In September 2014 Jack and Julie engaged Savefast to write a financial plan to help them pay down debt and earn sufficient money for retirement. Jack and Julie’s goal was to have a passive income of $80,000 per annum when they retired in 21 years.
In October 2014 Jack and Julie met with Tom, a representative of Savefast, and accepted the financial plan (the Plan) Tom had written for them. The Plan recommended Jack and Julie purchase an investment property for approximately $500,000. The Plan advised that the property should be five bedrooms for the rental return to be sufficient.
Later in October Jack and Julie viewed a property (property one) and put down a conditional offer to purchase. Jack and Julie then requested a LIM report for property one. The report showed that the City Council had an easement encroaching on the property, which meant that in the future the Council could require the house to be relocated.
After receiving legal advice Jack and Julie cancelled the agreement to purchase. The cost of the legal advice and the LIM report was $3,325.
In early November Jack and Julie wrote to Tom saying they were unhappy with the level of service they had received. Tom responded saying if Jack and Julie completed the purchase he would cover the $3,325 associated with legal costs and the LIM report.
Jack and Julie did not want to continue with the purchase of property one and agreed with Tom that the $3,325 would be paid from future business with Savefast.
In the following two weeks Jack and Julie were shown two more properties that they did not make offers on.
In January 2015 Jack and Julie wrote to Savefast asking for payment of the $3,325 and to be refunded the $550 they had paid for the Plan, as it could not be implemented.
Tom replied that the Plan was a legitimate strategy document, and the fee would not be refunded as it reasonably reflected the hours of work put into it. Tom proposed to continue working with Jack and Julie to implement the plan and to pay Jack and Julie’s legal costs out of his future fees.
Jack and Julie did not agree and contacted FSCL.
Jack and Julie’s position
Jack and Julie believed none of the properties they were shown complied with the Plan. Property one only had three existing bedrooms, something Jack and Julie say they were not told about before viewing. The property developer who was showing Jack and Julie the property had offered to cover the costs of converting the garage into two extra bedrooms. The second two properties were outside Jack and Julie’s price range.
Jack and Julie also believed Tom and the property developer had known about the easement issue with property one and failed to warn them about it.
Savefast agreed to repay Jack and Julie the $550 they had paid for the Plan.
Tom denied that he or the property developer knew about the easement issue with property one.
Tom felt all the properties complied with the Plan, and said Jack and Julie knew of the plans to convert the garage in property one into two extra bedrooms. Tom felt this conversion was the best way to optimise rental yield, and pointed out that Jack and Julie put a conditional offer on property one after being told about the planned conversion.
A prudent intended purchaser typically meets the costs associated with legal advice, LIM reports and other building and engineering reports. We considered the $3,325 spent by Jack and Julie were reasonable due diligence costs.
With the planned conversion, we considered property one would have complied with the Plan. We found it relevant that Jack and Julie had agreed to purchase property one after being informed of the garage conversion.
We found that although the second two properties did not comply with the plan, Jack and Julie suffered no financial loss in relation to these properties. Jack and Julie were risk averse, and the amount of surplus income remaining after making payments on these properties would have left them insufficient cash reserves to cover any unexpected or unbudgeted expenses.
We did not uphold Jack and Julie’s complaint for the $3,325 spent on legal costs and the LIM report. We found it appropriate for Savefast to refund the $550 fee for the Plan, and pay $250 in compensation for Jack and Julie’s inconvenience from viewing two properties that did not comply with the Plan.
Jack and Julie did not accept our recommendation.