A listing advertisement says a suburb's values "will rise 20% in the next two years". The salesperson had no data or research behind the claim, and values later did rise. Under s 12A of the Fair Trading Act 1986, is the advertisement lawful?
Correct Answer
A) No; it was unsubstantiated because there were no reasonable grounds when it was made.
Section 12A of the Fair Trading Act 1986 prohibits making an unsubstantiated representation in trade, including in promoting the sale of an interest in land. A representation is unsubstantiated if the person had no reasonable grounds for it when it was made, irrespective of whether it is false or misleading. A specific growth figure is a claim a reasonable person would expect to be backed up.
Why This Is the Correct Answer
Reasonable grounds are judged at the time the claim is made, and there were none.
Why the Other Options Are Wrong
Option B: Yes; the claim turned out true, so it cannot breach the Fair Trading Act.
Section 12A(2) says a representation is unsubstantiated if there were no reasonable grounds when it was made, whether or not it is false.
Option C: Yes; forecasts about the future are opinions and are never covered by the Act.
Section 12A applies to representations made to promote a sale of land; only claims a reasonable person would not expect to be backed up are excluded.
Option D: No, but only because price claims must be approved by the Real Estate Authority first.
There is no pre-approval regime; the breach arises because the salesperson had no reasonable grounds for the claim.
Background Knowledge for Compliance
Source: https://www.legislation.govt.nz/act/public/1986/0121/latest/whole.html
Exam Tip for Compliance
Before making a specific claim in marketing, have evidence for it at that moment.
Common Mistakes to Avoid on Compliance Questions
- •Believing a claim is safe because it later proves correct.
More Compliance Questions
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- → An international client buying a $2.8 million commercial property provides a copy of their overseas passport but refuses any further identity checks or information, claiming diplomatic immunity. How should the agent proceed under AML/CFT requirements?
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- → What is the primary purpose of the Consumer Guarantees Act 1993 in relation to real estate services?
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- → A real estate agent advertises a property as having a 'new roof' when they know it was repaired but not replaced. A buyer purchases based on this information and later discovers the truth. Which Acts could potentially apply to this situation?
- → Which statement best describes the primary purpose of trust accounts in real estate transactions?
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