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Three operational matters for principals to consider

  • Halloween - time to revisit ‘Material Fact’ disclosure with your staff?
  • How do you comply with new privacy laws?
  • How do you avoid non-compliance fines from Consumer Affairs Victoria? 

Halloween – A sage reminder to revisit ‘Material Fact’ with your team

With Halloween upon us, we’re asking the question – have you ever sold a haunted house? 

 

As you’ll see in out Media and Marketing chapter, there’s plenty of public interest in questions like this which is why the media has been so keen to speak to First National agents. The reason is of course that there’s a bigger, much more important question. 

What are agents supposed to disclose, and what they don’t need to disclose?

 

Halloween provides an ideal opportunity for First National offices to remind and educate sales and property management staff about the ethical principles of disclosure and, in particular, requirements concerning material fact. Haunted houses pose an ideal and relatable example.

 

So, when it comes to ‘homes with a haunted history’ or a troubled legacy with the law, what legal obligations, practical and ethical considerations are there for real estate agents when it comes to disclosing a home’s history?

 

In Australia, there is no specific legal requirement for real estate agents to disclose if a house is haunted.  However, there are general obligations for agents to disclose material facts about a property that could affect a potential buyer's decision. That’s of course where haunted houses come in, whether provable or not. If a vendor tells you, or there’s been substantial publicity about a home being haunted, you have become aware of a Material Fact that you should disclose. 

 

What sorts of scenarios are considered material facts that an agent or property manager should disclose?

  • Recent flooding
  • Serious building defects
  • Past violent crimes at a property
  • Death or suicide at a property
  • Neighbours with a history of objectionable behaviour
  • Past or current illegal activities known to have occurred in the property
  • Pest infestations
  • Planned developments nearby
  • Neighbours with religious affiliations that may lead to tensions
  • Excessive traffic movements and/or noise that the property may be subject to outside the normal open home inspection times
  • Anything that a reasonable purchaser could reasonably want to know (that you know)

Which states/territories have ‘material fact’ legislation?

  1. NSW – Clear laws from 2002 require agents to disclose any material fact that could affect a buyer’s decision
  2. VIC – 2020 amendments clarified that vendors and agents must disclose any material fact that may influence a buyer's decision
  3. No material fact legislation but agents failing to disclose information that could significantly impact a buyer’s decision could have legal consequences
  4. SA – Material facts or ‘material defects’ must be disclosed 
  5. WA – No material fact legislation but agents must not mislead or deceive buyers and must disclose facts that could materially affect a buyer’s decision to purchase
  6. TAS - No specific legislation but agents must disclose any known issues that would affect a buyer’s decision
  7. NT - No specific legislation but agents subject to the general disclosure obligations under the Consumer Affairs and Fair Trading Act 1990 and Australian consumer law

So, what are the considerations for sales agents and property managers and ‘haunted’ houses?

 

Agents must also take into consideration practical and ethical factors such as local customs and/or superstitions right through to being upfront about unusual aspects of a property to build trust with potential buyers. 

 

1.  Material Fact: 

Real estate agents must disclose any material facts that could influence a buyer’s decision.  Whether a house being haunted constitutes a material fact is subjective and can depend on the buyer's beliefs and the context of the situation.

 

2. Misleading or Deceptive Conduct: 

 

Under the Australian Consumer Law, agents must not engage in misleading or deceptive conduct.  If directly asked about supernatural occurrences, an agent should answer truthfully to avoid misleading the buyer.

 

3. Practical Considerations

 

In some communities, local customs or superstitions may place significant importance on whether a property is considered haunted. Understanding and respecting these customs can be crucial in maintaining trust and transparency. Cultures that might find significant spiritual implications:

  • Chinese Australians – traditional Chinese culture includes a strong belief in spirits and ghosts
  • Indian Australians – many Indian Australians have cultural backgrounds with prevalent beliefs in spirits and supernatural entities
  • Vietnamese Australians – Vietnamese culture includes ancestor worship, belief in spirits and ghosts
  • Filipino Australians - Filipino culture is rich with superstitions and ghost stories, and many Filipino Australians may have heightened concerns about haunted houses.
  • Greek Australians - Traditional Greek beliefs include notions of the evil eye and spirits, which can contribute to concerns about the supernatural in homes.
  • Aboriginal and Torres Strait Islander Peoples - Indigenous Australians have a deep spiritual connection to the land, and disturbances to this connection, including the presence of spirits, can be significant.

4. Disclosure: 

 

While not legally required, some agents choose to disclose such information to avoid potential disputes or dissatisfaction after the sale. Transparency builds a good reputation and fosters trust with clients.

 

5. Ethical Considerations

 

Being upfront about unusual aspects of a property, even if not legally required, can help in building a trustworthy relationship with potential buyers.

 

6. Client Preferences and your right to withdraw services: 

 

You must disclose your obligations to the homeowner. 

