Can the sale of a home by a vendor be caught by the Australian Consumer Law?

It may surprise you to know that there may be instances where misleading representations made by a vendor to prospective purchasers of a residential property constitutes conduct “in trade or commerce” meaning the vendor could fall foul of sections 18 and 30(1) of the Australian Consumer Law¹ (ACL) which respectively prohibit:

• A person, in trade or commerce, from engaging in misleading or deceptive conduct;² and
• A person, in trade or commerce, in connection with the sale or grant, or the possible sale or grant, of an interest in land or in connection with the promotion of the sale or grant of an interest in land, from making a false or misleading representation regarding sponsorship, approval of affiliation, or concerning the nature of the interest in the land, or concerning the price payable for the land, or concerning the location of the land, or concerning the characteristics of the land, or concerning the use to which the land is capable of being put or may lawfully be put, or concerning the existence or availability of facilities associated with the land.³

There are several considerations which are taken into account in making this determination which we will explore in this article including:

• Whether the sale is of a residential property as distinct from an investment property / a property relating to business;
• When vendors are considered as engaging in trade or commerce; and
• Where the liability of a vendor’s agent comes into play.

Residential property vs. investment property

It has long been held that individuals selling their homes are not acting “in trade or commerce”.⁴

However if a vendor is selling an investment property, or a property that is partially used to run a business, could that conduct be subject to an ACL claim?

These questions were answered a few years ago in the Court of Appeal of the Supreme Court of New South Wales in the case of Williams v Pisano [2015] NSWCA 177 (Williams).

Williams also addressed the question – Do agents acting for a vendor in connection with the sale of their home, act in trade or commerce and if they do, could their conduct be assigned to their principal (the vendor), and therefore cause the vendor to be acting in trade or commerce?

Williams case

In Williams, a husband and wife (vendors) undertook renovations to a residential property in New South Wales. One of the vendors handled and supervised the renovations under an owner-builder permit however while the renovations were undertaken by builders, they were not subject to any architectural supervision or plans.

The renovations were completed and the vendors engaged a real estate agent to market the property on their behalf. Both the web advertisements and advertising brochures contained statements concerning the property and the standard of the renovations that had been carried out. In addition, during an inspection the agent made statements to the purchaser about the nature of the renovations and competence of the builder (Representations). At the time of inspection, one of the vendors handed to the purchaser a business card describing her as an “interior designer”.

The purchasers subsequently proceeded with the sale.

Shortly after the purchasers moved into the property, it became apparent that numerous ‘short-cuts’ were taken in the renovations which led to significant defects, including severe water penetration into the property.

The purchasers sought damages on the basis that the vendors had contravened sections 18 and 30(1) of the ACL (amongst other things).

The primary judge found that the purchasers were induced to enter into the contract to purchase the property by the Representations and that those Representations were misleading or deceptive.

The next question was whether the sale of the property by the vendors to the purchaser was a transaction “in trade or commerce”. The primary judge was satisfied of this for the following reasons:

• The vendors viewed the property as an investment property rather than a house for personal use;
• The renovations were intended to improve the property for resale for financial gain and that the advertising and sale was the carrying into effect of their investment strategy;
• The website advertisement constituted conduct by the vendors which fell under trade or commerce; and
• The renovations and subsequent sale of the property appeared to be connected with the vendor’s interior design business and therefore had a commercial nature.

On appeal, the appellant argued that the Representations did not constitute conduct in trade or commerce within the meaning of s18 and 30 of the ACL and this was accepted. Importantly the following key points were made:

• If a vendor decides to renovate a property with the view of selling it for a profit, that of itself does not consequently mean that the sale of the property constitutes conduct in trade or commerce;
• The vendor’s intention to engage in an interior design business did not alter this position;
• The marketing of a property prior to its sale, does not mean that the vendors engaged in trade or commerce in connection with the sale of that property;
• It it is important to consider the character of the parties involved, which includes whether the vendors were people who have engaged in or are about to engage in commercial activities, whether the transaction is motivated by business, as distinct from personal reasons and whether the person whose conduct is under attack played an active part in the transaction; and
• The mere use of an estate agent does not bring about the result that the sale of an asset by a house owner is a transaction occurring in trade or commerce.

Therefore, while in this particular case the vendors were not found to have contravened sections 18 and 30(1) of the ACL, it provides some valuable insights for vendors as to what may constitute “conduct in trade or commerce” in connection with the sale of a residential property.

For example, if the vendor had been offering the home furnished and fitted as an offer associated with her interior design business, sections 18 and 30 of the ACL may have applied to that vendor. Additionally, if a vendor was a builder who had built numerous homes as their source of income (and did not reside in the property in question), sections 18 and 30 of the ACL may apply to that vendor.

The Williams decision provides a reminder to vendors of their potential liability under the ACL when selling a residential property.

Can the liability of real estate agents extend to their principal (i.e. the vendor)

Contrary to vendors, the position is that real estate agents are almost always acting in trade or commerce when undertaking the sale of a property on behalf of a vendor. As was the case in Williams, while the vendors were not found liable for misleading or deceptive conduct with respect to the marketing materials, the agent was. However, by the time the matter came on for trial the agent was insolvent and without insurance.

While principals are generally vicariously liable for the actions of their agent (when the agent is acting within its authority), this does not mean that the agent’s business capacity is likewise imputed on to the principal. As such the fact that a vendor’s agent acts in trade or commerce does not mean that the vendor (the principal) is likewise acting in trade or commerce. According to the court in Williams, “The fact that the actions by an agent are deemed to have been actions by the agent’s principals, albeit that the actions of the agent constituted conduct in that agent’s trade or commerce, does not bring about the result that the deemed actions of the principals constituted conduct in trade or commerce, if all that the principals were doing was selling their home… In other words, the element of acting in trade or commerce will not be attributed to owners selling their home merely by reason of their engagement of an estate agent to find a buyer… The business character of the acts done by an agent cannot be imputed to the acts of the principals.”⁵

Key Takeaways

While vendors are unlikely to be regarded as acting in trade or commerce in the sale of a residential property, as noted in Williams, there may be instances where a vendor’s conduct may be in trade and commerce, rather than of a personal nature. It is therefore important for vendors to consider the motivation for a sale and their conduct around the sale to ensure their actions do not contravene the ACL.

We have a dedicated consumer law team that can help you review your contracts and business practices to ensure that you comply with the ACL. If you would like more information about the services we provide please contact us.

This article was written by Teresa Torcasio, Partner and Caitlyn White, Senior Associate.

¹ Competition and consumer act 2010 (Cth), Schedule 2.
² Section 18 Australian Consumer Law.
³ Section 30(1) Australian Consumer Law.
⁴ Argy v Blunts and Lane Cove Real Estate Pty Ltd and Others (1990) 26 FCR 112.
⁵ Williams v Pisano [2015] NSWCA 177, at 39 and 40