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REIQ Journal : December January 2009
22 Industry Practice Avoiding claims of misrepresentation By Peter Lynch, Strategic Account Manager, Aon Risk Services In the last couple of months we have witnessed a frightening upheaval in the world economy. UNFORTUNATELY, IN TOUGH economic times such as these there are people who are experiencing financial problems with mortgages on either their own home or their investment properties. When they struggle to make mortgage repayments or need to invest more in the property than they may have anticipated, people may look for someone to blame. Unfortunately, the real estate agent who sold them the property can become an easy target. In these cases, it’s not uncommon to hear allegations that the agent misrepresented aspects of the property such as size, boundaries, encumbrance, views and characteristics. In some cases, misrepresentations are also made in regards to the future potential of the property, either by capital gain or rental return. These scenarios reinforce the need for agents to maintain well documented and comprehensive files, which will become the backbone of any defence of allegations of misrepresentation or misleading and deceptive conduct. It is crucial for your case to demonstrate that all information provided to the potential purchasers was as accurate as possible and properly researched. To assist you in protecting your professionalism, we’ve developed the following tips: Advertising Avoid terms such as “uninterrupted views”, “never to be built out” or “guaranteed returns” as they may constitute misrepresentation. REIQ Journal December 2008/January 2009 Profitability Carefully consider representations you make about the potential profitability of a property. It is vital to remember that your professional indemnity policy will not indemnify you for providing what is considered to be financial advice. Rental returns When talking to your clients about the potential rental earnings of a property, it’s important that you can substantiate your estimation if the client later makes a claim against you for negligence. Representations Off-the-cuff comments, such as “I’m pretty sure you can build a block of flats on this land”, do have the potential to come back and haunt you in the future. Diarise dates and times and record all client contact carefully and promptly. Records Keep copies of all relevant documentation plus a general record of all transactions for at least six years. In the case of “off the plan” sales, we recommend that agents preserve their sale file for a longer period because of the prolonged settlement period. Seller client Unfortunately, agents are often involved in claims due to inaccurate information provided by their sellers. Minimise this risk by confirming the seller’s instructions in writing and maintaining a diary of all discussions with both the seller and any potential buyers. If you are uncertain of the accuracy of the information provided by your seller client, recommend that the buyer seeks their own independent expert advice in writing. Disclaimer: The information in this article is of a general nature only and individuals should consider their own circumstances before proceeding in reliance on such information. Whilst care has been taken in preparing this article, and the information contained in it has been obtained from sources that Aon believe to be reliable, Aon does not warrant, represent or guarantee the accuracy, completeness or fitness for purpose of that information. Aon accordingly accepts no liability for any loss resulting from the use of the information in this article.