Kumar v Sydney Western Realty (No. 2) [2021] NSWDC 446 – When Advertising and Legal Advice Go Wrong in Property Transactions
Kumar v Sydney Western Realty Pty Ltd & Anor (No. 2) [2021] NSWDC 446 is a significant case that highlights how the law protects individuals who are misled during property transactions and let down by professionals who owe them a duty of care. In this matter, the purchaser was induced to buy an investment property after being told it was a “dual-income” opportunity that would generate stronger returns than a standard dwelling. Those assurances turned out to be inaccurate. The property did not meet the promised income potential, and the buyer relied on representations that were false or misleading.
Compounding the problem, the solicitor involved in the conveyance failed to properly investigate the key terms of the contract, the zoning and occupancy restrictions, and the true nature of the development. The Court found that the lawyer did not meet the standard of care expected of a reasonably competent practitioner in these circumstances. As a result, liability was shared between the selling agent and the solicitor.
The judgment examined misleading and deceptive conduct under section 18 of the Australian Consumer Law, the Civil Liability Act 2002 (NSW), solicitor negligence, breach of duty, apportionment of responsibility and the assessment of damages. The decision provides important guidance for property buyers, investors and anyone who relies on professional advice when making financial commitments. It confirms that the law will intervene when representations are inaccurate or when advisors fail to meet their obligations.
If you have purchased a property based on misleading promises, or if a lawyer or agent failed to protect your interests, you may have legal options to recover your losses. Arida Lawyers regularly assists clients in these situations and can assess whether you have a viable claim. Contact us today to arrange a free 10-minute telephone consultation and get clarity about your rights, your prospects and the next steps available to you.
Kumar v Sydney Western Realty Pty Ltd & Anor [2021] NSWDC 446
Table of Contents
Key Takeaways
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The case confirms that real estate agents can be held liable under section 18 of the Australian Consumer Law when they make misleading representations about a property’s features or income potential.
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Solicitors owe a duty of care to their clients to properly investigate, advise and protect their client’s interests during a conveyance, regardless of what the selling agent has said.
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A failure by a lawyer to check development certificates, occupancy restrictions or contractual terms can amount to negligence if it results in financial loss.
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Courts can apportion liability between multiple parties, such as agents and solicitors, depending on their respective roles in causing the loss.
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Damages may include the difference between what was promised and what was delivered, as well as associated financial consequences.
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Contributory negligence can reduce the amount a plaintiff recovers if the court finds they failed to take reasonable care for their own interests.
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Buyers who relied on false statements, or suffered loss because of poor professional advice, may have viable claims even years after the transaction.
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The decision reinforces that consumers are not without recourse when misled in property deals or let down by legal representatives.
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Early legal advice is critical to preserving rights, gathering evidence and determining who is responsible.
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Arida Lawyers assists clients in similar disputes and can provide legal advice and representation on claims involving misleading conduct and solicitor negligence. Contact us today for a free 10-minute telephone consultation.
When Advertising and Legal Advice Go Wrong
Buying a property is one of the most significant financial decisions an individual can make, and many Australians reasonably rely on real estate agents and solicitors at different stages of the transaction.
When a property is marketed as offering a “dual income” opportunity, with both a primary dwelling and a secondary rentable space, it is entirely understandable that purchasers form expectations about the financial return they will receive. At the same time, buyers place their trust in solicitors or conveyancers to advise them on risks, legal compliance, and any warning signs in contract documents.
The decision in Kumar v Sydney Western Realty Pty Ltd & Anor (No. 2) [2021] NSWDC 446 demonstrates what can happen when the agent’s advertising is misleading and the legal adviser fails to protect the purchaser. It also illustrates how the law responds when a consumer’s loss arises from both statutory wrongs and professional negligence. The article also considers the damages awarded, the findings on contributory negligence, how liability was apportioned, and the broader lessons for anyone who has bought a property based on representations that turn out to be inaccurate.
