Ray White Commercial has been ordered to pay a Queensland investor the deficiency in value of a commercial property resulting from an ambiguity in its Information Memorandum.

The agency’s David Djurovitch sent the IM to investor Brian Makings in August 2009 and shortly after contacted him to advise the retail centre at Robina had been passed in at auction at $6.7 million.

The “overly trusting and naive” buyer was attracted to the Piazza centre by its “Total Net Rent” return of $607k. That attraction intensified when told by Djurovitch that a forthcoming rent review would escalate the “net rent” figure.

At their next meeting, the agent “did quick calculation” to show that on the existing rent, a 9% yield – that the buyer was seeking – would “would give you a purchase price of $6.9 million”.

Makings agreed on the spot to buy at that price and signed a draft contract with no due diligence clause.

What he never understood was that the net return quotes represented rents the tenants were obliged to pay under their leases, not sums the owner had banked.

The true state of affairs was that all tenants were struggling, the centre manager was incompetent and “the tenants could not have borne the impost” of paying full rent and outgoings.

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The actual rental received was just $298k. Recoverable outgoings had also been overestimated to the extent of 100%.

It didn’t take long for Mr Makings to realise he had been sold a pup. With the former owner now in liquidation, his anger was focused on the centre manager who he named as first defendant in his Supreme Court lawsuit.

For its part, the agency pleaded innocent, having only passed on data it had received from CBRE. It also sought to be indemnified by the directors of the former owner who it brought into the proceedings as third parties.

Ray White’s Greg Bell contended Makings was himself responsible for having failed to “employ an accountant to look at the actual financials”.

But even had the buyer requested the financials, CBRE – perhaps because of the “serious flaws in the management of the Piazza – would, according to Justice Jean Dalton, have been unlikely to have granted access.

Ray White also pointed to the IM provision that absolved itself of responsibility for the accuracy of its contents and a warning that intending buyers should rely on their own enquiries.

Makings denied having read it, but in Justice Dalton’s view, even had he done so, the warning was entirely ineffective “to alert a reasonable person in Mr Makings’ position”.

The agency could not disclaim responsibility in that way, for information that it “branded prominently and repeatedly as having been prepared by Ray White Commercial” and “put forward as its own”.

The “net rent” statements were at the very least misleading and – so ruled Justice Dalton – Ray White was liable to the buyer as a consequence.

Both parties called experts who had attributed a valuation to the centre, Makings case being that he was entitled to the shortfall as compensation.

The court preferred the evidence of Lisa Murdoch from Jones Lang Lasalle who “presented a very impressive series of reports” and was “very impressive” over that of her colleague who “made false representations in his curriculum vitae”.

Murdoch valued the Piazza as at the date of settlement of the contract in September 2009 at $4.91 million – yielding a loss of $1.99 million and at 6%, a much lower rent return than the buyer’s target yield – for which Ray White was held liable .

What about CBRE?

Notwithstanding the serious errors made by CBRE, it had produced a further tenancy schedule as part of an Owner’s Statement in June 2009 that “taken as a whole showed how poorly the Piazza was performing”.

It could not have “reasonably anticipated” – concluded the judge – that only part of that document would be provided to the buyer by Whites. Thus CBRE was not liable for the buyer’s loss.

Neither were the directors of the seller company liable. “It could only be in the most extraordinary circumstances” – which were not made out – “that directors could owe a duty of care either to Ray White or to the plaintiff”.

Makings Custodian Pty Ltd v CBRE (C) Pty Ltd [2017] QSC 080 Dalton J 19 May 2017


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