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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 is similar to a bill I introduced in 2004 with one notable amendment; 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. My bill of last year was not supported by the government
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 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 almost 14 months ago, during which no discussion paper has surfaced. In the meantime, people can still be
gazumped in land or property purchases ...
Madam SPEAKER: Excuse me, member for Nelson, I remind people in the galleries that no further photography is
allowed. Please continue.
Mr WOOD: With no obvious moves by the government to do what they said that they would do, I have again
consulted with the industry to revise my bill and reintroduce it. 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 a 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, 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 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 relevant literature says 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 Fraud, a centuries' old doctrine that
requires a 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 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.
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 which will provide the buyer with
all the information necessary to help determine whether they want to buy the 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 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 binding
written contracts 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, but there will
be a shorter time frame for doing those checks. Of course, the 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 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 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 residence has been or can be built no matter
what is 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 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 legislation differs from that in the ACT. Clause 78E requires all the
documents 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 a
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 that the Real Estate Institute of the Northern Territory. While many
jurisdictions do have such a penalty clause, I accept REINT's view that this is an unnecessary financial punishment.
The bill does, however, require refund of the deposit in times of recession. Despite not having a penalty, I still
believe the bill retains 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 false or misleading information in any of their 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.
Buying a house is well known as probably the biggest expense many people will ever make, and even more so with
the ever-increasing cost of land and housing. It is important, therefore, that buyers have the utmost in consumer
protection, which they do not get under the 'buyer, beware' philosophy. My bill will afford this protection. I advise,
Madam Speaker, that the explanatory notes are being printed at the moment and they will be available later. I
commend the bill to members and look forward to their support.
Debate adjourned.