Property Briefs

Misrepresentations in property transactions: keep to the facts

The difference between ‘misrepresentations’ (which may support a claim for damages) and ‘mere puffery’ (being statements no reasonable person would take seriously) isn’t always clear. Enticing a purchaser into a contract by misrepresentations was a costly mistake by the vendor in a recent case. (1)

Aldrie Holdings Ltd (through its director Ms Laboyrie) purchased a farm for $2,900,000, but failed to make proper investigations before confirming the contract. Instead Aldrie chose to rely on statements made by Mr Prout, the vendor’s agent. Mr Prout boasted that the level of pasture, milking shed and water at the property were ‘excellent’. Given Ms Laboyrie’s general business experience, the judge held that these statements were clearly puffery as a reasonable purchaser would have made further enquiries to validate those claims.

Aldrie did partially succeed in its claims against the vendor for misrepresentations regarding the effective area of the land, average production levels, fertiliser applied and grazing on ‘run-off’ properties. Although the judge acknowledged Ms Laboyrie should have checked the information provided to her, he found that the misrepresentations were an ‘operating’ cause of Aldrie’s loss (estimated at $500,000).

In determining compensation, the judge referred to the concept of caveat emptor – let the buyer beware. Purchasers must not blindly enter into contracts and become ‘the authors of their own destruction’. The judge quoted a previous judgment highlighting the need to consider “the position in life, experience, and skill of the person to whom the [statement] was made”. (2) The compensation awarded to Aldrie was discounted to $250,000 as Aldrie’s failure to take reasonable care to look after its own interests contributed to its losses.

Property transactions often involve significant assets. If you’re buying a property, you need to make full enquiries about the property and seek advice from the appropriate professionals at the outset. Similarly, if you’re selling, you must be careful when dealing with prospective purchasers and avoid the temptation to make exaggerated boasts.

When builders go in to liquidation

Earlier this year, Stonewood Homes went into liquidation with more than 100 homes in Christchurch under construction. This left customers uncertain as to when their builds will be completed.
Unlike a number of builders, Stonewood Homes offered Master Build Guarantees meaning that Registered Master Builders has assured customers that their builds will be completed. However, not all builders offer independent guarantees.

If you are contracting a builder who does not offer a guarantee, it’s important you do thorough research. In particular, you should negotiate:

• Progress payments: You should only pay for the value of work which has been completed at each stage of the build process. This ensures that if anything goes wrong, at least you have only paid for what is ‘on the ground’,
• Insurance: Builder’s insurance needs to be viewed in light of all projects the builder is involved with. It may be that what seems like ample coverage when expressed as a total insured amount over all builds, is actually insufficient when divided between that builder’s various build projects.
• Timing: Always allow for unexpected delays when budgeting. Although Stonewood customers have been assured their builds will be completed, many will be paying both a mortgage on their already-made progress payments as well as alternative living expenses while they are unable to occupy their new homes.

When choosing a builder, the availability of an independent guarantee should be a major consideration. However, even if your builder does provide a guarantee, it’s important that you comply with the eligibility requirements as cover is not automatic.

Every build is different and is a significant undertaking for most people. If you’d like more advice on your prospective build, please be in touch with us.
(1) Aldrie Holdings Ltd v Clover Bay Park Ltd [2016] NZHC 250
(2) Closurepac NZ Ltd v WS 2014 Ltd [2015] NZHC 1587 citing Easterbrook v Hopkins [1918] NZLR 428 (HC) at 442