What does the newly-worded Section 12(d) of the Sale of Land Act 1962 (Vic) regarding ‘material facts’ mean for you when you sell your property in Victoria?

From 1 March 2020, some slight amendments to the legislation that controls the sale of real estate in Victoria will come into play.

One of those amendments changes just one single word, but it is this one-word change which has property lawyers across the state a little concerned.  The effect is that it broadens the Vendor’s obligations regarding what information must be provided to a prospective purchaser during negotiations right through to settlement of the transaction.

Before we get into the specifics of this conveyancing issue, if you would like a reminder as to who the ‘players’ are in an ordinary conveyancing transaction, have a look at this blog post from last year.

An extract of the relevant sub-section is as follows:-

Any person who, with the intention of inducing any person to buy any land, …knowingly conceals any material facts …shall be guilty of an offence against this Act…

The change is that the word ‘knowingly’ replaced the word ‘fraudulently’.  It used to be that you should not fraudulently conceal a material fact, but now it is that you should not knowingly conceal a material fact.

So, the question is:  what is a material fact?

 Unfortunately, that’s not an easy question to answer.  The Act does not give a definition and there hasn’t been any court decisions that are definitive enough to quote.  It is generally accepted though, that a material fact is a fact that would be important to a potential purchaser in deciding whether or not to buy the land.  In the context of a proposed sale of land, a material fact is one that influences a purchaser in deciding whether or not to buy any land at all, or to buy land only at a certain price. 

Consumer Affairs Victoria is in the process of issuing a Guideline intended to assist and some of the examples in their draft document are as follows:-

• prior tests or investigations ave revealed (or the vendor or agent otherwise knows of) a defect in the structure of the building, a termite infestation, combustible cladding, asbestos (including loose-fill asbestos insulation) or contamination through prior uses of the land;
• there have been significant events at the property, including a flood, or a bushfire;
• there is a history of pesticide use in the event the property had been used for horticulture or other agricultural purposes;
• there are restrictions on vehicular access to a property that are not obvious during a property inspection;
• facts about the neighbourhood surrounding the property which may not be immediately apparent upon inspection (such as sinkholes, surface subsidence, development proposals) that would likely affect the use and enjoyment of the property to a greater extent than the usual disturbances and inconveniences of occupying land of the kind and in the local area of the land being sold;
• the property during the current or previous occupation has been the scene of a serious crime or an event which may create long-term potential risks to the health and safety of occupiers of the land, such as:
  • extreme violence (for example, a homicide);
  • use for the manufacture of substances such as methylamphetamine; or
  • a defence or fire brigade training site involving the use of hazardous materials; and
  • building work or other work done without a required building approval, planning permit or that is otherwise illegal.

There may be some absolving factors such as whether the defect/issue was clearly visible upon inspection by the purchaser, and perhaps whether the defect/issue has been fully remediated.  Alternatively, if there is no risk that the defect/issue will require any further repairs works, than it is less likely to be a material fact that must be revealed.

How the change to this section will play out over time is unknown, but one of the particular concerns is that the section states that any person can be guilty of this offence, not just the Vendor themselves.

Whilst this new position flies in the face of the former Latin maxim caveat emptor (ie ‘buyer beware’), we are increasingly living in a highly regulated state with laws that protect the consumer becoming more and more common.

If we are acting for you in the sale of your property and we form the view that there is a material fact which ought to be revealed to a prospective purchaser, we will chat with you as to the best way to do so.  It can be included in the Vendor Statement (ie a Section 32 Statement), but it does not have to be.  It will be sufficient for the material fact to be explained in some other correspondence.

The penalty for breaching this section is 120 penalty units (currently about $20,000) or up to 12 months’ imprisonment.  We are certainly keen to reduce the instances of our clients committing offences such as this one, so if you notice we start quizzing you for more quirky/obscure information than we used to when taking your instructions for a Vendor Statement, this is why!

The law in this area is continually developing and, as the section gets tested, we will gain a greater understanding of what each Vendor, Real Estate Agent, Solicitor/Conveyancer will be required to reveal in each transaction.

If you would like to discuss the potential effect of this legislative change on you and your property, please contact any of our Property Lawyers and we would be pleased to discuss your specific circumstances with you.