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Section 32 of the Sale of Land Act 1962 (Vic), vendors must disclose any Statement of matters affecting land being sold.
But what are material facts, and what happens when a vendor fails to disclose them? This article answers some frequently asked questions about disclosure requirements in real estate.
What was the Recent Reform to the Act?
Section 32 of the Sale of Land Act 1962 (Vic) requires the vendor to disclose any Statement of matters affecting land being sold. There are also provisions which deals with deceptive or misleading behaviour and concealment of material facts in real estate transactions (i.e. s12 (d)). These took effect in March 2020.
The reforms made ensure complete and truthful disclosure in property dealings. In effect, it also increases the disclosure obligations of sellers.
Traditionally, real estate transactions follow the legal principle of caveat emptor or buyer beware. This principle means the purchaser should ensure the property is free from issues before buying (i.e. purchaser doing its own due diligence on the property).
The Victorian government saw how the existing Act offered insufficient protection to property buyers, hence the amendments.
What is a Material Fact?
A material fact in real estate is any information that may influence a potential buyer’s decision to buy a property or how much they are willing to pay. It will vary from case to case. However, Consumer Affairs Victoria has provided some examples of “material facts”. These include:
- structural defects, insect infestations, contamination, or dangerous materials on the property
- causes of defects or risks of future defects
- a significant event at the property, like a crime, extreme violence, flood, bushfire, etc.
- illegal or non-compliant building work
- any restrictions on vehicle access
- history of pesticide uses or use of the property for agricultural purposes
- use of the property for manufacturing products like methamphetamines
- use of the property as a training site for defence or the fire brigade using hazardous materials
- significant development proposals nearby that may affect the use of the property
What Happens if a Seller Knowingly Conceals a Material Fact?
Failing to disclose a material fact has legal consequences and hefty penalties. The maximum penalty is a fine of up to 120 penalty units for individuals and 600 penalty units for corporations. Individuals may also face up to 12 months’ jail time.
A penalty unit represents the amount an individual has to pay when they commit an infringement offence. The value of 1 penalty unit is $197.59 from 1 July 2024 to 30 June 2025. The Victorian Treasurer updates the value of a penalty unit annually every July.
When Should the Vendor Disclose a Material Fact?
A vendor should disclose a material fact before the buyer signs the contract of sale.
It is not necessary to disclose physical conditions that are evident during inspection. However, a vendor should have evidence of material fact disclosure to minimise chances of prosecution or successful claim for failure to disclose.
The evidence could be in the form of a recorded vendor statement or the inclusion of material facts in the marketing material. If the disclosure was made orally (e.g. during an open inspection of an agent), the vendor should make detailed notes of the disclosures after the discussion.
If the property is for public auction, the auctioneer should disclose relevant material facts before the start of the auction.
Ask a Property Lawyer About Disclosure Obligations
The amendments to disclosure requirements are relatively new, and their impact on property vendors remains uncertain. Nonetheless, vendors and real estate agents must understand these reforms.
Most material facts can reduce the value of a property and affect its saleability.
Therefore, if you are a vendor selling a property with potential issues, it is better to consult a property lawyer to learn what you need to disclose. Similarly, prospective buyers may seek legal advice before buying a property with disclosed material facts.
TNS Lawyers can help you with vendor disclosure obligations and other aspects of property transactions. You can call our team at +61 3 9052 3214 or email us at info@tnslawyers.com.au.
