The principle of caveat emptor is not absolute

Generally transactions involving real estate are governed by the principle of caveat emptor – let the buyer beware. The buyer takes the property as he or she finds it, unless protected by contractual terms. The seller is under no general duty to disclose defects in the physical condition of the property.

However, that principle is not absolute. If the seller deliberately conceals the true condition of the property, caveat emptor does not apply. The classic example is concealment of structural cracking by wallpapering over the cracks.

If a prospective buyer asks questions about the physical condition of the property, the seller must answer the purchaser's questions honestly. If the seller or the seller's agent volunteers information about the property, that information must be accurate and complete. If the seller makes positive statements about the property while keeping silent about known defects, that amounts to misrepresentation which can result in a damages claim.

Court of Appeal case: Wang v Vanifatova

A recent case heard in the Court of Appeal found in favour of the plaintiff, Angelina Vanifatova, who was anxious not to buy a leaky home.  Her sale and purchase agreement contained a due diligence clause. Before going unconditional, Ms. Vanifatova asked the sellers' real estate agent whether the property had any weathertightness issues and whether any building work had been done on the property. The sellers did not answer Ms. Vanifatova's enquiry honestly. Unbeknownst to Ms. Vanifatova, there had been a long history of leaks and the sellers had undertaken building works in an attempt to stop the leaks.

Before the sale, the sellers painted the interior of the property and replaced the carpets. This had the effect of covering over the signs that may have alerted a prospective purchaser to a problem with water ingress.

Before Ms. Vanifatova viewed the property, Mr Wang ran a dehumidifier for 24 hours, telling the agent "I extracted for a whole day and night and only extracted 1 litre of water, the house is now relatively dry".

The sellers had also received a building inspection report warning of elevated moisture levels in the exterior wall linings and skirtings below the balcony deck. This report, which would have alerted Ms. Vanifatova to the weathertightness issues was withheld by the sellers.

The Court of Appeal upheld the High Court's decision that Mr and Mrs Wang had "knowingly misrepresented the true condition of the property by omitting or partially disclosing their knowledge of the history of its weathertightness issues and the work that had been undertaken over the years to remediate an ongoing problem that remained extant."   Damages exceeding $500,000 were awarded to Ms. Vanifatova.

Our takeaway: Lean on your lawyer

If you are selling a property, our experienced team can advise you on your legal obligations and if you are buying, we can guide and assist you with the due dilligence so you have peace of mind before you commit. Engage your lawyer early for end-to-end support.

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