Factual Background
The purchaser in the case was looking for an investment property, and central to her intention was securing two streams of rental income. The real estate agent advertised a home that included a main residence and a separate structure described and promoted as a granny flat.
The marketing material highlighted the idea that the property offered dual income and even included projected rental figures for both dwellings. This representation was critical to the buyer's decision to purchase.
The property was sold for $720,000, and the buyer believed that both dwellings could lawfully be leased to tenants. What she did not know was that the so-called granny flat had originally been a garage, converted for living purposes without lawful approval. Documents attached to the contract, including a Notice of Determination issued by council, indicated that the structure could not be used for habitation because it did not meet relevant planning or safety requirements. The advisory notes warned that the area was subject to flooding constraints and was not approved as a dwelling. These materials were available to the real estate agent well before settlement and were passed to the purchaser’s solicitor early in the transaction. Despite this, the marketing did not qualify the rental claims, and neither the agent nor the solicitor brought the significance of the council restrictions to the buyer’s attention.
The solicitor only became involved during the cooling-off period, after the contract had been exchanged. The solicitor received the full contract and its annexures, including the council advisory. Several generic letters were sent to the purchaser, but there was no specific explanation that the second dwelling was not legally habitable. The solicitor did not advise the buyer to investigate further, did not point out that council approval was absent, and did not suggest steps that could be taken during the cooling-off period to protect her interests. The purchase was completed on 1 July 2019. Not long after settlement, the local council issued a development control order and a fine in response to the unlawful use of the structure. The tenants in the granny flat had to move out and the purchaser was required to convert the space back into a garage.
The financial impact was significant. The buyer had paid stamp duty on the contract price, invested money based on the anticipated dual income, and then faced rectification costs, enforcement action and the loss of projected rental returns. Faced with these consequences, she pursued claims against both the real estate agent and the solicitor.
Misleading or Deceptive Conduct Under Section 18 of the Australian Consumer Law
The claim against the real estate agent was based on section 18 of the Australian Consumer Law, which prohibits conduct in trade or commerce that is misleading or deceptive, or likely to mislead or deceive. The Court emphasised that the test focuses on the overall impression created by the conduct and the circumstances in which it occurs. A person can engage in misleading conduct even if they did not intend to mislead; it is the effect of the representation that matters.
The Court considered the agent’s advertisement and representations about rental income. The unqualified description of the property as providing dual income implied that the second dwelling could be lawfully rented, yet the council documents contradicted this. The agent had access to, or at least constructive knowledge of, materials indicating that the granny flat could not be used as a habitable space. Even if the agent viewed the rental projections as expressions of opinion, opinions still require reasonable grounds when they are presented in a context that consumers rely upon. Because the agent either knew or should have known about the council restrictions, the representations about rental income were made without reasonable basis. There was no qualification, warning, or suggestion that the rental viability depended on council approval, and this omission rendered the conduct misleading.
The Court rejected the idea that the agent was merely passing on vendor information. By advertising the property in a way that promoted income generation from both dwellings, the agent was communicating its own representations. The fact that the granny flat was tenanted prior to council enforcement did not change the legal status of the structure. The essential point was that lawful use required approval, and the agent did not disclose that the second dwelling lacked it.
The Court had no difficulty finding that the purchaser relied on the dual income representation and that it materially influenced her decision to proceed. The inducement was clear: the buyer would not have entered into the contract had she known that the second dwelling could not lawfully be rented. This established causation under the Australian Consumer Law, entitling the purchaser to seek compensation under section 236.
The Negligence Claim Against the Solicitor
The purchaser’s case against the solicitor centred on professional negligence. A solicitor engaged in a conveyance owes a duty of care to their client, requiring them to exercise the competence and diligence of an ordinarily skilled practitioner. The scope of that duty includes reviewing the contract, considering annexed documents and advising the client about any legal risks that may affect the transaction. If the client has a known purpose, such as deriving rental income from a secondary dwelling, the solicitor must consider and advise on whether that purpose might be frustrated.
