Why the “cooling off laws” don’t prevent gazumping !

Posted on August 1, 2009 by | 2 Comments

George Rousos

 

 

 

 

 

 

 

by George Rousos
Director
Industry Training Consultants
george@itc.nsw.edu.au

Statutory authorities must start exercising the same degree of care towards sellers as they do with buyers of properties.

It was discovered and found on the NSW Office Of Fair Trading’s website, no cooling-off period  applies to sellers of properties once contracts have been exchanged, sellers are generally bound to complete the agreement. (See the article “Sale Contracts” on the website of the NSW Office of Fair Trading). Someone needs to remind the NSW Office Of Fair Trading, that a legal owner of property (having a legitimate interest on the sale of land) is not bound to any such transaction that allows a prospective buyer of land to change their mind (on a conditional contract) and rescind a contract.

To combat the problem of gazumping the so called “anti-gazumping legislation” was introduced in 1987 by the Unsworth Labor Government, just prior to state elections and without adequate consultation with interested professional bodies. This legislation was ill-conceived because of several ambiguities, omissions and deficiencies in the legislation. Unfortunately when that government lost that election the new Greiner Liberal Government did not repeal the “anti-gazumping legislation” immediately, this left conveyancing in a most unsatisfactory situation after two Supreme Court decisions held that the “anti-gazumping legislation” could not be validly complied with.

Recently after the repeal of the “anti-gazumping legislation”, the Greiner Liberal Government introduced the “cooling- off legislation, which commenced on the 1st October, 1990 after the legislation had been passed through parliament the previous year, however, whilst the bills were being debated in committee in parliament, it was established by Minister Causley and the opposing leader at the time Paul Whelan, that the cooling off legislation wouldn’t go far enough to protect purchasers of properties and exclude the legal obligation on vendors and agents (one who acts for, or in the place of, another, by authority from him; one entrusted with the business of another).

The difficulties experienced in land transactions at the present time and still today, indicate very little can be achieved to rid conveyancing of gazumping and due to the complexity of the law under both commonwealth and state legislation, in particular the Competition and Consumer Act 2010 and the NSW Property Stock & Business Agents Act 2002, it is very unlikely that gazumping will ever be outlawed.

Once again, the Office of Fair Trading is providing negligent advice to consumers, traders and tax payers of NSW. I also find it so embarrassing, that fair trading have a range of laws they administer, one is the unconscionability legislation called the NSW Contracts Review Act 1980, which deals with matters concerning the sale of land and sale of good and services. This was passed before the States and Territories were persuaded to pass their Fair Trading Acts which mimicked s 51AB of the former Trade Practices Act 1974 (now s 21 of the CCA ).

The focus of the Act is on “unjust contracts” which are defined by reference to a list of criteria. What is considered a matter of interest to the courts, is in the case where (i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, and whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract. The Act does not just focus on unconscionable bargaining tactics or inequality or pressure. It is also concerned with substantive unfairness such as harsh terms or an unfair exchange.

When a contract is grossly one-sided a court may infer that a position or disadvantage existed and/or that it was unfairly exploited”. “One-sidedness” could include the appearance that the legal rights or remedies of the weaker party were excluded or that the weaker party has agreed to, read, or understood terms, when this is not so. Too often the stronger party will attempt to disclaim misrepresentation.

However, while the NSW Office of Fair Trading continue to provide incorrect information about the relevant acts in which they supposedly administer on a day to day basis to all consumers, traders and tax payers of NSW, the only party that will be attempting to disclaim misrepresentation under the Contracts Review Act, will be Fair Trading themselves.

Well may we say ‘God Save the Queen’; because nothing will save the NSW Office Of Fair Trading, except what is on this blog.

Update on changes to agency agreements

On and from 1 March 2015, if the real estate agency agreement includes a term that a commission is payable even if the sale of the property is not completed, the agency agreement must include the following statement (immediately after that term):

WARNING: A commission is payable under this agreement even if the sale of the property is not completed.

It’s more than likely; this new provision to the Property Stock and Business Agents Regulation 2014 has been added to provide real estate agents with additional protection – in the event a recission right by the seller is triggered under an unconditional contract http://www.austlii.edu.au/au/legis/nsw/consol_act/ca1919141/s56.html.

For example assume that the vendor (registered proprietor) contracts to sell land to purchaser A (or to give a mortgage to A). Purchaser A does not lodge a caveat. Assume then that the vendor contracts to sell the same land to Purchaser B (or to give a mortgage to B). Purchaser B searches the register before entering into the contract (or mortgage) but, of course, finds no reference to any interest of Purchaser A. By failing to lodge a caveat, Purchaser A has allowed the vendor (registered proprietor) to create the interest in favour of Purchaser B without the existence of Purchaser A’s interest being brought to Purchaser B’ attention.

As a result, Purchaser A’s interest is almost certainly postponed to Purchaser B.

What if the purchaser defaults?

If the purchaser decides to default (subject to the sellers rights to claim damages for breach of contract) commission is still payable, but only limited to the receipted deposit monies.

However, on contracts with cooling off periods, the recission right by the seller is triggered at common law because the making of the contract doesn’t come into force during the cooling period. The agent is not the effective cause of sale during the cooling off period, see cooling off section for relevant clause in contract that protects the seller http://www.findlaw.com.au/articles/1871/buying-a-home-making-your-dream-a-reality.aspx , but if the seller commits an arbitrary or capricious act the buyer can seek a legal remedy in the courts to recoup costs.

Also, if the validity of rescission by a seller is not in accordance with the agency agreement terms and conditions, the seller may be required to pay two commissions if they sign another agency agreement.

Footnote:  Gazumping and Gazundering are mythical terms used in the real estate industry. The verb “gazump means to refuse to formalise a contract (legally binding) at the last minute in order of accepting a higher offer. Gazundering is where a buyer agrees a price for the property but then makes a lower offer, usually just before exchange of contracts.

 

2 Comments

  • real estate says:

    Thanks for both the lucid and timely article George as well as the download link for a Victorian Contract.

    I will place it as a resource on my PropertyNow website since we have many Victorian clients although we are in NSW.

    Andrew Blachut
    PropertyNow

  • http:// says:

    Hi Andrew,

    No worries. The Victorian contract is compliments of Peter Mericka’s Real Estate Documents website.

    The standard contract for sale of land 2005 edition in NSW, can be ordered from REINSW and the first two pages of the contract can be changed or altered to suit.

    It also has the following provision in the contract

    IMPORTANT NOTICE TO VENDORS AND PURCHASERS

    Before signing this contract, you should ensure that you understand your rights and obligations, some of which are not written in this contract but are implied by law.

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