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Insights

Cooling off: When is a real estate agent not an agent?

| Published by John Corcoran, Morgan Scholz, Mark McKinley

During the month an important case was heard in the Supreme Court of Victoria. The implications of the case are far-reaching and important for anyone buying or selling residential property in Victoria.

The case highlights the dangers for purchasers in assuming real estate agents have authority to accept ‘cooling off’ notices.

Tan v Russell [2016] VSC 93.

The facts

In early 2014, Mr Russell (the Vendor) appointed Marshall White Real Estate as the estate agent to sell his property.

Mr Tan and Dr Lo (the Purchasers) inspected the property and negotiated through Marshall White as to the price, before signing a contract of sale to buy the property for $4.48 million on 4 April 2014.

On signing, the Purchasers paid $350,000, with the balance of deposit of $98,000 by 30 June 2014.

Three business days after signing the contract, on 9 April 2014, the Purchasers emailed Marshall White, purporting to exercise their ‘cooling off’ rights and end the contract.

The Vendor denied the contract was validly terminated by the Purchasers.

The law

In certain circumstances, purchasers can end a contract of sale under the ‘cooling off’ provisions of section 31 of the Sale of Land Act 1962 (Vic) (the Act) by giving the vendor or his agent notice that the purchaser wishes to terminate the contact before the end of three clear business days after the purchaser signed the contract. 

The decision in Tan v Russell

The primary issue was whether the Purchasers’ email to Marshall White validly terminated the contract under the cooling off provisions.

The court found that the email was invalid because, for the purposes of section 31 of the Act, Marshall White was not an ‘agent’ of the Vendor with the necessary authority to receive the notice of termination.  The court decided that the Vendor had not ‘held out’ that Marshall White was the Vendor’s agent for all purposes.  The Purchasers had assumed that Marshall White had authority to receive notices such as a notice by the Purchasers exercising their right to cool off pursuant to the Act.

The Purchasers failed to show that Marshall White had any authority of the Vendor, beyond “the usual authority granted to an estate agent by a vendor client.”

Although it is “a common occurrence in commercial life for parties to assume that a real estate agent is an agent for the vendor of a property for all purposes... that is not necessarily the case.”

In seeking to exercise their cooling off rights the Purchasers mistakenly assumed that communicating with the Vendor's real estate agent was sufficient. It was not.

As a result, the Vendor was entitled to retain the $350,000 paid and the residue of the deposit of $98,000, plus any further losses on resale of the Property, including interest and costs.

Our advice for vendors and purchasers

While a real estate agent may be extensively involved in the marketing and sale of a property, a real estate agent does not usually have authority to receive notices once the contract is executed.

For purchasers wanting to exercise cooling off rights, it is essential that the notice be validly served on the vendor directly or an agent of the vendor (ie the vendor’s lawyer or conveyancer) with express authority to accept such notices.

For vendors, it is prudent to obtain independent advice before accepting that a purchaser has ended a contract of sale pursuant to section 31 of the Act and refunding any deposit paid.

For more information, contact John Corcoran AM, Mark McKinley or Morgan Scholz.