Duty of Care Towards Purchasers
Real estate agents’ arguable duties of care toward purchasers
A recent decision of the High Court has found that real estate agents may owe duties of care towards purchasers on a real estate transaction, notwithstanding that agents typically act for the vendor on the sale and purchase of property.
In Johnston v Colliers International NZ Ltd, the plaintiffs purchased two properties on Franklin Road, Ponsonby. The real estate agent advised the plaintiffs that the purchase price was “plus GST, if any”. The sale and purchase agreements also recorded the purchase price of the properties as “$1,430,000 plus GST (if any)” and “$1,200,000 plus GST (if any)”.
On settlement, the plaintiffs were liable to pay GST to the vendor, in the sum of $394,500. The plaintiffs did not receive legal advice prior to settlement of the transaction, and say they only became aware that they were liable to pay GST on settlement.
The plaintiffs sued Colliers in negligence, saying that the real estate agent for the transactions (an agent of Colliers) failed to give the plaintiffs adequate GST advice, and failed to advise them to seek legal advice about GST before finalising their offer (despite multiple documents provided to the plaintiffs recording that they should seek legal advice). Colliers applied to strikeout the plaintiffs claim.
On Colliers strikeout application, the Court found that whilst the plaintiffs claimed in negligence, their claim was better pleaded as one of negligent misstatement. Negligent misstatement requires both an assumption of responsibility by the party making the statement, and a reasonable reliance on that statement by the plaintiffs.
The Court ultimately dismissed Colliers’ application to strikeout, on the basis that it was at least arguable that Colliers owed the plaintiffs a duty of care, and that it had breached that duty by virtue of a negligent misstatement. Whilst the Court found that it was “extraordinary that the plaintiffs did not obtain legal advice before signing the agreements for sale and purchase”, the existence of a duty of care was at least sufficiently arguable. The allegation by the plaintiffs that the real estate agent knew GST was payable yet elected to use the unclear wording of “plus GST, if any” when presenting the purchase price, was sufficient to support the contention that Colliers assumed responsibility for the correctness of description as to GST. In other words, the statement used by the agent may suggest that GST might not be payable, in circumstances where he knew it was. Further, where the agent knew that the plaintiffs did not obtain prior legal advice, it was both foreseeable and reasonable that they would rely on the agent’s statements as to GST.
Do agents owe the purchaser a duty?
Whilst the Court declined Colliers’ application to strikeout, this was on the basis that it is only reasonably arguable that a duty of care is owed by the real estate agent to the plaintiffs, notwithstanding that a real estate agent typically acts for a vendor. Whether the duty might actually exist will need to be determined by a Court determining the plaintiffs’ substantive case following a full trial. The Court also noted that the plaintiffs’ case was not whether an agent owed duties to a purchaser to advise on GST, though was limited to a duty owed in circumstances where an agent was aware GST was payable and failed to represent the correct position.
In any event, the Court’s decision nonetheless reminds of both the need for purchasers to obtain legal advice to avoid costly recourse to the Courts, and for agents to tread carefully when making statements in respect of real estate transactions.
ANDERSON CREAGH LAI LIMITED
Article written by Edward Fox
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