Ocean views “FOREVER” – real estate sales pitch or a fraudulent misrepresentation?

03 October 2019

A property developer made representations that a lot for sale would have “ocean views FOREVER” due to height restrictions on the “sold” adjacent lots. The unconditional contracts on the adjacent lots were terminated and, when they were eventually sold, did not have height restriction covenants. The Federal Court determined that the developer’s representations were false and misleading and awarded damages in excess of $2.5 million to the purchasers.

In Issue

  • Whether the representations made to the purchasers were misleading and deceptive;
  • Whether the adjoining lots were “sold” at the time the purchasers entered into the contract for sale of the lot;
  • Whether the developer had an obligation to tell the purchasers regarding the change in circumstances of the sale of the adjoining lots; and
  • Whether the purchaser’s claim was statute barred.

The background

While on holidays in late September or early October 2007, Mr and Mrs Eckford took a scenic drive from the Gold Coast to the Sunshine Coast. There, they came across a new land release owned by Six Mile Creek Pty Ltd (SMC) which had views of the Pacific Ocean, Coolum Beach and Mount Coolum.

Mr and Mrs Eckford met with a real estate agent who advised them that Lots 17, 18 and 19 (located on the southern boundary of lot 10) of the development had been sold with building covenants that contained height restrictions limiting the height of any buildings, trees and vegetation that could be on those lots. This would ensure, as the brochure promised, that Lot 10 would keep its oceans views “FOREVER”.

On 20 November 2007, Mr and Mrs Eckford entered into a contract to purchase Lot 10 for $895,000 plus stamp duty. The contract contained the building covenants, including the height restrictions that were to bind the owners of the adjoining lots “FOREVER”. Mr and Mrs Eckford then sold their home and build a house on Lot 10.

In February 2016, Mr Eckford and his son (following the passing of Mrs Eckford) became aware that the adjoining lots were not “sold” by SMC at the time that he entered into the contract to purchase Lot 10. SMC subsequently sold Lots 17, 18 and 19 to third parties on contracts which contained none of the height restrictions to bind the purchases of those lots.

Mr Eckford, as the surviving joint tenant of Lot 10, claimed that SMC and its principal and controlling mind (Daniel McLaughlin) had engaged in misleading or deceptive conduct and made false and misleading representatives in contravention of the Trade Practices Act 1974 (TPA) concerning the effect and operation of the height restrictions and the nature of existing “sales” of lots in the estate.

Mr Eckford asserted that had he realised the representations regarding the height restrictions were not true, he and Mrs Eckford would never have bought Lot 10.

The decision at trial

SMC and Mr McLaughlin denied liability. While they accepted that the misrepresentations about the height restrictions were made, they claimed that they were true at the time that they were made because of the existence of the exchanged contracts for the sales of the adjacent lots at the time that Mr and Mrs Eckford first visited the site office.

SMC and Mr McLaughlin further claimed even if the representations regarding the height restrictions and that the adjacent lots were “sold” was misleading or deceptive, Mr Eckford’s claim was statute barred as the conduct had occurred more than 6 years earlier.

The court held that SMC and its agents deliberately mislead Mr and Mrs Eckford regarding the value of Lot 10. During the trial, Mr McLaughlin admitted that he knew that there was little chance of completing the contracts that were in place for any of the adjoining lots. This was evident to Mr McLaughlin prior to the exchange of contracts purchasing Lot 10 and the court determined that he had an obligation to disclose this information to Mr and Mrs Eckford.

The court held that Mr and Mrs Eckford were attracted to Lot 10 by its views, and the promise of protection of those views because the adjourning lots had been sold with building covenants containing height restrictions binding their owners, and were willing to pay the purchase price to acquire Lot 10 because they relied on each of the representations.

The court determined that SMC and Mr McLaughlin induced Mr and Mrs Eckford to enter into and complete the contract to purchase Lot 10 by engaging in conduct that was misleading and deceptive by making false and misleading representations. SMC’s and Mr McLaughlin’s conduct was also determined to be fraudulent with respect to representations regarding the “sold” adjacent properties.

The court determined that Mr Eckford, exercising reasonable diligence, could not have discovered the misrepresentations earlier than April 2012, and therefore his claim was not statute barred.

The court awarded judgment for Mr Eckford in the sum of $2,573,354.46 plus costs which included damages for purchase costs, construction costs and interest costs.

Implications for you

This decision confirms that if there is a material change in circumstances with respect to a property that is the subject of purchase negotiations, a property developer or real estate agent should inform the potential purchaser accordingly. Any failure to do so might constitute misleading and deceptive conduct.

Eckford v Six Mile Creek Pty Ltd (No 2) [2019] FCA 1307

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