A property novice who was enticed by an agent’s promise of ‘dual income’ generated from a granny flat has won damages from the agent as well as her own lawyer when such use proved to be problematic.
In May 2019 Dilasha Kumar signed up for the $720k buy of a residential property in Toongabbie – in Sydney’s western suburbs – as her first investment property.
Sydney Western Realty agent Robin Dandyan had advertised the property online – based on information received from the seller – as a house with a granny flat and suitable to “an astute investor” to secure “a dual income property investment”.
Dilasha quickly arranged an inspection during which she observed that vendor Lilian Owino was herself in occupation of the converted garage – the granny flat – and the residence itself was tenanted.
Satisfied with the inspection, she signed and asked agent Dandyan to send the contract – which was subject to a cooling off period – to her solicitor at Think Conveyancing.
The agent however recommended Ajay Singh – who he called on the spot – for the task. When the phone was handed to her, Dilasha was told by Singh that he “had a good relationship with the agent; would take care of her; and ‘knew’ the property”. She asserted that she gave the job to Singh on the strength of those credentials.
Dilasha left everything to the lawyer and had not registered the effect of a Blacktown City Council notice attached to the seller-prepared contract stipulating that “the garage is not permitted for habitable uses” and implying the space had not been approved for use as a granny flat.
By her account, the solicitor did not even raise this with Dilasha nor did he appreciate the potential consequences of the warning in the building inspector’s report that the “garage has been converted into a habitable room” and “appropriate local authority records should be checked” as it its approval status.
Singh in fact notified – she claimed – that he had read the report and that “there were no major concerns”.
The purchase completed in July 2019 and Dilasha achieved her ‘dual income’ objective by separately letting out the residence and the granny flat shortly thereafter.
It wasn’t until the end of September when she received the council’s Development Control Order that she realised the granny flat could not be used as a habitable space.
She filed a lawsuit in the NSW District Court pleading misleading and deceptive conduct as against the agent and professional negligence against Mr Singh.
Rejecting his plea for exoneration for simply relying on details provided by the vendor, Judge Alister Abadee concluded the agent’s significant property experience ought to have alerted him that the contract notice meant the council “cast doubt” as to the legal habitability of the granny flat at least to a level that required further inquiry or legal advice.
At the very least in his view, the “dual income” representation warranted qualification or explanation by saying that it depended upon the granny flat being legally habitable which was an issue about which she should have sought professional advice.
“Non-disclosure of an important qualifying fact will be misleading or deceptive if the recipient would be misled, absent such disclosure, into believing that the statement was complete,” he noted.
Given Dilasha had no prior property experience even generally – let alone specifically for investment purposes – Dandyan’s ‘dual income’ and ‘granny flat’ representations were held to have been misleading as a result of which his Sydney Western Realty bore liability.
Her case against Singh relied on expert evidence from solicitor Roger Harkin – an accredited specialist in Property Law since 1997 – that reasonably competent practice would have been to request a copy of the DA referred to in the contract and to then caution the buyer before the end of the cooling off period.
“Common practice would have seen the lawyer warn her that she may be purchasing a property which did not meet the Council’s approval,” he swore.
Lawyer Singh denied much of his client’s account of their dealings, contending she had declined to provide instructions to seek a Building Certificate and had instructed him “it’s okay it doesn’t matter don’t worry about those reports”.
Even had those instructions been given, they were not – observed His Honour due to Mr Singh’s inadequate advice thus far – those “of a properly informed client with an appreciation of consequences if she did not obtain the certificate.”
He largely rejected the lawyer’s assaults upon Dilasha’s credibility, finding instead that his account lacked authenticity and was self-serving.
Mr Singh was obliged – Judge Abadee observed – to solicit instructions from his client as to her circumstances, the outcome she wished to achieve and to consider whether there was any particular aspect of the transaction that warranted particular advice or for which such advice was sought.
Singh argued that having signed up the contract without seeing the need for legal advice, his client presented as an intelligent, articulate and confident young woman who fully appreciated the issues concerning council approval and habitable use.
While that may be so, those features did not – in His Honour’s view – allow him to provide advice to any lesser standard. Nor did the scope his services – limited as they were to conveyance of the property – on the other.
The risk of financial loss to Dilasha if the granny flat was not approved by council ought – Judge Abadee ruled – to have been clearly foreseeable and the failure to properly advise on the ability to use the space as a separate granny flat tenancy, was negligent.
He assessed damages for the difference in value of the property without a usable granny flat – based on valuation evidence – at $74k, the cost of converting the flat back to a garage at $16k and additional stamp duty paid as a result of the investment rate having being applied, at $28k, making a total of $119k.
This was reduced to $102k after applying a 15% reduction for Dilasha’s own conduct in executing the contract without legal advice and without making her own inquiry as to the status of the granny flat. He apportioned liability for that resulting figure between the agent 25% and to the solicitor 75%.
The case served as an important reminder for professionals to carefully consider the subject matter of the transactions in which they provide their services to consumers.
Kumar v Sydney Western Realty Pty ltd & Anor (No. 2)  NSWDC 446, Abadee DCJ, 31 August 2021 Read case