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Sale of Land Act changes – What is a ‘material fact’?

The Sale of Land Amendment Act 2019 (the Act) is in effect from 1 March 2020.

Vendors and agents cannot knowingly conceal from a prospective buyer any 'material facts' about a property when selling land.

The Sale of Land Act does not give a definition and there hasn’t been any court decisions that are definitive enough to quote.  It is generally accepted though, that a material fact is a fact that would be important to a potential purchaser in deciding whether or not to buy the land.  In the context of a proposed sale of land, a material fact is one that influences a purchaser in deciding whether or not to buy any land at all, or to buy land only at a certain price.

The Material Fact Guidelines issued by Consumer Affairs Victoria (Guidelines) state that a vendor or their agent must disclose all known material facts, as soon as a prospective buyer indicates they are considering buying the property. Knowingly concealing a material fact is an offence, with fines of up to 120 penalty units (approximately $20,000) or up to 12 months imprisonment.

In the guidelines CAV defines a material fact as “a fact that would be important to a potential purchaser in deciding whether or not to buy any land”, and “one that influences a purchaser in deciding whether or not to buy any land at all, or to buy land only at a certain price”. The guidelines go on to describe two categories of facts and how they might be “material”:

  • Generally: 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 land… 
  1. Specifically: 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:
    1. a) asks a specific question about the land of the vendor or the vendor’s agent (including their estate agent), and/or
    2. b) where a purchaser informs the vendor/agent of their intended use of the land.”

In addition to the two main categories, further indications which would be relevant to determining whether something is a material fact include:

  1. 1) whether the fact is only known by the vendor;
  2. 2) the reaction of other potential purchasers to the fact, including whether knowledge of the fact may impact a potential purchaser’s willingness to buy land; and
  3. 3) whether the fact results in the property being in a rare or unusual category or position.

Vendors cannot rely on purchasers becoming aware of material facts through making usual inquiries, or for following the CAV's Due Diligence Checklist. However, vendors are not required to actively test or investigate to identify unknown problems.

The Guidelines contain some specific examples of what might be a material fact and encourages vendors and their agents to disclose any such facts as early as possible in the selling process to any potential purchasers. Those examples include:

  • prior tests or investigations have revealed (or the vendor or agent otherwise knows of) a defect in the structure of the building, a termite infestation, combustible cladding, asbestos (including loose-fill asbestos insulation) or contamination through prior uses of the land;
  • there have been significant events at the property, including a flood, or a bushfire;
  • there is a history of pesticide use in the event the property had been used for horticulture or other agricultural purposes;
  • there are restrictions on vehicular access to a property that are not obvious during a property inspection;
  • facts about the neighbourhood surrounding the property which may not be immediately apparent upon inspection (such as sinkholes, surface subsidence, development proposals) that would likely affect the use and enjoyment of the property to a greater extent than the usual disturbances and inconveniences of occupying land of the kind and in the local area of the land being sold
  • the property during the current or previous occupation has been the scene of a serious crime or an event which may create long-term potential risks to the health and safety of occupiers of the land, such as:
    • extreme violence (for example, a homicide);
    • use for the manufacture of substances such as methylamphetamine; or
    • a defence or fire brigade training site involving the use of hazardous materials; and
    • building work or other work done without a required building approval, planning permit or that is otherwise illegal.

While the guidelines provide some useful guidance, the attempt to define a material fact has left the category very broad, and may capture more than what Parliament intended. For example, are noisy neighbours something to disclose? If so, how noisy or how often would they need to be disruptive before it becomes material? This uncertainty may only be resolved over time through cases going before VCAT and the Courts, rather than further legislative or regulatory clarification.

Closing Comments

The material fact guidelines will have the greatest day to day impacts on developers, vendors, and their agents.  Given the breadth and inherent uncertainty as to what may qualify as a material fact under the guidelines, a conservative approach would be to disclose more rather than less until there is greater clarification.

Contacts

Kristy Muhlhan

Principal

Kristy Muhlhan

Principal
LL.B (HONS) GRAD DIP. L.P., GAICD.
Since 2014, she has been an owner and Principal of the firm and has mastered a broad range of essential commercial and business skills which go hand in hand with the work she does for...

Steve O’Dor

Special Counsel

Steve O’Dor

Special Counsel
Steve was admitted as a solicitor to the Supreme Court of Victoria and High Court of Australia in 2012. He predominantly practices in commercial litigation, general commercial and property law.

George Hanger

Associate

George Hanger

Associate
LL.B BA
George was admitted to legal practice in May 2015 after completing a Bachelor of Arts at the University of Melbourne and a Bachelor of Laws at Monash University.

Stewart Davis

Associate

Stewart Davis

Associate
As well as property law, Stewart has had exposure to VCAT administration matters and commercial law, particularly servicing developer clients.

Peter Hall

Lawyer

Peter Hall

Lawyer
Peter deals mainly with both residential and commercial conveyancing, and leasing agreements.