The Queensland Supreme Court recently distinguished the High Court decision in Butcher v Lachlan Elder Realty Pty Ltd when considering the behaviour of a rogue real estate agent who made misrepresentations in the course of negotiating the purchase of a commercial property.

The case involved the purchase of a shopping centre on the Gold Coast. A property manager kept the financial records for the shopping centre owners. Reports prepared by the manager showed that at the time the property was marketed for sale, it was performing poorly and that its financial position had never been good. The second defendant was the real estate agent who acted for the owners.

The plaintiff made enquiries with the real estate agent, looking to purchase a commercial property with a rental yield of 8% to 10%. The agent informed the plaintiff about the shopping centre and suggested the property would produce the desired yield.

The agent later sent the plaintiff a written ‘information memorandum’ which included information relating to the rent and outgoings per annum previously provided by the owners from reports prepared by the property manager. The memorandum overstated the net rental for the tenancies and underestimated the outgoings. It did not include other information from the property manager’s reports which revealed the extent of the poor performance of the shopping centre.

The agent advised the plaintiff that the net revenue had risen substantially that year due to rent increases and would rise further after further reviews later in the year. The agent explained to the plaintiff that the word ‘net’ in the memorandum meant the rental figure after deducting all costs (except land tax), which in fact was not the case. The agent then calculated the yield for the plaintiff using the incorrect figures to demonstrate that the property was within the 8% to 10% range.

The Court concluded that if the agent had not made the misrepresentations, the plaintiff would not have agreed to purchase the shopping centre. Importantly, the Court concluded that the agent was not simply passing on information from the owners or the property manager to the purchaser. Even though the information regarding rent and outgoings had been provided via the owners and the property manager, the agent had effectively cherry-picked information from those documents to produce the memorandum, which bore the agent’s name on every page.

The agent then sought to rely on a disclaimer in the information memorandum. The Court considered that the location of the disclaimer as an annexure at the end of the document and the wording of the disclaimer distinguished it from the disclaimer in Butcher. In that High Court case, the disclaimer appeared on each page of a two-page leaflet. The Court concluded the disclaimer, in this case, would not alert a reasonable person in the purchaser’s position that the information in the document was simply being passed on from the owners, particularly as the document very prominently stated it was prepared by the agent.

Makings Pty Ltd & Anor v CBRE (C) Pty Ltd & Ors

This decision demonstrates that if a disclaimer is to be successfully relied upon, attention must be paid to where the disclaimer appears in the document, the wording of the disclaimer, the appearance of the document as a whole, and the effect of representations made beyond the scope of the document containing the disclaimer.