Does Material Fact Law Need an Overhaul?

If you are selling a property which has previously been the site of a murder, according to the law you need to inform potential buyers of the property’s history.

This is known as material fact law, and it is in place so that buyers don’t make a purchase and then later find out something that would have deterred them from going ahead if they had known about it beforehand.

Many sellers fear that informing possible buyers that a crime took place on a property will affect its potential value, especially if the crime was particularly violent or distressing.

While this might be true in some cases, it doesn’t necessarily mean that a property can’t achieve market rates, as the recent sale of the Frisoli murder house for $200,000 over its reserve price demonstrates.

The Frisoli house, located at Rozelle in Sydney, was the scene of a double murder in 2009 when brothers Albert and Mario Frisoli were stabbed to death by a former business associate.

The property had ten interested buyers, with three changing their minds once they were made aware of the home’s history. The remaining seven weren’t deterred.

What is material fact law?

Material fact law comes under Section 52 of the Property, Stock and Business Agents Act 2002. Under this law, an agent selling a property is under an obligation to disclose a material fact to a buyer. There can be some uncertainty surrounding exactly what constitutes a material fact, however.

NSW Fair Trading has some guidelines which can help people determine whether or not something is a material fact and should be disclosed.

The problem with deciding whether a fact needs to be disclosed is that often something that one person wouldn’t be worried about can be a major concern for someone else.

According to Fair Trading, if an agent is aware that a particular issue could be a problem for an individual buyer they are obliged to disclose it.

Under other circumstances they should consider what the general population would find significant and whether previous buyers have reacted negatively to the information when finding out.

A number of real estate organisations including the Real Estate Institute of NSW (REINSW) have requested that the NSW Government clarify material fact laws so there is no ambiguity and so that both buyers and agents are protected.

As well as making it clear what constitutes material fact, REINSW has also requested that the onus for disclosing material facts be placed on the buyer instead of the agent, and that a consistent process for disclosure is put into place to ensure possible buyers are informed at the same time.

What happens if I don’t disclose something?

If you are a real estate agent and you don’t disclose something which is later determined to be material fact you could face a number of different consequences.

This issue was publicised in the case of the Sef Gonzales property.

Gonzales killed his parents and sister in the Sydney house, which was sold some years later without the fact of the multiple murders being disclosed. Once the buyers found out about the murder, the deposit was refunded to them and the sale wasn’t completed. The agents were also fined $10,000 for failing to disclose the property’s history.

As the law stands, conflicts can arise when disclosing the history of a property goes against the vendor’s interests. As agents are obligated to act in the interest of the vendor, disclosing information that may potentially deter buyers can leave them vulnerable to falling foul of other legislation that is in place.

Material fact law is there to protect buyers but it can leave agents vulnerable to repercussions from vendors if they haven’t acted in their best interests, and the prospect of hefty fines if they are shown to have breached material fact law.

If you require specific advice as to your disclosure requirements as a seller, or your avenues of redress as a buyer, consider speaking to a criminal lawyer who is experienced in advising about this peculiar area of the law.