When is an offer an “offer” for the purpose of the Estate Agents Act 1980 (Vic)?

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By John Turnbull, Partner

The public statement delivered by Minister Jane Garrett on 4 March regarding the alleged “underquoting” practices of real estate agents in Victoria has sent a very clear message to the real estate industry that breaches of the Estate Agents Act 1980 (Vic) (the Act) will not be tolerated by the Victorian state government.

Indeed, the unprecedented level of investigative activity undertaken by Consumer Affairs Victoria in recent months (as the regulator charged with the responsibility of policing both the Estate Agents Act and the Australian Consumer Law) suggests that now more than ever, estate agents need to be acutely aware of their obligations under the law.

If the legislative reforms proposed by Minister Garrett are endorsed by the Victorian Parliament in the coming months as is expected, many estate agents will need to change their existing practices to ensure they are compliant with the new provisions.

One of the proposed changes to the Act includes an obligation for an estate agent to raise the advertised price of a sale property when an offer is received by a prospective buyer, but rejected by the vendor. In this situation, and under the proposed amendments to the Act, the advertised price must be raised to be aligned with the (rejected) offer within one Business Day.

However the question of what is legitimately considered an “offer” and in what circumstances an estate agent is required to take an offer to a vendor for their consideration as required under rule 16 of the Estate Agents (Professional Conduct) Rules 2008 (Vic) (the Rules) is a hotly debated topic.

More importantly, when is an offer deemed an “offer” at law and for the purposes of the proposed amendments to the Act?

Obviously, the receipt (and acceptance) of an offer is a vital ingredient to an effective and valid contract at law. Indeed the offer is the starting point for any binding contract, with the contractual recipe including the offer, acceptance of that offer, an exchange of consideration (i.e. being an act or the promise to act, which typically involves the exchange of money) and capacity (i.e. do the parties have the legal capacity to enter into the agreement).

But what is an offer?

At law an offer is defined as an explicit proposal or promise to contract that according to its terms, and if accepted by the person receiving the offer, completes the contract and binds both of the parties.

In plain English and with reference to the sale of a property, an offer is an offer if it creates a binding contract if accepted by the vendor.

Therefore and by way of example, a conditional offer by a prospective buyer of a property (such as an offer to purchase the property subject to a pest inspection), would probably not be labelled an offer at law as the contract cannot be completed simply by the vendor accepting the offer.

Similarly the general rule regarding oral offers – which dates back to a law passed by the British Parliament in 1677[1], particularly verbal offers concerning real estate – is that they must be in writing to be deemed enforceable.

That said, the Rules expressly state that any offer – including verbal offers and offers in writing – must be communicated to a vendor “as soon as possible”. It is therefore clear that any offer, even a conditional offer such as an offer to purchase a property subject to a pest inspection, must be communicated to a vendor.

However what is unclear is whether an estate agent must raise the advertised price of a property if an offer that is not deemed a legally binding offer is received (and rejected). The general law would suggest the answer is “no”, although the answer to this question remains unclear.

Whilst there is a significant amount of case law regarding “offers” and more specifically whether an offer was made for the purpose of deciding whether or not a subsequent contract is considered binding, this question – particularly in the context of the proposed amendments to the Act – is unresolved.

One obvious solution is for the amended legislation to include a definition of an ”offer” and to clearly set out the circumstances in which an offer must be communicated and when the advertised price must be raised.

No doubt the Victorian Parliament will be considering this issue carefully in the coming months.

For further information, please do not hesitate to contact us.

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