Off-the-plan unit sales: Don’t be accused of misleading conduct

In the case of Lonergan v JQZ Eleven Pty Ltd [2022] NSWSC 14 the NSW Supreme Court determined whether an off-the-plan seller engaged in misleading conduct and considers whether the purchaser is entitled to receive a reduction in the purchase price due to (alleged) misleading representations. 

How did this issue arise? 

In November 2016, David and Victoria Lonergan (the buyers) entered into a contract with JQZ Eleven Pty Ltd (the seller) to purchase a three-bedroom unit ‘off the plan’ on level 18 of the development for $1,518,000. Shortly prior to entering into the contract to purchase the unit, the buyers inspected a completed display suite with the seller’s sales agent. On completion of construction of the unit three years later and prior to completion of the contract of sale, the buyers inspected the completed unit.  

As a design feature, the units on every third floor of the unit complex were to have black privacy shutters installed on their balconies. This feature was particularly attractive to the plaintiffs due to sun exposure health concerns. The buyers relied on information provided by the seller’s agent that privacy screens would be installed on Levels 18 (which on completion, were not). There was also a 50 square centimetre column that encroached on living room space and amenity and two columns on the balcony that were not included in the display suite the buyers had originally inspected nor was it disclosed in the contract of sale.  

After the buyers’ inspection, a notice to complete was issued by the seller and the buyers subsequently requested an extension of the settlement date and a reduction in purchase price of 2% in consideration of the issues raised with the unit. The seller refused and argued that the buyers had contractually acknowledged that the display suite was merely “indicative of the general style, quality and finish” and that plans “are not final, [and] are for marketing and illustrative purposes only”. 

What did the Court decide? 

The critical issue for the Court to determine was whether the seller engaged in misleading in relation to failure to include the privacy shutters and the construction of the column structure, when considered against the contract of sale and the display suite. The Court found that the substantial structural columns located in the living areas, in places that impede on living space, are the kind of feature a potential buyer would assume would be included in the display suite or floor plan if they were in fact needed. 

The Court found that the draft strata plan had been prepared before structural engineering input but “it is probable that its technical employees would have expected the likely need of structural columns” that would diminish their amenity to purchasers. The Court accepted the buyers’ evidence that they entered into the contract believing the unit would be constructed with no substantial columns in the living room or on the balcony. The Court accepted that if the buyers had known the truth, they would not have entered into the contract for the purchase of the unit.  

The Court advised that a “clear and prominent warning” that columns would or may be constructed should have been included in the contract. The seller was ordered to refund the deposit plus interest and was also required to pay the buyers’ cost of the proceedings.

Schedule of Finishes 

In relation to the representations of the inclusion of the black privacy screens made by the agent, the Court was not satisfied that the provision of the black privacy screens ought to have been understood by the purchasers as a “finish” that should have been specified in the Schedule of Finishes, as the Schedule of Finishes did not ordinarily deal with the exterior structure of the development. The buyers were entitled to believe, that as the intention was that the black privacy screens would only be installed on the balconies on every third level, they were not a feature intended to be set out in the Schedule of Finishes.  

What does this decision mean for developers? 

In order to minimise the risk of exposure to claims of misleading conduct, there is a clear obligation on developers to ensure that all written and oral representations and statements are accurately disclosed to a buyer in the contract of sale. Any failure to provide a clear and prominent warning of issues that may arise in the completed form may gives rise to claims for misleading conduct. 

If you have any questions, please contact the team at Keighran Legal + Advisory.