 

If a vendor specifically discloses paranormal activity or the property’s history, an agent should advise that they are now obliged to pro-actively advise any buyer who might reasonably have an interest in such information. Should the vendor object, it's recommended that an agent should declare a conflict of interest and offer to withdraw their services. 

 

Respect the preferences and concerns of potential buyers - if a buyer explicitly asks about paranormal activity or the property’s history, provide honest answers based on available information.

 

What other material facts should be disclosed?

 

It’s largely a matter of common sense, but sales agents and property managers should disclose anything that a reasonable buyer or tenant might reasonably want to know. 

 

Do we need to list material facts in marketing materials?

 

This is not a specific requirement, but it is recommended that all interested parties be informed, both verbally and in writing (via the Contract of Sale).

 

How do we protect our clients and ourselves?

 

If in doubt, disclose. 

 

ALWAYS make certain that the Contract of Sale includes a special condition outlining the material fact, and make sure that disclosure specifies that the special condition constitutes both the vendor’s and agent’s disclosure. 

 

An additional measure could be to prepare a written statement for a prospective purchaser to sign, in addition to that of the Contract of Sale. 

 

In the event of an auction, where prospective bidders may not have provided a sales agent the opportunity to verbally disclose the material fact, it would be wise to have the auctioneer mention that there is a specific material fact disclosure in the contract and anybody bidding on the property that has not read the contract or spoken to the agent should immediately declare that fact. This would enable a sales agent to make the disclosure verbally (with a witness) and show the buyer the clause in the contract.

 

Are there any case law examples?

 

In the 1990 New York case, Stambovsky v. Ackley, a tenant went to court to be released from a contract he made on a house before he learned of its haunted history. He ultimately won, mainly because the seller had publicised the history of the house and the strange events encountered there, and it was decided that she owed the same duty to the buyer. While the court’s decision did not verify the existence of a spiritual presence, publicising the existence was interpreted as a material fact.

 

How to comply with new privacy laws

Significant changes to Australian privacy law are underway with the introduction of the Privacy and Other Legislation Amendment Bill 2024 (Tranche 1), bringing stricter requirements and higher penalties for non-compliance, nationally.

 

Real estate agencies need to prepare for increased scrutiny and potential liability under the new legislation, particularly regarding data handling practices.

 

When the Bill is passed, First National Real Estate will seek legal counsel to fully understand members’ obligations under the new legislation. New privacy policy statements will be required for all member websites as well as a review of members’ data management and security measures.

 

What you need to know:

 

Increased Penalties: The new Bill introduces hefty fines for privacy breaches, including:

  • Up to $62,600 for agencies failing to meet specific obligations under the Australian Privacy Principles (APPs), such as lacking a clear privacy policy, not offering anonymity options, or hindering marketing opt-outs.
  • Up to $660,000 for individuals and $3.3 million for corporations for interfering with privacy, including failing to promptly notify individuals of eligible data breaches.
  • This aims to deter violations and prevent businesses from treating fines as a cost of doing business.

Overseas Data Flow:

  • Agencies disclosing client data to overseas recipients (Virtual Assistants) may no longer need to ensure recipient compliance with Australian privacy standards if the recipient is in a country with "substantially similar" privacy laws.
  • Agencies must stay updated on approved jurisdictions and assess international data handling practices.

AI & Automated Decision Making (ADM):

  • Agencies using ADM (e.g., tenant screening) must inform individuals if it could significantly impact them (e.g., approving rental applications).
  • Privacy policies must be updated to disclose ADM usage, including types of personal information processed and the nature of decisions made.

Security of Personal Information:

  • "Reasonable steps" to safeguard personal information now explicitly include technical and organisational measures.
  • Agencies need strong IT security and robust governance and processes for managing and securing client data.
  • Staff training, regular data handling audits, and clear roles and responsibilities for privacy governance are crucial.

Right to Bring Action & Public Inquiries:

  • Individuals can take legal action for serious privacy invasions, even against small businesses not previously covered by the Privacy Act.
  • The Information Commissioner can hold public inquiries into systemic privacy issues across industries, increasing scrutiny on the real estate sector.

Key Takeaways:

  • Real estate agencies face significant new compliance requirements and potential liabilities under the reformed privacy laws.
  • Agencies must proactively adapt by reviewing and updating privacy policies, implementing robust technical and organisational safeguards, and conducting regular audits.
  • Failure to comply risks substantial fines, reputational damage, and potential lawsuits.

Next steps:

  • First National will monitor progress of the Bill and respond when it is finalised
  • Members will need to implement a comprehensive privacy compliance program, including staff training and regular audits.
  • Members will need to proactively communicate privacy practices to customers, ensuring transparency and trust. 

How to avoid non-compliance fines from Consumer Affairs Victoria 

 

Recently CAV has had its task force active across Victoria, fining real estate agencies for failing to comply with legislation concerning underquoting, marketing and price guides. Several First National agencies have unfortunately been fined.

 

To assure you are across the areas of operation they are focused on, please review our recent webinar provided by James Bateman.