purchaser’s (and Owners Corporation’s) rights were restricted and no longer exclusive, and was held to be significant.

The case concluded that it is not possible to contract out of section 9AC, whether it be any special conditions or acknowledgement that a change in area of less than 5% is not material included in the Contract of Sale.

We advise to ensure you check proposed plans of subdivisions are as updated and in a ‘finalised’ state (rather than providing initial plans) before heading to market, and if there are changes necessary to meet council requirement, then we strongly advise you to notify purchasers of changes early to manage the impact. This will reduce the risks of a purchaser claiming rescission of Contract under Section 9AC.

Developers must be aware that the figure ‘5%’ is not strictly adhered to in each case.

Marketing renders may be misleading and deceptive under the Australia Consumer Law.

Have you checked your marketing materials?

The Federal Court has recently handed down a decision in Ripani v Century Legend Pty Ltd [2022] FCA 242 which is likely going to impact on how developers handle marketing of their off-the-plan properties.

In 2017, the purchasers’ (Ripanis) entered into an off-the-plan contract with the developer, Century Legend Pty Ltd (Century Legend) to purchase an apartment building of a price tag of $9.58 million subject to a satisfactory floor plan being agreed on.

The Ripanis heavily relied on the marketing materials provided by Century Legend, which included hard bound brochures known as ‘renders’ which included various internal and external images (or ‘artistic impressions’) which illustrated various aspects of the apartment once it is completed.

Particularly a certain photo (the ‘hero-shot’) was extensively used in the marketing campaign, one which Ripanis had interest in and had ultimately purchased. Century Legend was however found to have knowledge and was aware that it was impossible to construct the Ripanis’ apartment (or even construct with reasonable resemblance to) what was depicted in the hero-shot.

In Ripani v Century Legend Pty Ltd [2022] FCA 242, the courts found the renders provided to the purchasers were misleading and deceptive and in contravention of Section 18 of the Australia Consumer Law, and as a result, the court ordered the rescission of the Contract of Sale and the developer to pay damages, interests and costs.

The Courts considered:

Did the render convey the representation that there would be free span opening and seamless transition between internal living areas of the apartment and terrace?
Held: Yes, the render represented there would be a free span opening and seamless transition between the internal living areas and the terrace;
Did the Ripanis rely upon any representation conveyed by the render at the time they entered into the contract?
Held: Yes, the Ripanis had replied upon this representation from the render at the time of entering the Contract of Sale
Would the Ripanis have entered into the Contract to purchase apartment 14.01 if they had not believed at the time that the apartment would be constructed in conformity of the image depicted in the render?
Held: Yes, the Ripanis would not have entered into the contract if they believed the apartment would not be constructed in accordance with the render.

Inserting exclusion clauses in a contract of sale, general disclaimers about the accuracy of information and inserting the words ‘artistic impression’ on marketing material will not preclude the image on marketing materials from being misleading and deceptive under the Australia Consumer Law.

Century Legend had no reasonable basis for making the representation as their architects had warned them it was impossible to construct. Further, the agent’s usual practice to sell off the plan properties rely heavily on marketing material.

The Court considered that artist impressions understandably do not always accurately reflect the final product, however if significant details are excluded, this may be a contravention of section 18. In the Rappini’s case, the Court considered that a central feature in the image in which the width of the opening between the interior and exterior was significant, and the purchaser made it clear that the ‘gap’ was a significant component of their interest in that particular property.

Developers must ensure all marketing materials issued to potential purchasers or provided to the public or their agents for off-the-plan properties are accurate, as any inaccuracies could entitle purchasers to argue misleading and deceptive representation and rescind a Contract of Sale. Again, inserting exclusion clauses in a contract of sale will not be effective to remedy this.

Disclaimer

Any article published over our website is intended to provide commentary and general information only. It is not intended to and should not be relied upon as legal advice. Formal legal advice should be sought in each individual matter and based on personal circumstances. D Y & Co Lawyers is not responsible for consequences arising from any reliance on any article published.