What is a ‘Material Fact’?

When you buy or sell property in Victoria, you will become quickly acquainted with the terms ‘Section 32’ or ‘Vendor’s Statement’. A Section 32 contains information about certain aspects of your property relevant to potential buyers. Our coburg conveyancers will assist you with the preparation of this document in anticipation of a sale of land.  A contract can be rescinded by a Purchaser if a satisfactory Vendor’s Statement is not provided at the time of sale ( s32K of the Sale of Land Act 1962 (Vic)).

However, what happens when you fail to disclose important information about the property, but this information does not fall under one of the prescribed ‘disclosure’ sections of the Sale of Land Act 1962 (Vic)? Do you have to disclose this information?

The short answer is, it depends on what information needs to be disclosed!

On 1 March 2020 new disclosure obligations were introduced for Vendors and their Real Estate Agents with changes being made to the Sale of Land Act 1962 (Vic) (Act).

Vendors and their Agents must now disclose “material facts” to interested parties during negotiations for the sale of real estate (Material Fact).

The new section 12(d) of the Sale of Land Act states:

Any person who, with the intention of inducing any person to buy any land—

(d) makes or publishes any statement promise or forecast which he knows to be misleading or deceptive or knowingly conceals any material facts or recklessly makes any statement or forecast which is misleading or deceptive

shall be guilty of an offence against this Act…

 

Knowingly concealing a material fact is a breach of the Act and may result in a penalty of 120 penalty units ($19,826.40) or up to 12 months imprisonment.

How do I know if something is a ‘material fact’?

The legislation does not provide a definition of what a material fact is.

However, Consumer Affairs has specified two categories of facts which are intended to be captured:

General: a fact that an average, reasonably informed purchaser with a fair-minded understanding of the property market, including the role of an estate agent, would generally regard as material in their decision to buy property.

Specific: if a fact about land is known by the vendor (or the vendor’s agent, including an estate agent) to be important to a specific purchaser, it can be material, even if other agents and consumers would not generally consider that fact to be important or of significance to them. This knowledge could arise if (for example) a particular purchaser:

  • asks a specific question about the property of the vendor or the vendor’s agent (including their estate agent), and/or
  • where a purchaser informs the vendor/agent of their intended use of the property.
  • A material fact is a fact that would be important to a potential purchaser in deciding whether or not to buy any property. In the context of a proposed sale of property, a material fact is one that influences a purchaser in deciding whether or not to buy any property at all, or to buy property only at a certain price.

Deciding if something is a Material Fact

Further indications relevant to determining if something is a material fact include:

  • whether the fact is only known by the vendor
  • the reaction of other potential purchasers to the fact, including whether if the Purchaser knew of the fact this may impact their willingness to buy the property, and
  • whether the fact results in the property being in a rare or unusual category or position.

Examples of established Material Facts are:

  • that the property was the site of a murder or other major crime;
  • combustible cladding or asbestos being located on or in the property;
  • prior use of the property as an illicit drug laboratory; and
  • building work on the land that does not have the required building or planning approvals.

Material Facts vs. Making Your Own enquiries

Vendors and Real Estate Agents can no longer rely on purchasers “discovering” Material Facts through making their own inspections.

Vendors and Agents now have an obligation not to conceal Material Fact.  As a vendor you must be very careful when deciding whether a Material Fact exists in relation to your property and if so, the appropriate manner in which this fact should be disclosed (such as in direct negotiations with the purchaser and/or in the contract itself for the purposes of clearly recording the nature of the disclosure).

To assist our clients and their agents to ensure Material Facts are identified early in the selling process we have developed a “Material Fact Checklist” which you will complete as part of supplying us with information for your Vendors Statement.

For more information, please contact us.