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Bill presented and read a first time.
Mr WOOD (Nelson): Mr Deputy Speaker, I move that the bill be now read a second time.
This bill is similar to a bill I introduced in 2004 and 2005. The bill aims to introduce vendor disclosure in the sale of
residential land and property in the Northern Territory. This enhances consumer protection for buyers and sellers,
and reduces the risk of gazumping. When I first introduced this bill, it was not supported by the government in 2004
because the Minister for Justice and Attorney-General argued ‘more consultation was necessary’. In his response in
October 2004 the minister said:
The government will always support measures that provide consumer protection, so long as they are
workable and have a broad community support. A balanced approach to the regulation of sale of property
is required, and the government takes the view that the bill proposed by the member for Nelson certainly
goes some way towards achieving that. The Department of Justice will shortly complete a discussion paper
concerning the issues of vendor disclosure that I foreshadowed last year. The government proposes this
discussion paper be developed and circulated for public comment. The member for Nelson has undertaken
consultation of his own, some of which has been forwarded to my office.
That was a long time ago, during which no discussion paper surfaced. In the meantime, people can still be gazumped
in land or property purchases. With no obvious moves by the government to do what they said they would do, I
again consulted with the industry to revise my bill and re-introduce it. That was last year. Funnily enough, the
government did put out a discussion paper for the property and commercial law task force, amazingly, just as I
announced I was re-introducing my bill for the second time. Then, the government announced it was releasing a
general discussion paper in March 2006 to obtain the views of key stakeholders and the general community. The
government opposed my bill.
In August this year, Dr Toyne, the then Attorney-General, gave an update on the status of the discussion paper
saying ‘the final report will be made shortly’. The definition of ‘shortly’ is different depending on whether you are
talking about the melting of the ice caps or the introduction of government urgent legislation. Instead of waiting for
the ‘shortly’ to happen, I have, therefore, introduced the bill again.
This bill is largely modelled on the ACT Civil Law (Sale of Residential Property) Act 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 Northern Territory.
Gazumping occurs when a seller or real estate agent accepts a verbal offer from a buyer which might be through a
verbal agreement or handshake but, later, the vendor accepts another offer - usually higher - from another buyer. It
usually occurs when the market is booming, 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 property at a better price
and pulls out after making an offer. Gazumping can cause distress, frustration, disappointment, annoyance, tears, or
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. The real estate agent is acting on behalf of the vendor and
wants to get 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 relevant literature says there is no legal binding sale until the 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 the 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 and services, the sale of which can be agreed on a hand
shake, agreements to sell and buy land are governed by the statute of fraud, a centuries’ old document which
requires the contract for land to be in writing for it to be binding. All of the relevant literature also says ‘buyer
beware’. The Northern Territory Law Handbook says that in the Territory there is limited legal protection for people
who buy property, and the legal maxim caveat emptor, or let the buyer beware, applies.
In the standard contract of sale the seller is not required to disclose any matters that may affect the saleability or
value of the property, nor to give any warranties. Some states have introduced legislation to restrict the window of
opportunity for gazumping. 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. 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 for sale prepared before listing the property on
the market. Attached to this contract will be due diligence documents and reports which will provide the buyer with
all the information necessary to help determine whether they want to buy the property. These documents includes
the title search, the results of the building inspection, the pest report, the 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 claimed 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 a binding written contract as soon as an offer is accepted. The 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.
There will be a shorter time frame for doing these checks. The sale can still go through without a conveyancer or
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 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 report or
certificates misrepresent the situation, or if the person who prepares the report is a relative or a business partner.
Having these documents 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.
The new bill inserts a 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 built or can be built no
matter 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. I have outlined those already. It will be an
offence if the 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 tanks 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 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 where it applies; when it does not apply; and how long it
is. The purchaser can shorten, lengthen or waive a cooling-off period only when he or she has sought advice from
the lawyer. The lawyer must sign a certificate and a copy of that certificate must go to the vendor.
My original bill of 2004 included a penalty should a contract be rescinded during the cooling-off period. I have
removed that penalty following consultation with the Real Estate Institute of the Northern Territory. While many
jurisdictions do not have such a penalty clause, I accept REINT’s view that this is an unnecessary financial
punishment. The bill does, however, require refund of a deposit in times of rescission. Despite not having a penalty,
the bill contains consumer protection provisions through vendor disclosure. Clause 78L requires the buyer to
reimburse the seller for any costs involved in getting their 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 78M for a person to give misleading information in any of their reports. A person
who prepares a report or certificate containing misleading information will be liable to compensate the purchaser for
the loss or expense. This will give the consumer, in the case of the buyer, extra protection and ensure that building
and pest inspections are carried out with due diligence.
Buying a house, it is well known, is probably the biggest expense many people will ever have and is even more so
with the ever increasing cost of land and housing. It is important therefore that buyers have the utmost confidence in
consumer protection, which they do not have under the buyer beware philosophy. My bill will afford this protection.
I advise, Mr Deputy Speaker, that there have been some very minor changes to the 2006 version of this bill, none of
which change the original intent. I commend the bill, which includes explanatory documents, to the parliament.
Debate adjourned.