In this case, the solicitor received the contract and the council’s Notice of Determination during the cooling-off period. The advisory note stated that the garage was not approved for habitation. The solicitor did not draw this to the buyer’s attention, did not explain that the rental viability of the second dwelling was in question, and did not take advantage of the cooling-off period to advise withdrawal, renegotiation or further inquiry. The Court found that a reasonably competent conveyancing solicitor would have recognised the significance of the advisory note, understood how it affected the buyer’s intention to rely on dual income, and would have clearly cautioned the client.
The solicitor argued that the timeline was tight and that the buyer had already signed the contract. The Court dismissed this, noting that the cooling-off period still gave the solicitor an opportunity to intervene. Even short timeframes do not excuse the absence of proper advice, especially when the risk goes to the heart of the transaction. The breach of duty was established because the solicitor failed to provide the advice a competent practitioner would have given in the circumstances.
Causation was also established. The Court accepted evidence that the buyer would not have completed the purchase had she been properly warned. If she had been told during the cooling-off period that the second dwelling lacked lawful approval for habitation, she would have either withdrawn or sought an extension to investigate. The solicitor’s failure to give appropriate advice was therefore a factual cause of the loss and the harm that eventuated fell within the scope of the solicitor’s duty, since the purpose of legal advice in a conveyancing transaction includes preventing exactly this kind of outcome.
Key Legal Principles
Several legal principles emerged from the judgment. First, section 18 of the Australian Consumer Law applies to real estate marketing and does not require intention. If conduct is capable of misleading a reasonable consumer and no reasonable grounds exist for a representation, liability can arise. Silence or omission can be just as misleading as positive statements if relevant matters are left undisclosed.
Secondly, where opinions about rental income are stated in a way that implies factual certainty, those opinions must have a reasonable basis. A real estate agent who knows, or should know, of contrary documentation cannot ignore it. The law expects agents to qualify representations where necessary to avoid creating false impressions.
Thirdly, solicitors owe a duty of care that extends beyond explaining the formal terms of a contract. If the documentation reveals issues that could undermine the client’s intended use of the property, the solicitor must explain the risk in a practical sense. Conveyancing is not merely administrative; it involves advising on the legal effect of documents and the consequences of known issues. The duty extends to using the cooling-off period strategically where red flags are identified.
Fourthly, causation in both statutory and negligence contexts is assessed by examining whether the conduct induced the transaction and whether proper advice would have prevented the loss. The Court is entitled to make findings based on common sense and the available evidence.
Finally, damages aim to restore the claimant to the position they would have been in had the wrongdoing not occurred. In property misrepresentation cases, this often means assessing the difference between the price paid and the property’s true value, allowing for consequential losses and crediting benefits gained.
Damages and Compensation
The Court adopted the “no transaction” measure of damages. This method asks what the buyer’s financial position would have been if she had never entered the contract. It does not award lost profits or expected income but instead measures losses actually suffered.
The first component of the damages was the difference between the contract price and the true value of the property at the time of purchase. The valuer’s evidence was accepted that the property, without a lawful granny flat, was worth $620,000. The purchaser had paid $720,000, resulting in a $100,000 loss in value.
Next, the Court awarded the cost of rectifying the problem by converting the unauthorised dwelling back into a garage. This cost was assessed at $15,675. The Court also recognised the stamp duty differential. If the property was only worth $620,000, no duty would have been payable. Because duty was paid on the higher purchase price, the buyer suffered a further loss of $27,990. The council fine for unlawful development was another recoverable loss, quantified at $1,500.
The Court then considered the rent received from the unlawful dwelling prior to council enforcement. Since no one can profit from the wrongdoing, the benefit of that rent had to be deducted. The total rental income amounted to $25,598.86, and the Court subtracted this from the damages.
The buyer also sought compensation for lost rental income she would have earned in the future had the granny flat remained tenanted. The Court rejected this aspect because damages based on expectations are not recoverable in a no-transaction case. The law aims to return the buyer to the position of not having purchased, not to grant speculative profit that would never have materialised.
Before any reductions for contributory negligence, the total damages came to $119,566.14. This amount reflected actual loss and avoided including hypothetical returns.
