Watch out – The vendor’s real estate agent is not really his “agent”!
By Divya Sharma, Lawyer, MST Lawyers
What you need to know
On 11 March 2016, the Victorian Supreme Court handed down a remarkable decision that serves as an important reminder to the purchasers of real estate that the Vendor’s agent may not have authority to accept a cooling off notice to terminate the contract under section 31 of the Sale of Land Act 1962.
What Happened?
In Eng Kiat Tan and Cheng Lo v Thomas Russell [2016] VSC 93, Eng Kiat, the purchaser plaintiff bought a property for $4,480,000. During the cooling off period he gave notice to the real estate agent terminating the contract in accordance with s 31(3) of the Sale of Land Act 1962 (Vic) . Following termination, the property was later sold for $4,070,000.The plaintiff sought return of the deposit paid.
However the court found that the real estate agent is not an “agent” for the vendor under s 31(3) of the Sale of Land Act 1962 (Vic) for the purpose of serving a notice to terminate a contract during the cooling off period. In order to terminate under this provision, the real-estate agent must have actual or ostensible authority which he was found not to have in this instance. Accordingly, the plaintiff was ordered to pay the remaining sum of the deposit and the difference in the resale value of the property. Ouch! $448,000 + $410,000 = $858,000 and he did not even get the property.
What does the law say?
Under s 31(2) of the Sale of Land Act 1962 (Vic) the purchaser has the right to terminate the contract within the three days cooling off period. This can be achieved through giving notice of termination to the vendor or the agent.[1] Following effective termination, the purchaser will have the deposit returned to him minus $100 or 0.2% of the purchase price (whichever is greater).[2]
What do the courts say?
The High Court has held in the past that the employment of a real estate agent to find a buyer for a property does not necessarily create authority to do anything which will affect the legal position of the vendor. An agent does not even have implied authority to receive the purchaser money.[3] In another case[4] Gibbs J said that the expression “agent” when used in relation to a real estate agent, was misleading because “such so-called agents do not have a general authority to act on behalf of a vendor in relation to a contract.” The trial court judge held in Eng Kiat that section 31 did not create a statutory authority in a real estate agent to accept a cooling-off notice.
Take away points
It follows that purchasers need to be extra careful in ensuring that the contract they are proposing to sign clearly identifies a person(s) authorised to receive termination notices under section 31. If you are thinking of purchasing a property, we recommend that you have a lawyer review the contract for you before you sign to avoid any pitfalls.
For further information, please contact our experienced Property & Leasing team by email property@mst.com.au or by telephone +61 38540 0200.
Tan v Russell [2016] VSC 93 (11 March 2016)
[1] s.31(3) of the Sale of Land Act 1962 (Vic).
[2] s.31(4) of the Sale of Land Act 1962 (Vic).
[3] see Peterson v Maloney (1951) 84 CLR 91.
[4]Brien v Dwyer (1978) 141 CLR 378.
