Don't mention the floods

After some comparatively minor Brisbane CBD flooding some years ago Queensland’s Beattie government knee-jerked a new rule for motor auctions (but not for vehicle sales otherwise): auctioneers must announce if a vehicle is water-damaged.

No Queensland government ever wanted comparable flood disclosure in real estate sales. Yet home-sellers must inform buyers about electrical safety switches and smoke alarms – as well as provide sustainability declarations and pool safety notices.

Meanwhile, auctioneers and agents can freely sell flood-affected Queensland real estate without having to disclose the soggy truth. If the buyers’ council search shows past flooding, tough luck (for them)! The standard Real Estate Institute of Queensland contract (approved by the Queensland Law Society) contains no opt-out flood clause. Unless agents, auctioneers or sellers falsely represent properties as flood-free, buyers cannot withdraw. Flood-prone sellers have no worries – provided you’ve sold after the clean-up and before the next big flood.

The Beattie government’s first Fair Trading Minister, Judy Spence, said in 1999 that, because of Queensland’s potential for flooding, her department had concerns about real estate practices and “disclosure in the standard form of contract”. But nothing changed. Auctioneers, agents and owners of flooded properties have largely kept buyers (and tenants) in the dark, while standard contracts remain flood-clause-free. Conveyancing solicitors rarely see an agent-prepared contract or tenancy agreement where a property’s flood history has been revealed.

Twelve months ago Premier Bligh’s Fair Trading Minister, Peter Lawlor, said the Queensland government did not intend to make pre-contract flood disclosure mandatory. In fact the Minister had been lobbied for “full disclosure” of all material matters in residential sales. He explained that, with the regulation of property transactions being subject to a complex range of local and state legislative requirements, the government would not consider placing a “full” disclosure onus on sellers: “As the circumstances surrounding individual property sales are so diverse, this form of disclosure could not be readily prescribed or guaranteed.”

Meanwhile, flood plain management specialist Dr Stephen Yeo questions the valuation consequences whenever local councils inform residents of their “level of exposure to flooding”. “Does disclosure adversely affect residential property values?” he asks. “It could,” he says, “but the more likely result is that it would not.”

Because community perceptions can influence values, Dr Yeo says those who shape perceptions need to be responsible. Community leaders (currently with other priorities) have good reason, he suggests, to down play the possibility of adverse effects and “talk up” the market.

This month Brisbane-based Property Searchers principal Scott McGeever told Australian Property Investor Magazine that demand for Brisbane near-river and low-lying properties would drop significantly into the next five years.

After that, he suggested, buyers would quickly forget the severity of the event,which would become history again.

Although elevated properties already attract a slightly higher premium, said McGeever, current flooding will see unaffected elevated areas attract even higher premiums in the “initial aftermath”.

Back in 1974, even before Queensland’s floodwaters had receded and while the clean-up was underway, some real estate agents were talking up the market. They said nothing about unwise development, nor about buyers or tenants in flood-prone areas not having been informed or warned.

These agents ignored the adverse and promoted “high and dry” properties for sale (as happened further back in 1893!). The Real Estate Institute of Queensland said these 1974 advertisements were “completely unfair”, but what is unfair about the truth? The Housing Industry Association anticipated “a fairly grim period ahead”. Many agents predicted a steep drop in values in flooded suburbs, but others were confident the public would soon forget the floods. The optimists proved correct. In my experience the floods were soon forgotten, and few buyers would ever ask (until now) about flooding. Many folk from interstate and overseas have come and bought land and homes here without any knowledge of 1974. Young couples, who weren’t even born in 1974, became unwitting flood-prone property owners.

There are no legal restrictions in Queensland, or elsewhere across the nation, on selling flood-affected real estate, although local councils may require people building new homes or extending existing ones to ensure floor levels are above specified flood levels. Incidentally, in Queensland, council flood search replies received by buyers’ solicitors invariably give “no warranty” on the “accuracy of the information”.

When I pressed my Law Society on the need for a consumer-protective contract flood clause I received this unhelpful reply, which only a lawyer could have crafted: “Whether or not the standard contract included a clause which in effect said the sale was subject to the property not being flood-affected was considered. It was decided that such a clause would be extremely difficult to draft given the nature of flooding records kept by various local authorities and that, in the standard contract, the clause was probably not necessary.”

At the same time I asked Queensland’s Office of Fair Trading, on behalf of an unhappy home-buyer, if estate agents should disclose flood information. The answer was classic Catch 22, and no more helpful: “You have raised concerns that the contract entered into by your client related to property which was found to have been substantially flooded and this information was not provided to her… It is considered it is not generally the function of an estate agent to provide information available from searches of local authority records.”

When Fair Trading prosecuted an agent for not revealing what he knew about a property’s termite damage, the Queensland Civil and Administrative Tribunal ruled that the “prudent course” for the agent was “to remain silent” and let the buyers pursue their own enquiries. No matter that the Tribunal failed to consider that, by law, misleading conduct includes “wilful concealment of a material fact”. So far as I am aware, the only real estate agency ever successfully prosecuted for “misleading conduct by silence” was the New South Wales L.J. Hooker agency which sold a home without disclosing that it had been the scene of a triple murder.

So if you are looking to buy in Queensland, or anywhere else for that matter, remember to ask about flooding. No matter what sort of reply you receive, still make your own independent enquiries. And ensure your solicitor adds a special contract condition permitting you to cancel if council searches reveal the watery worst. Your solicitor won’t find such a condition too difficult to draft. (By the way, here’s a tip from my own personal experience. If you’re looking to buy or rent, and have your suspicions about past flooding, just ask any long-term and long-memoried neighbour!)

What of flood-prone real estate disclosure elsewhere in Australia? Please correct me if I’m wrong, but to my knowledge, there are no laws anywhere specifically requiring auctioneers, agents or owners to disclose flood information to prospective buyers or tenants. Only the Northern Territory and Tasmanian governments are in the process of finalising pre-contract disclosure laws.

Not that Tasmanian sellers will have to give buyers specific flood information. It seems that Apple Isle buyers will receive only a general warning like this:

“The property may be subject to periodic flooding (i.e. when land that is not usually submerged by water is flooded every so often) or located in a flood-prone area (an area that has a tendency to become submerged by water frequently). It is therefore in your interest to undertake an investigation as to whether or not the property is affected or prone to be affected by flooding before you commit yourself to buy.”.

On the other hand, the Northern Territory’s draft disclosure regulation stipulates that the seller must provide a declaration stating “information known to the seller” about whether the property being sold has “previously been flooded”.

Finally, the best news for owners of currently flooded properties is that white-ants probably can’t swim!