Contributory Negligence
The defendants both argued that the buyer bore some responsibility because she did not obtain legal advice before signing the contract. The Court accepted that purchasers should act prudently when buying property, particularly when relying on rental potential. However, it also recognised that consumers are entitled to rely on representations made by professionals and to trust their solicitor once engaged. The buyer’s failure to seek advice before exchange did not absolve the agent or solicitor from responsibility.
Nevertheless, the Court concluded that a reduction for contributory negligence was appropriate, albeit modest. The purchaser had signed before seeking legal advice and had not herself investigated the approval status of the granny flat. Balancing these factors, the Court reduced the damages by fifteen per cent. This brought the total compensation to $101,631.22.
Apportionment of Liability
Because both the agent and the solicitor were responsible for the loss, the Court was required to apportion liability between them. The agent’s role centred on the initial misrepresentation that induced the purchase, while the solicitor’s negligence related to the failure to protect the client during the cooling-off period.
The Court determined that the solicitor bore the majority of responsibility. Seventy-five per cent of the liability was assigned to the solicitor and twenty-five per cent to the agent. This reflected the view that although the agent’s conduct set the problem in motion, the solicitor was in a better position to prevent the loss once engaged. The solicitor had the legal expertise and the opportunity to intervene at a crucial stage. By contrast, the agent’s culpability lay in presenting the property as dual income without qualification.
This apportionment shows that courts will scrutinise the conduct of all professionals involved and allocate responsibility according to who had the power to prevent the harm.
Implications for Consumers
The decision has important implications for buyers of residential property. It confirms that consumers can rely on what real estate agents say in advertisements and inspections (however, they should remain sceptical and look for disclaimers). If an agent presents a dwelling as suitable for rental, there is an expectation that the representation is based on accurate information or, at minimum, that any uncertainty will be disclosed. Agents cannot hide behind assumptions or incomplete knowledge if they hold documents that point to a different conclusion.
The case also highlights the importance of proper legal advice. A solicitor is not merely a conduit for paperwork. Their role is to protect the client’s interests and examine documents with a critical eye. If any material suggests a risk to the client’s objective, the solicitor must raise it and give the client a meaningful chance to decide whether to proceed. The cooling-off period exists to allow purchasers time to reconsider once they have legal advice, and solicitors must use that opportunity.
Importantly, the judgment makes clear that even if a buyer did not investigate every detail personally or instruct a lawyer before signing, they can still recover substantial damages. Contributory negligence reductions tend to be modest where professionals have failed in their obligations. Consumers should not assume that they have no recourse simply because they proceeded based on trust.
When Legal Advice and Misrepresentations Collide
The combined effect of misleading conduct by the agent and negligence by the solicitor created a situation where the purchaser was left with a property that did not meet her investment goal. The legal system provided a remedy by requiring both professionals to compensate her. The result underscores that consumer protection laws and professional negligence principles work together to address wrongdoing in property transactions.
For individuals who suspect they have experienced something similar, this case serves as a roadmap. It demonstrates that compensation can be claimed for the difference in value between what was promised and what was delivered, for rectification costs, for stamp duty losses and for fines or enforcement action. It also shows that rent actually received may reduce damages, but claims for hypothetical future income generally will not succeed in no-transaction cases.
Liability may be shared between the agent and the solicitor, and courts will look closely at who had the best chance to prevent the harm. Purchasers who acted in good faith are unlikely to be denied relief simply because they trusted professionals.
Seeking Legal Assistance
For consumers concerned that they were misled about a property’s rental potential or that their solicitor failed to warn them of crucial issues, legal advice should be sought promptly. Losses can be significant, but the law provides avenues to recover damages where conduct breached statutory norms or professional standards. A solicitor with experience in consumer law and negligence claims can assess the situation, evaluate evidence and advise on the prospects of success.
