A buyer who took for granted a seller’s statement that his property was worth “$250,000 any day of the week” has convinced a court to reduce the sale price by $72k to reflect its actual value because the “gross disparity” between them.
They realised shortly after from a survey report, that the land area was actually 1900m2 – 70% larger than as described in the sale – and were “delighted to learn of their windfall”.
Gray answered a newspaper ad from Geoff Latter – an out of work local – offering handyman services and hired him to renovate the cottage between Newcastle and Port Macquarie.
A rapport developed between them and when Latter’s rental in nearby Raymond Terrace expired, the idea was floated that he and his partner move in and purchase the Swan Bay property under rent-to-buy vendor finance terms for two years with payments at $300/week.
Gray said he had wanted $250k but “would sell to them the $240,000”.
An enquiry by Latter’s partner, Sonia Perkins, as to whether they would accept $220k, was rebuffed with Steinwede “reiterating the asking price of $240,000″.
No discussion was had as to whether any portion of the $300/week – the maximum the buyers could afford – would be attributed to interest rather than principal.
It was agreed however that “the loan will be set up just as a bank would. We will need to enter into a mortgage.”
Perkins asked, whether in such a case, a valuation would be obtained to which Steinwede replied “no, we know what the property is worth.”
The court found that she may not have known what the property was worth but did know that it was “not worth $240k”.
Contracts prepared by a solicitor were entered into in November 2010 as was a mortgage specifying each $300 payment would comprise $150 in interest and $150 in principal.
That was the first time that the buyers realised that the outstanding principal they would have to come up with after two years would be as high as $218,000.
Settlement occurred in January 2011. Come January 2013, they couldn’t raise a loan to pay out the vendor financed principal and the sellers sued.
The buyers contended in their defence that the agreement should be set aside under the Australian Consumer Law and the National Consumer Credit Code. To do so however, they would have to establish, in the case of the code, that the sellers were “engaged in a business” and in the case of the ACL, “engaged in trade or commerce”.
The buyers’ arguments on these grounds flopped: As Grey and his partner had purchased the property with an intention to make it their home, there was no business element to the “isolated” transaction. Rather, “the capital gain was a product of their opportunistic greed, rather than a result of any astute investment plan”.
Even had the sale been in the course of a business, the court held that there could be no relief because the representation about the value of the property being worth $250,000 had no effect: there had been “no reliance on it and hence no causal connection between the misrepresentation and the purchase”.
The NSW Supreme Court ruled however that under that state’s Contract Review Act, the contract was “unjust” because of the “gross disparity between price and value” regardless of the absence of reliance on the value statement.
In such circumstances the buyers argued, the court should order the purchase price be reduced to $167.5k, the value on sale date, established by expert evidence.
“The buyers were, on one view, too polite and too trusting and on another view, insufficiently impertinent to interrogate the sellers” over the price or what they had paid for it.
On another view they were perhaps even careless.
Regardless, “the purpose of the legislation is not restricted to the protection of the careful or the astute”, so ruled Judge Adamson.
The court accepted the buyers’ contentions and ordered that the amount to be repaid under the mortgage should be reduced accordingly.
Gray v Latter [2014] NSWSC 122
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