Disclosure Obligations – Property Sales

The principle of ‘caveat emptor’ or ‘let the buyer beware’ applies to buying property. Purchasers are always advised to complete their own thorough due diligence investigation before they buy, which is why we recommend that you speak to your lawyer before entering into any agreement to purchase a property.

However, it is important to remember that despite ‘caveat emptor’, the people involved in selling a property (ie. the vendor and, in particular, the real estate agent (‘Agent’) have significant obligations to disclose information to the purchaser. These obligations are in place to protect the purchaser.

An Agent, as a licensee under the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012 (‘Rules’), cannot rely on ‘caveat emptor’ when involved in the sale of a property. The obligations on an Agent under the Rules require, at a minimum, that they disclose known defects about a property to a potential purchaser.

In some situations, the Rules require an Agent to go further than simply disclosing known defects. Rule 10.7 of the Rules states that, where it would appear likely to a reasonably competent licensee that land may be subject to a hidden or underlying defect, the licensee must obtain confirmation from their vendor client and expert evidence that the land is not subject to the defect or ensure that the purchaser is informed, so that they can commission expert advice should they choose to do so.

An example where rule 10.7 would apply is where a house was built in a particular time period using particular materials, the combination of which are commonly associated with a risk of weathertightness issues. Regardless of whether a client vendor discusses this issue or not, an Agent is expected to take appropriate action as described above to investigate (and possibly disclose) this risk as part of their obligations.

If a situation arose where a vendor directs an Agent to withhold information in respect of defects, an Agent must stop acting for that vendor as required by rule 10.8 of the Rules. Such an obligation should provide some comfort to purchasers that an Agent cannot simply stay silent on any issue, even if that is what their vendor client wants.

The Rules only apply to licensees, so obligations on the vendor in a private sale with no vendor’s Agent are not as well defined. However, most sales of real estate use as a template the ADLS / REINZ Agreement for Sale and Purchase form. This form includes a comprehensive list of vendor warranties. For example, the vendor warrants that building works on the property completed by that vendor have been properly consented.

While we are in no way suggesting that purchasers forgo their right to undertake a full due diligence investigation on any property they propose to purchase, they can take some comfort in the obligations around disclosure on the people involved in selling property. A combination of upfront clear questions about a property and an understanding of these disclosure obligations is the best recipe for uncovering any issues and avoiding problems down the line.