Arida Lawyers offers assistance to clients who have purchased properties based on inaccurate representations or who have suffered loss due to negligent conveyancing. A brief initial consultation can clarify whether there is a viable claim and what remedies may be available. Many people do not realise they have enforceable rights until they obtain advice. Early engagement can also help preserve important evidence and ensure time limits are not missed. Contact us today for a free 10-minute telephone consultation.
Final Thoughts
The decision in Kumar v Sydney Western Realty Pty Ltd & Anor (No. 2) [2021] NSWDC 446 is a compelling example of how Australian courts deal with misleading conduct and professional negligence in property transactions. The real estate agent misrepresented the investment potential of the property by advertising dual income without verifying the legal status of the second dwelling. The solicitor failed to detect and communicate the significance of council restrictions during the crucial cooling-off period. Both were held liable because their conduct contributed to the purchaser’s loss.
The damages awarded reflected the difference in true property value, rectification costs, stamp duty and fines, less the rent received. A small reduction was applied for contributory negligence, and liability was shared between the agent and the solicitor, with the solicitor bearing the majority. For consumers, the case highlights the importance of scrutinising marketing claims, obtaining timely legal advice and seeking remedies when misinformation or professional failures lead to loss.
Those who find themselves in similar circumstances should not assume they must shoulder the burden alone. The law recognises the vulnerability of buyers and places clear duties on agents and solicitors. Where those duties are breached and loss follows, compensation may be available. Arida Lawyers can provide guidance and representation to clients navigating these complex issues and help them pursue the remedies they deserve.
Frequently Asked Questions
Q1. What was the main issue in Kumar v Sydney Western Realty (No. 2) [2021] NSWDC 446?
The case involved a property buyer who relied on representations that the investment would generate dual income. Those claims turned out to be misleading. The solicitor involved in the transaction also failed to exercise proper care when reviewing the contract and advising the purchaser. The Court found both the agent and the lawyer responsible.
Q2. How does this case relate to misleading and deceptive conduct under the Australian Consumer Law?
Section 18 of the Australian Consumer Law prohibits businesses and individuals from engaging in misleading or deceptive conduct. In this case, the selling agent made representations about the income potential and nature of the property that were inaccurate. The Court held that the buyer relied on those statements to their detriment.
Q3. Can a solicitor be liable even if the agent was the one who misled the buyer?
Yes. The Court found that the solicitor owed an independent duty of care to the purchaser. Even though the agent was primarily responsible for the representations, the lawyer was still negligent by failing to properly investigate and advise the buyer about the true legal and financial position of the property.
Q4. What damages were awarded in the case?
The Court assessed the financial loss flowing from the misleading representations and the solicitor’s professional legal negligence. The damages reflected the difference between what was promised and what the buyer actually received, along with associated losses. Liability was apportioned between the agent and the solicitor based on their respective contributions.
Q5. What is contributory negligence and how did it apply here?
Contributory negligence refers to a situation where the plaintiff is found to have played a role in their own loss. In this case, the Court considered whether the purchaser acted reasonably in relying on the representations and professional advice. Some responsibility was ultimately shared, which reduced the total recoverable damages.
Q6. Can I make a claim if I was misled about an investment property or received poor legal advice?
Yes. If you relied on false statements or if a solicitor failed to properly advise or protect your interests, you may have a claim under the Australian Consumer Law, in negligence, or both. Each situation is fact-specific, but this case confirms that courts will hold professionals accountable.
Q7. How do I know if I have a case worth pursuing?
If you suspect you were misled or not properly advised during a property purchase, it is important to get legal advice quickly. Arida Lawyers can review your situation, assess the strength of your claim and explain your options. You do not need to know every legal detail before speaking to a lawyer.
Q8. Can Arida Lawyers assist me if something similar has happened?
Yes. Arida Lawyers regularly assists clients who have been misled in real estate transactions or let down by professionals who owed them a duty of care. If you think you may have a claim, contact us to arrange a free 10-minute telephone consultation so you can understand your rights and next steps..
This article provides general information relevant to our legal services. It is not legal advice and should not be relied upon as such. If you are seeking legal advice, you should contact us for a free initial consultation.
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