The giant multinational Subway Restaurant chain was caught short recently when Perth teenager Matt Corby posted a photo to the company’s Australia’s Facebook page featuring a “footlong” sandwich with proof that it only measured 11 inches! The posting went viral with hundreds of thousands of views world-wide and even the filing of class action law suits against the company in some states in the US. One claimant alleged that he had eaten a foot long every day for most of his life and was now intent on recouping financial compensation for his daily missing inch! Subway Australia’s response was the “footlong” name was simply to identify it descriptively and was not intended to guarantee its length and with that – at least for the moment in Australia, the storm of angry customers has been quelled.
When it comes to the purchase of Land, the physical dimensions and overall area of any property is hardly as trifling a concern as an undersized sandwich. Land areas are required to be recorded in contracts and for newly subdivided blocks being sold as part of a property development usually, a full plan showing all of the dimensions of the block is also required. Generally, these details will come from what is already contained in the Land Titles Office however such details may not precisely coincide with the actual land. Depending upon the terms of the actual contract signed up between the parties, errors in these areas can give rises to claims for compensation and even termination of a contract.
Generally, even slight discrepancies can be actionable when considered significant. For instance, in a case involving the sale of a building in George Street, Sydney, the contract had described it’s frontage as 26ft 2in however it was actually 25ft 9in – a difference of 5 inches. The Court held that given the property’s locality and value, this did constitute an error entitling the purchaser to claim and recover compensation from the vendor.
Under the standard REIQ contract used in Queensland, the area of land is required to be stipulated with a specific measurement but this is proceeded by the words “more or less” thus signifying that the measurement is only intended to be an approximation. This does not prevent a purchaser bringing a claim in response to a discrepancy but the question obviously begs – how far does the measurement have to be out before a discrepancy becomes actionable? As a guide, there have been a number of past cases where the land areas fell short by around 10% and in each of those cases, the buyers were successful in claiming compensation even though their contracts contained a “more or less” type statement. All of the cases however confirm that the real test is to determine whether the buyer actually got what he bargained for. This is a question for a Judge of fact and degree and if the purchaser can prove that the discrepancy is of real material significance, for example – the error making it impossible to subdivide, develop or use the land in a particular way, the purchaser may again have a strong prospect of success. Should the purchaser be successful in their claim and the land has exceeded the latitude allowed by the words of approximation, the purchaser can recover for the entire discrepancy, he or she does not have to discount the discrepancy to allow for the maximum of the “give or take” measurement contained in the approximation.
It is however important to note that under a combination of the usual terms for lands sales contracts and the general law, a buyer’s rights of complaint over undersized property dimensions are usually lost once the contract settles or completes. This is when the money is handed over in exchange for the transfer. It is therefore vitally important that these rights are preserved by the buyer expressly agreeing with the seller that rights of compensation are to be reserved even though settlement is being effected.
With modern surveying techniques enabling measurements to be taken down to the millimetre and considering the ever increasing costs of land, it is any wonder that property owners and buyers are very keen to make sure they get every square centimetre of what they paid for.
Developers Land Sales Contracts
Where multiple buyers are purchasing subdivided “off the plan” blocks of virgin land with all of the houses, fences and other improvements still to be built, the scope for error and arguments is obviously greater and reflective of this, land developers usually modify the standard REIQ Contract to give specific prescription to the issue. For example, many local developer’s Contracts state that the buyer “cannot take objection” to an error in dimensions where the variation is 2% or less of overall land area or 1% of lineal dimension. With a clause of this type, the purchaser quite simply has no rights of complaint where the variations fall under the threshold. Where the error falls above the threshold dimensions it is usually (depending upon the actual wording of the Contract involved) still possible for the seller/developer to try to argue non liability as the “more or less” words of approximation typically still appear beside the actual dimensions for the property’s area on the front page of the Contract. Most developers however, usually accept that the stipulation of their own code as to what might be a non-complainable error means by exclusion that they must accept and honour rectification for any error that falls above that stipulation.
