Builders and misleading advertising of house and land packages

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BuilderConsumer

Truth in advertising

Consumer Protection continues to receive a number of complaints about representations builders are making in their marketing material. The issues highlighted in this article relate to house and land packages, often where the builder does not own the land.

Consumer Protection published its concerns about the advertising of house and land packages in 2013, and while industry responded to the matter at that time, similar advertisements are beginning to reappear again. The following information is therefore being provided to help builders make sure their advertising complies with the Australian Consumer Law (WA) (ACL).

Consumer Protection is committed to taking significant action, including prosecution, against builders or others who publish false or misleading advertisements. The seriousness of these matters is reflected in the maximum penalty of $220,000 applicable to an individual and $1,100,000 for a body corporate.

The recent spike in complaints has identified a number of misleading advertisements and a number of these matters have met the threshold for investigation.

While this information is primarily for builders, it may also be relevant for developers. Both should be aware of recent amendments to the Sale of Land Act 1970 that make it mandatory for sellers to warn buyers in writing if the advertised seller does not own the land it is marketing. If there is no warning, the sales contract becomes illegal and void. More information is available on the Consumer Protection website.

The following examples reflect elements of potentially misleading advertising Consumer Protection has examined in the past:

Land ownership

A builder advertised a block of land they did not own (as part of a house and land package) without the authority of the owner. This typically involves a builder using the address of a vacant block they do not own in a particular suburb to leverage the marketing of their product. Such advertising is often placed on real estate websites such as realestate.com.au.

Only a person who owns a block of land is entitled to sell it; otherwise it must be sold by someone who is legally authorised to do so (such as a licensed real estate agent appointed by the owner).

Consumer Protection understands some builders have an affiliation or agreement with a developer to advertise the developer’s land. Builders should disclose this relationship in advertisements to avoid misleading consumers into believing they are purchasing the land from the builder.

The ACL requires the person promoting the sale of the land to have approval to sell the land.

Availability of land

Consumer Protection has seen cases where builders have advertised a house and land package where the land has already been sold. Builders should only advertise house and land packages where the land is currently available.

If a builder does not have an exclusive right to advertise the land they are promoting, the block may not be available for sale when a consumer makes an enquiry.

Builders should regularly review advertisements to ensure the packages are based on land that is currently available.

Pictured elevation

Builders have published photographs of the front elevation of a house in advertisements but the advertised price does not cover the home as pictured.

Photographs of this type in a builder’s marketing material must disclose the relevant details regarding the featured elevation and price. Builders should avoid using fine print disclaimers as they will not negate the issue if the overall impression of the advertisement is misleading.

Featured elevations should also be relevant to the particular block of land being advertised with the house. As an example, the advert should not feature a 17m house frontage in an advertisement if the block has a 12m frontage. While this is a simplistic example, advertisers need to think about what they are trying to achieve. That is, to sell a genuine house and land package product.

Pricing

Setting prices in house and land packages without providing for fluctuations at different locations will have an obvious effect on the cost of site works and variations. If builders are enticing potential customers on the basis of what they see as an affordable proposition, they should be able to deliver on that proposition.

Advertisements should disclose reasonable price estimates and be qualified if there are known variables.

General information about sales representatives

Builders should only employ a sales representative to promote and sell their house and land packages if they own the land being sold. A sales representative who engages with others to sell their land may need to be operating under the guidance and control of a real estate agent if they sell land a builder does not own.

Sales representatives should always disclose to prospective buyers any and all commissions, fees or benefits they receive from sources other than their direct employment with their builder. The customer they are dealing with needs to know who they are acting on behalf of and of course there are consequences for failing to do so.

Further information

Further information on the ACL is available from the Consumer Protection website at www.commerce.wa.gov.au/consumer-protection.

Building Commission
Department News
11 Sep 2017

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