What is a "stigmatized" property?

There are properties which are in flawless physical condition but may have been the site of murders, suicides, or which are associated with other unpleasant events and are known as "stigmatized" properties.  Owner of a stigmatized property may have difficulty in reselling or leasing such property.

Forms of Stigmatized Property

Properties may be stigmatized for a variety of reasons, including rumors that it’s “haunted” or the scene of a crime, which would certainly reduce their marketability and thus their open market values.   Generally speaking, the usual types of stigmatized properties include:

(i)            Criminal stigma: the fact that the property was used in the commission of a crime.  For example, properties that were used as chop shops, drug dens, brothels, or for other criminal activities are stigmatized due to their association with crimes. 

(ii)           Murder/Suicide stigma: where a suicide or homicide has occurred within the property.  This is perhaps the most common form of stigmatized properties which purchasers or tenants would have serious hesitation when considering the purchase or leasing due to psychological impairment. 

(iii)         Debt stigma: where debt collectors may not aware that a debtor has already moved out of a particular residence, and as a result debt collectors or agents may continue their pursuit at the same location, resulting in harassment or inconvenience to innocent subsequent owners or occupiers.

(iv)         Phenomena stigma: where properties are renowned for being "haunted" or have ghost sightings etc.

Caveat Emptor Rule

There is no legal definition for “Stigmatized Property” and different persons may have different interpretations.  The vendor and the purchaser may have different understanding of whether it is the vendor's responsibility to disclose any past history in connection with the property.  Unlike some overseas countries (e.g. the U.S.A.) which legally recognize different forms of stigmatized property and have passed legislation or statutes to deal with them, in Hong Kong however, property vendors are generally not required by the law to make disclosure of the residential history of the property voluntarily.  The doctrine of Caveat Emptor or "let the buyer beware" was held for decades as the law for property transactions.  The legal and practical consequences of the Caveat Emptor rule place the responsibility on purchasers, in their own interest, to make the fullest possible investigations. 

Vendor’s Obligations

As a general principle, a vendor is not required by the law to make any voluntary disclosure.  Thus, silence and non-disclosure on whether the transaction property is “stigmatized” is not actionable on its own if the purchaser fails to inquire expressly on such item.  Situation would become different when a vendor makes representations to a purchaser.  In that case, the vendor would be liable to the purchaser for misrepresentation if the representations are untrue.  Similarly, an estate agent acting on the vendor’s behalf would also become liable for any affirmative misrepresentations, notwithstanding the agent’s lack of knowledge or notice of the falsity thereof.

There is a Hong Kong landmark case concerning an aborted property transaction of the above nature.  In Jopard Holdings Limited v. Ladefaith Limited and Centraline Property Agency Limited [2001], an estate agent arranged a purchaser to view a property.  The agent was acting for both the purchaser and the vendor in the transaction.  When inspecting the property and prior to signing the provisional agreement for sale and purchase and paying a deposit, the purchaser had asked the estate agent whether there was anything “weird” or “unusual” about the property (“有無古靈精怪”).  The estate agent responded in Chinese a plain “no”, but the estate agent had not taken any steps to verify whether the property had anything “weird” or “unusual” about it.

The purchaser subsequently learnt of the incident that the son of the vendor fell from the balcony of the property and died a few months ago.  He immediately requested the vendor to cancel the transaction and refund the deposit, but the vendor refused.  The purchaser went to court to demand a refund of the deposit and compensation for the estate agency’s misrepresentation.

The court ruled that the estate agent had indeed misled the purchaser, and that anything “weird” or “unusual” should be taken to include tragic events mentioned above.  However, the vendor had not authorized the estate agent to make such a misrepresentation.  The court decided that when the estate agent made the misrepresentation, he was acting as the purchaser’s agent and not the vendor’s, and in such circumstances, the vendor was not responsible for the misrepresentation and thus had the right to forfeit the deposit due to the purchaser’s failure to complete the transaction. 

The Court went on and found that based upon the repeated enquiries of the purchaser, the estate agent should have known that the purchaser would decide on the purchase based on his reply to the purchaser’s enquiry and the purchaser would suffer losses if he was negligent and unprofessional in providing the information.  If an estate agent had not done any proper enquiry or investigation before answering the purchaser’s questions, it would amount to misrepresentation and a failure of his duty as the purchaser’s agent.

Liability of Estate Agency Company

Further, under the doctrine of vicarious liability, the estate agency company (being an employer) would also be liable for its employee’s mistakes.  As a result, the estate agency company had to indemnify the purchaser for the deposit forfeited by the vendor and other consequential losses suffered by the purchaser.

Conclusion

The types of stigmatized property and the legal concerns mentioned above are not exhaustive.  In summary, whether or not a property is stigmatized is not a piece of information which, under the existing laws, must be disclosed by the vendor or estate agent voluntarily.  Should a purchaser be concerned with whether the property he intends to buy is a “clean” property, the only way to protect himself is to make specific enquiries to the vendor directly or through the estate agent acting for the vendor.  Only when specific enquiries were asked will the vendor and his agent be under a duty to pass along any information they possess (though, they are still not required to conduct any property investigation by themselves).