VENDOR’S REBATE OFFER? THINK TWICE, TREAD CAREFULLY: UNDERSTANDING THE RISKS

In the dynamic world of off-the-plan property sales, developers deploy various marketing strategies to attract potential buyers. One intriguing approach is the use of Vendor’s Rebate.

But what exactly is Vendor’s Rebate?

Under this arrangement, the Vendor and Purchaser would agree to an ‘inflated price’ to be noted on the front page of the contract, whereas at the same time, a special condition or a side agreement will be further agreed upon under which the Vendor provides a rebate to the Purchaser.

As a developer, you may have observed the use of Vendor’s Rebate by other developers in their marketing campaigns. As a prospective purchaser, you may have encountered offers of rebates from the Vendor. Seemingly a win-win situation for the vendor and the purchaser, but delving into the potential legal ramifications may alter your perspective.

Miro v Fu Pty Ltd [2003] NSWSC 1009

Miro v Fu is a landmark judgment on this issue, in which the Supreme Court of NSW has considered, criticised and firmly expressed its viewpoint on the Vendor’s rebate.

In Miro, the front page of the land sale contract was $450,000 but under a special condition, the vendor provided $100,000 to the purchaser.

Justice Windeyer identified the ‘Vendor’s Rebate’ special condition as

“quite improper. It can be inserted for no purpose other than to mislead persons such as lending authorities and purchasers of other units in that development. … The contract price for Lot 4 is $349,000. The schedule price is $450,000. This is said to be explained by making an allowance for an amount due to the purchaser who is or was the builder for the development. If that is so, the contract gives a false figure and is a fraud on the Chief Commissioner for Stamp Duties.”

What should you do?

If you are the Purchaser, try negotiating with the developer/vendor to see if you can ask for a direct reduction of the price.

If you are the Developer, the best course of action is considering other means to market property and avoiding using Vendor’s rebate to steer clear of relevant legal risks, including the risk of being found liable for misleading or deceptive conduct.

If you have already provided Vendor’s rebate in your marketing campaign, in order that you are less likely to be found liable or guilty of misleading and/or deceptive conduct (and responsible for damages caused to a lender), you must take the following active steps to ensure:

• the rebate is disclosed to the tax authorities and your tax adviser.
• the incoming and outgoing lenders are both fully informed/notified (preferably in writing) of the rebate.
• obtain tax advice particularly about GST and CGT.
• educate all your staff the above and ensure internal compliance.

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In conclusion, while enticing, the concept of Vendor’s Rebate in off-the-plan property sales necessitates a cautious approach, especially considering the legal intricacies highlighted by the landmark Miro v Fu case. This judgment underscores the judiciary’s critical viewpoint towards practices that could mislead stakeholders, such as lending authorities or other purchasers. It’s a scenario requiring attention and informed guidance, a role perfectly suited for Madison Marcus. Our expertise in property law becomes invaluable, providing developers and purchasers with strategic advice to navigate the complexities of Vendor’s Rebates. Developers, in particular, should heed the lessons from such legal precedents and engage with knowledgeable legal partners such as Madison Marcus to explore alternative marketing strategies that are both legally compliant and ethically robust. By doing so, we can safeguard your interests, uphold market integrity, and ensure transparent transactions that benefit all parties involved without the overhanging risk of legal challenges.