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Psychologically stigmatised property - Is there a duty of disclosure?

Newsletter 22 April 2014

Under normal circumstances, a vendor is only required to disclose certain information which is prescribed by State legislation. The principle of “caveator emptor” which means “let the buyer beware” applies to the sale of land and requires a purchaser to take a property “as is”.

There has been considerable debate over the years as to the extent of any duty of disclosure imposed on real estate agents and vendors, particularly in relation to “psychologically stigmatised property”.

What is “psychologically stigmatised property”?

A property where some tragic or traumatic event, such as murder, rape, suicide, violent crime or other horrific event has occurred is referred to as a “psychologically stigmatised property”. Such a characterisation does not involve a defect as to title or the physical features of the land. The stigma in such cases is said to emanate from some non-physical defect that causes religious, moral, emotional or psychological discomfort to a buyer.

The recent Supreme Court of Victoria decision in Charles Lloyd Property Group Pty Ltd v Buchanan [2013] VSC 148 considered whether there is any duty to disclose to prospective purchasers whether a property is “psychologically stigmatised” and the effects of silence in such transactions.

The decision in Buchanan

The Buchanan case involved a property developer who purchased 20 acres of undeveloped afforested land in Ballarat with the intention of subdividing and developing the land. After signing the contract of sale, the developer discovered that a young man had committed suicide on the land and the presence of a memorial near the scene of death. The vendor asserted that it did not intend to hide the fact of the suicide, rather, he simply did not think it mattered.

At the time of discovery, the developer did not assert that the property was stigmatised or that the suicide and memorial undermined its prospect of subdividing and developing the land. The developer also did not contend that the suicide and memorial were material, or that it had been wrongfully undisclosed at the time of the original contract. The developer at this stage did not suggest that it had been misled by the vendor’s silence. Instead, the developer negotiated and executed a deed of variation pursuant to which it entered into new or altered legal relations with the knowledge of the suicide and it obtained an extension of the date for completion of the contract.

Conclusion

Although the law in Australia is not settled on this issue, care ought to be taken by real estate agents when marketing and selling a property with a gruesome history. Silence as to the history of a property may constitute misleading and deceptive conduct, particularly where the silence is coupled with the failure to correct or qualify statements that lead a purchaser into error.

If a horrific event occurred in a dwelling, there is likely to be a “reasonable expectation” that it will be disclosed to purchasers. To avoid future disputes and possible prosecution, vendors and real estate agents ought to err on the side of caution and disclose all relevant material facts relating to the history of a property.


Dan Flynn, Partner
Melbourne

Meri Siracusa, Special Counsel
Melbourne

Newsletter 22 April 2014
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