Q&A: The ins and outs of auctions

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My husband and I are considering buying a property through auction but are a bit nervous as we’re unfamiliar with the processes involved. For example, how seriously should we take things said by the auctioneer or agent at the auction? Are their words binding, even if they differ from what’s in the contract?

A 2010 NSW Supreme Court decision demonstrates the necessity for consistency between a contract and the words of an auctioneer or agent. Verbal statements at an auction must confirm the contract, as the contract terms were held to prevail, notwithstanding that comments made differing from what was stated in the contract.

The case of Tam v Mannall [2010] NSWSC 250 highlights the potential cost that can arise if Goods and Services Tax (GST) clauses are not properly and thoroughly reviewed in a contract for sale of land. The particular case involved the sale of a property by way of an auction, in which a dispute arose in regards to GST. The purchaser claimed that the contract price was fixed at $2.82m including GST, and that the vendor was liable to pay the GST component to the Australian Taxation Office (ATO) out of that sum.

The vendor argued that the price was GST-exclusive and that the purchaser was required to pay the price of $2.82m plus 10% GST of $282,000, being a total of $3.102m. It was acknowledged that the auctioneer had announced prior to the auction that GST would be payable in addition to the purchase price. The auctioneer gave evidence to this effect as did other parties present at the auction, but the purchaser claimed not to have heard this.

The Contract indicated that the sale was a taxable supply, but there was no other provision in the contract that stated that GST would be paid in addition to the price. The Contract stated: “Normally, if a party must pay the price or any other amount to the other party under this contract, GST is not to be added to the price or amount.”

The court held that the vendor was unable to prove that the purchaser understood GST had to be paid in addition to the purchase price. The court also considered whether the written contract could be rectified on the basis of common mistake. For that to occur, the vendor was required to provide convincing proof that it was the common intention of the parties that the purchase price should be GST-exclusive.

The court concluded that the evidence was inconsistent and there wasn’t enough to indicate the purchaser shared a common intention with the vendor that GST should be in addition to the purchase price.

The vendor had to complete the sale to the purchaser and pay the GST component of $256,363.64 from the purchase price of $2,82m. If the contract had been shown to be GST-exclusive, the vendor would have provided a tax invoice to the purchaser for the GST and no doubt the purchaser would have recovered the GST as an input tax credit. Stamp duty would also have been payable on the GST component. The vendor also had to pay the purchaser’s legal costs of the proceedings.

If you are attending an auction, you must listen to what is being said. If the contract says GST-inclusive and the auctioneer states GST in addition, this must be clarified. If in doubt, ask the auctioneer for clarification.

Answer supplied by Peter Rusbourne, Watkins Tapsell.

Do you have a property investment question you need answered fast? Get in touch with us at editor@yipmag.com.au or go to our forum at www.yipmag.com.au/forum.

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