Northern Territory Second Reading Speeches

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LAW OF PROPERTY AMENDMENT BILL 2004


Bill presented and read a first time.

Mr WOOD (Nelson): Madam Speaker, I move that the bill be now read a second time.

This bill introduces a new process for the exchanging of contracts in the sale of residential land and property in the Northern Territory.

Its aim is to reduce the practice of what is commonly called gazumping. It will also increase consumer protection for the buyers and sellers of land and land on which on which homes have been built.

The bill is largely modelled on the new ACT Civil Sale of Property law which, in turn, was an amalgamation of the best features of the Queensland, South Australian and New South Wales conveyancing systems. However, this bill also varies in some small but important ways from the ACT legislation to reflect different conditions in the Territory.

I decided to have this bill drafted after hearing of what happened to one of my constituents when she tried to buy a block of land and missed out. When I announced publicly that I was going to introduce this bill, I received a number of phone calls from other people who had been gazumped, and they welcomed my move in this direction.

Gazumping occurs when a seller or real estate agent accepts a verbal offer from a buyer - it might be through a verbal agreement or a handshake - but later the vendor accepts another offer, usually higher, from another buyer. It usually occurs when the market is booming, when demand is high and there is limited supply of residential properties or land. Sellers can also be gazumped, usually in a depressed market, when the buyer finds a better property at a better price and pulls out after making an offer.

Gazumping can cause distress, frustration, disappointment, annoyance, tears, a breakdown in trust and financial loss. Potential buyers can feel cheated and deceived, but the buyer has no rights to a property simply because he or she has made an acceptable offer or even paid a holding deposit. A real estate agent is acting on behalf of the vendor and wants to get to the highest sale price. In fact, the agent has an obligation to pass on all offers to the vendor until the contracts are exchanged. Therefore, when gazumping does occur the agent is usually doing what he or she should be doing.

All the relevant literature says that there is no legally binding sale until a contract of sale has been signed by the buyer and seller, and exchanged. A verbal promise or the acceptance of an offer does not constitute a contract of sale.

Gazumping is an unpleasant fact of life in private treaty real estate transactions. This apparently arises because of the history of the sale of land. Compared with other goods or services, the sale of which can be agreed on a handshake, agreements to sell and buy land are governed by the statute of frauds, a centuries old doctrine that requires a contract for land to be in writing for it to be binding. All the relevant literature also says ‘buyer beware’.

The NT Law Handbook says that in the Territory, there is limited legal protection for people who buy property and that the legal maxim caveat emptor, or buyer beware, applies, and in a standard contract of sale, the seller is not required to disclose any matters that may affect the saleability or value of a property, nor to give any warranties.

Some states have introduced legislation to restrict the window of opportunity for gazumping, and that is what I am doing with this bill. No jurisdiction has tried to outlaw gazumping or to create an offence of gazumping. Gazumping occurs because of the time gap between verbal acceptance of an offer and the exchange of contracts, and anti-gazumping measures are generally aimed at reducing this window of opportunity.

Briefly, this is what the bill proposes and I will outline each section in more detail later: the seller of a residential property will need to have a draft contract of sale prepared before listing the property on the market. Attached to this contract will be due diligence documents and reports that will provide the buyer with all the information necessary to help determine whether they want to buy a property. These documents include the title search, the results of the building inspection, the pest report, a bore status report if the land is a rural block, a septic tank status report if that applies, and a flood prone report if that is applicable to the land being sold. The ACT government claims that because the New South Wales anti-gazumping legislation did not require such inspection reports to be attached to the sale contract, it had not worked. The window of opportunity for gazumping still existed.

The seller will recoup the cost of these reports from the buyer. The buyer and seller will be able to enter into binding written contracts as soon as an offer is accepted. A conveyancer or lawyer will still be needed by the vendor to get the documents and certificates, and by the purchaser to check the documents attached to the contract, but there will be a shorter time frame for doing those checks. Of course, a sale can still go through without a conveyancer or a lawyer as can happen now, although it is not usually recommended because of the possible legal pitfalls.

The real estate agent will not be drafting the contract, but will be able to fill in certain prescribed details, such as the name and address of the parties, the sale price, and date of contract. The seller can be fined if the reports or certificates misrepresent the situation or if the person who prepares the report is a relative or business partner. Requiring the seller to have these documents available for a buyer to inspect from the time the property is first advertised for sale closes the window of opportunity for gazumping; buyer and seller would enter into a binding contract as soon as the offer is accepted.

Now to the details: the bill inserts a new provision in the Law of Property Act. The division starts with a range of definitions, including one for residential property, which basically means any land on which a residence has been or can be built, no matter what the size of the land. Clause 78C of the bill spells out the documents that are required to be prepared and attached to the contract of sale before the property is listed for sale, and I have outlined those already. It will be an offence if a seller gets a relative, his agent, his lawyer or anyone who has a direct or indirect interest in the seller’s business to prepare these reports or certificates. I have added several extra reports: the title search, the bore status report and the septic tank status report, which are important for rural residents and the flood prone report, which is important for consumer protection. This is the one area where the legislation differs from that in the ACT.

Clause 78E requires all the documents to be available for inspection once the property has been listed for sale. Clause 78F spells out the details of the cooling-off period, when it applies, when it does not apply, and how long it is. The purchaser can shorten, lengthen or waive a cooling off period, but only when he or she has sought advice from a lawyer. The lawyer must sign a certificate and a copy of that certificate must go to the vendor. If the purchaser decides not to go ahead with the sale during the cooling-off period, he or she will pay a penalty of one-quarter of 1% of the property’s purchase price to the seller. A real estate agent will not be entitled to any commission in this case.

Clause 78M requires the buyer to reimburse the seller for any costs involved in getting the reports attached to the contract of sale. This would be part of the normal process of settlement where certain payments, such as council rates, are adjusted and levied. It will be an offence under clause 78N of the bill for a person to give false or misleading information in any of the reports. A person who prepares a report or certificate containing false or misleading information will be liable to compensate the purchaser for the loss or expense. This will give the consumer, in this case the buyer, extra protection and ensure that building and pest inspections are carried out with due diligence.

I have already circulated this bill to real estate agents, conveyancers, lawyers and other interested people. I plan to circulate it widely, and I want feedback. If I get feedback and I agree that changes are needed, then I will table amendments when the bill is debated at the next General Business Day.

I commend the bill to members, and look forward to their support of it.

Debate adjourned.




 

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