Usual Rights of Compensation/Rectification
Once an error in the property area and/or lineal boundaries has been detected, rectification of the issue usually falls into one of three options and sometimes a combination:
- A calculation of the total land area lost is made and financial compensation at the same dollar value as the property’s original purchase price worked out on a dollar value per square metre basis is paid.
- The property is resurveyed so as to achieve dimensions which are in fit with the overall area and land dimensions described in the Contract.
- Structures such as boundary fencing, garden sheds, garages or other improvements on the land are demolished and relocated so as to fit within the area of the true boundary positions.
With all of these initiatives however, there is also usually substantial legal costs, surveying fees and sometimes also Council fees to be paid and of course all of these costs must also be picked up by the offending party to the Contract.
Other Forms of Actionable Misrepresentations
Although misdescriptions of the physical dimensions of a property is relatively easy to quantify in determining whether a buyer did or did not get substantially what they bargained for, this is not the only area where a misdescription of a property’s features can potentially become actionable. In recent times, there have been cases in Queensland where buyers for property where able to escape their contracts and recover their full deposits due to misrepresentations about the property’s features as follows:
- A penthouse unit said to have “unimpeded views and privacy” where the same Developer was building a twin tower to the same height next door.
- A property described as “practically on the main road”, “fantastic views like Switzerland, permanent creek running through the property” where the contract was signed sight-unseen and none of the described features existed.
- Units being sold off-the-plan as “apartments in a residential precinct” where the complex was to be run by a commercial resort manager intent on putting other units out for casual holiday letting.
Real Estate Agents
Because statements made by a Real Estate Agent usually bind the seller, Real Estate Agents have a contractual duty of care not to make negligent or reckless statements that might draw their seller/client(s) into breach of contract. Further, the Competition and Consumer Act 2010 (Cth) also imposes a duty on Agents, not to mislead or engage in deceptive or unconscionable conduct in procurement of sales and so this responsibility extends out the buyer as well. The consequences for Real Estate Agents who breach the duty to their clients and/or mislead or engage in deceptive or unconscionable conduct can be:
a) Liability for all of the seller’s reasonable out-of-pocket costs in dealing with the buyer’s dispute including monetary compensation and legal fees.
b) If the whole of the deal is lost and the seller resells for less, possibly that price difference.
c) Loss of their commission entitlement or at least a liability to have it offset against (a) and (b).
d) Fines imposed by the Australian Competition and Consumer Commission ranging up to $220,000 for individuals.
e) In extreme cases the possibility of an Agent’s “Real Estate License” being revoked.
As a counterbalance to these things however, it can never be forgotten that the prevailing rule for the buying of real estate is “caveat emptor” which means “buyer beware”. By this principle, a buyer must take responsibility for making their own enquiries as to the nature and suitability of the subject property, there is no “open slather” right of complaint about things well capable of detection from normal pre-contract enquiries. As an extension of this, another principle originating from an old English law called the “Statue of Frauds” states that all relevant terms for a contract dealing in land must be recorded in writing within the contract, meaning that any extraneous or ancillary alleged terms or conditions stemming either from verbal communications or other ex-contract documents, are not generally considered to form part of the bargain.
Like most things, the best advice that can ultimately be given in this area is that extreme care should always be exercised when writing down the description of a property, both in regards to its general features as well as its area and dimensions so that there does not become any scope for dispute in the first place.
Michael Zande is the Principal of Zande Law Solicitors, with 25 years experience in practice. Michael and his team have had extensive experience in conveyancing matters. We acknowledge the assistance of Matt Hannam of our office as co-author. Please feel free to review our firm and staff profiles at www.zandelaw.com.au
The information in this article is merely a guide and is not a full explanation of the law. This Firm cannot take responsibility for any action readers take based on this information. When making decisions that could affect your legal rights, please contact us for professional advice.