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Hi, and welcome to another episode of the Buy Your Side podcast. My name is Michelle and I am your host for today.

Now, today, I would like to explain to you Material Fact, and why you should care about it when you are about to buy a property. Before I explain to you what material fact actually is, let me paint you a little picture.

In 2004, a lovely family bought a gorgeous family house in Northwest Sydney in North Ryde. It became forever known as the Gonzalez house because unbeknownst to them, it was actually the scene of a horrific triple murder in 2001 by the family’s son. Now, following the exchange of contracts, the purchasers found out and demanded a full refund of their deposit.

Now, the agents, called Hinton, ended up in court Hinton vs. Commissioner of Fair Trading in 2007 is a very famous court case. And it was actually one of the court cases that sort of further defined what material fact actually meant. They were taken to court and following the court case, the purchasers actually did get their money back and the agents were fined, I believe over $20,000. But that case was very crucial in determining what in New South Wales was actually meant with material fact. Now I needed to explain that in New South Wales there’s certain rules and regulations that you can find on the New South Wales office of Fair Trading website, but they may slightly differ from Queensland, ACT and Western Australia for example. But by and large, they're all the same and a material fact is a fact that would be important to a reasonable person in deciding whether or not to proceed with a particular transaction. Now, in the context of property services, these are facts which may be significantly big or relevant to influence decisions on whether to buy, sell, or rent. Now, this is also important for tenants and or could impact the market value of a property.

Now, in New South Wales, they further defined what these material facts could possibly be. In clause 54 of the regulation, which prescribes these kinds of material fact, including for example, I'll run you through the list quickly: Within the last five years, the property has been subject to flooding from a natural weather event or bushfire.

So given the climate that we've been in and the winter that we've had in the floods we've had over the years, this is obviously a very big one. Particularly for people who are not familiar with the area, because there are quite a few flood prone areas that people don't tend to know about. For example, all around the Cooks River in Sydney, Hawthorn Parade, all those areas are actually flood prone.I don't think I've ever seen it disclosed anywhere.

The second point would be the property is subject to significant health or safety risks. The property is listed on the register of residential premises that contain loose fill asbestos insulation. It could also be within the last five years, the property was a scene of a crime or murder or manslaighter.

Or within the last two years, the property has been used for the purposes of the manufacturer, cultivation or supply of any prohibited drug or prohibitive plant within the meaning of the drug misuse and trafficking act. It could alternatively be that the property or as part of a building that contains external compostable cladding. Obviously, we had the Grenfell Towers in London and that has come in since that there is a compulsory combustible cladding register in New South Wales, so that needs to be disclosed whether there is any combustible cladding, and then there's a few more things, but those, those are the major ones that I can see.

There is however, a very common law doctrine of caveat emptor and that is let the buyer be aware. So whilst agents and vendors have the duty to disclose, and it even states that, an agent should do reasonable amount of discovery, as it says to, for example, find out whether the property has been affected by flood or fire, in my day to day experience, I would say don't leave it to someone else to disclose that to you, I think it's very important that you take that responsibility and just do a bit of digging as to what could be happening or what could have happened with the property in the past.

Now, interestingly, if a property gets razed to the ground, then if there was a murder in the house that no longer needs to be disclosed. Hmm. Interesting. Also facts like, if someone has suicided in the property that does not need to be disclosed because it is not a murder or a manslaughter. The other thing I was thinking about when I was sort of doing research for about this material fact, is that obviously you as a buyer have to ask the right questions you know, and things that are important to you. So for example, when we ask our clients to fill out a brief, when it comes to working with us, we want to know what's important to you beyond the bedrooms and the parking and what schooling is important. We always ask, are there any material facts that we should know about you? And so it does come up from time to time that people may have cultural or religious equirements such as not having a house number with the number four, for example, because in some cultures that is not a very prosperous number. It could also be that they don't provide a front door facing south or south-west because again, that is a cultural belief. If we know that our front, and obviously we can make sure that we don't continuously bring up the wrong properties. But it's funny, sometimes it's other things that they may have had a history growing up in a certain suburb and they will never, over their dead body, move back to that particular suburb. So it is very particular, even though the law states that what a reasonable person would be important to find and would need to be disclosed, everyone's very different of course.

Someone brought up a very important fact, for example, the fact that a particular place may have been used as an abattoir may not have been an issue for some people, but then if that potential buyer is a vegan or is a animal rights activist, that would be a very relevant thing of course.

So I would say obviously these are the rules and regulations, but have a think about what are deal breakers for you? Because you might find that you might value some things that may be so niche that they may not fall particularly under the material fact statement, but they could actually be deal breakers for you. Another side note is that once you have entered into a property purchase, after exchange your solicitor will send you a list for potential additional searches. So that's further research that they do on any “adverse affectations” as they call it, that may not have been disclosed by the vendor. All contracts of sale, include a promise by the vendor that amongst other things, that as of the date of the contract and accept as disclosed in the contract, the land is not subject to any adverse affectations. So that may include a widening of roads or a proposal by the minister of education to acquire part or whole of the land to build a new school. Or it may be a listing on the state heritage register or anything like that. Those searches will be asked of you, whether you want to go ahead with that additional research because you as a purchaser may actually rescind, so cancel the contract, and have the deposit refunded where a vendor has breached one of these promises as provided as for in the legislation. So the purchaser can actually rescind this any time prior to settlement. So that's something to be mindful of.

Now, obviously, these searches, they have different costs attached to them, so think about which ones are likely in a highly density area, and maybe less likely that the ministry of defence is building army barracks, but you never know. So interestingly, there's quite a few obligations on the vendor to disclose this kind of thing, but I certainly have come across properties that when we did research the property was actually right on top of WestConnex tunnels, and so the fact that that was the case and that the owners had been notified by WestConnex and Transurban to say, “Hey, we are repossessing the substratum”, so the area underneath the house, they did receive that letter, but they never disclosed it in the sale. So we found that out by our own research. So definitely do your due diligence, as I always say it is very boring, but it's very important. I will add some links to the websites that have helped me sort of determine better what was important about material fact, so I will add that to the show notes, but if you've got any further questions on this, do drop me a line at hello@buyyourside.com.au and don't forget to give us a follow on Insta, Facebook, and wherever you find your podcasts, whether it's Spotify or Apple Podcasts wherever, because then we'll let you know when the next episode drops.

So I hope you found this helpful. Thanks for listening and until next time.

Michelle May

Ep 23. What is Material Fact and why should you care?

Ep 24. Asbestos in Properties

Ep 22. How will interest rates affect property prices

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