Have we got the balance right? Is caveat emptor dying a slow death?

A recent decision by the real estate agents disputes tribunal has left real estate agents and lawyers re-examining responsibilities on a sale.

A purchaser looked for and thought they had found a property that was a house and income unit. The property had a separate one bedroom flat and was marketed by the agent as a “home and income”.

In fact a land covenant was registered against the title prohibiting the use of the property as flat or flats or as a boarding house or a residence for more than one household unit. The nature of the land covenant was not evident from looking at the title. A search of the instrument creating the covenant was necessary to understand its meaning.

The tribunal examined the responsibilities of the agent in making the information known to the purchaser.

The tribunal determined that the licensee agent should have searched the title or at least had someone else search it on their behalf. They should have been familiar with the information noted on the title. This they said was an essential role for the agent and failure to complete such a title check would amount to a breach of the real estate agent’s professional rules of conduct.

The comment was obiter but nonetheless has caused much concern and debate. Taken literally it requires agents (and in turn vendors) to be fully au fait with the title of any property they are selling. It requires that before the sale agreement is signed, agents must provide title information to a purchaser. The level of detail require seems akin to what the purchaser’s lawyer currently provides.

On a fee simple sale, where there is just a mortgage and a fencing covenant registered, that might be relatively simple, but increasingly titles are getting complicated. Some of them will have many notations registered.

Presumably the decision will lead to agents requiring vendors to obtain legal advice on the state of their title at listing. Already some lawyers have baulked at this – saying the caveat emptor rule ought better to apply.

Perhaps a change in the real estate agents rules to clarify responsibilities is warranted. In the meantime, vendors should expect to be paying for full title reports on listing; adding further to the costs associated with a sale.

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