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Buyers beware - a seller's duty to disclose information only goes so far

31 March 2018

In the recent case of Mitchell v Zhang, Ms Zhang unconditionally bought the Mitchells’ lifestyle block for $5.8m on the day she inspected it. Later that day she found out that the Auckland Unitary Plan required the construction of a road through the property if it was subdivided. When Ms Zhang discovered the land would be more difficult or expensive to subdivide than she had first thought she cancelled the agreement. In the litigation that followed Ms Zhang, argued (among other things) that she was entitled to cancel the agreement because the Mitchells should have disclosed to her the requirement for a road if the property was subdivided.

Under the standard agreement for sale and purchase of real estate the seller promises the seller has not received any notice or demand and has no knowledge of any requisition or outstanding requirement from any local or government authority, statutory body, under the Resource Management Act 1991, or from any tenant, or any other party. This is an exception to the rule commonly referred to as “caveat emptor” or “buyer beware”. Caveat emptor means the seller is not required to disclose all information known to the seller that could be relevant to the purchaser. Purchasers must make their own enquiries.

Ms Zhang’s argument was not successful. The judge confirmed earlier Court decisions which held that the notices or demands must be “directive” to be caught by the warranty i.e. the seller is only required to disclose them if they require some action to be taken or avoided by the seller. The judge held that the Mitchells were not obliged to disclose the requirements of the Auckland Unitary Plan as they were not a “notice” that required action to be taken. They were public information that anyone could have found out with minimal due diligence.

As the judge rightly commented in the case, Ms Zhang’s argument, taken to its logical conclusion, would mean a seller would need to “provide a written schedule of information … setting out the relevant provisions of the local plan which applied to the property. That is not the law. Nor should it be.”

Buyers beware - there is no substitute for undertaking proper due diligence before buying a property.

 

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.


Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.

 

Barbara McDermott