Jaysanlyn Construct Co.

Case:

Key Words:

deposit, general list of shares, common property

Reference:

Fair Trade Commission Decision of December 15, 2010 (the 997th Commissioners' Meeting), Disposition Kung Ch'u Tzu No. 099152

Industry:

Real Estate Development (6700)

Relevant Laws:

Article 24 of the Fair Trade Law

Summary:

1. The FTC's staff members visited the site of the "Jaysanlyn Castle above the City" pre-purchased home project of Jaysanlyn Construct Co. (hereinafter referred to as Jaysanlyn) and found out that the company not only did not provide a sample contract but also requested the FTC's staff members to pay a deposit in order to see the contract. At the same time, the company did not provide the general list of property shares. As the said conducts were in violation of Article 24 of the Fair Trade Law (FTL), the FTC therefore initiated an ex officio investigation.
2. To find out whether the aforesaid incident was only a single event and did not happen regularly, the FTC randomly selected a number of homebuyers from the list of people who had already signed the pre-purchased home contract for units in the "Jaysanlyn Castle above the City" project and conducted a questionnaire survey on them. 31% of the 51 people who filled out the questionnaire confirmed that Jaysanlyn had requested them to pay a deposit, between NT$10,000 and NT$600,000, in order to see the contract, while 92% of them confirmed that Jaysanlyn had not provided the general list of property shares.
3. Grounds for disposition:
   1. According to Article 24 of the FTL, "in addition to what is provided for in this Law, no enterprise shall otherwise have any deceptive or obviously unfair conduct that is able to affect trading order." Since pre-purchased homes are not yet completed, homebuyers have limited information about the homes when they sign the contract. This apparently puts the developer (builder) in an advantageous position. Therefore, when a developer requests homebuyers to pay a deposit in order to see the contract or fails to provide potential buyers with the general list of property shares that will clearly show how the shares of the common property is shared by all the units, it is in violation of the FTL.
   2. The result of questionnaire survey revealed that some of the buyers had read the contract before paying a deposit but some other did confirm that Jaysanlyn had requested them to pay a deposit in order to see the contract. This indicates that what happened when the FTC's staff members visited the site of the "Jaysanlyn Castle above the City" project was by no means an independent incident but something that took place regularly. Since the objects in pre-purchased home transactions are not yet completed, the contract becomes the most concrete description of the content of the object of transaction as well as the rights and obligations of both parties. Hence, during the transaction process, the developer is required to provide sufficient and complete information to potential buyers so that they can fully evaluate whether they want to make the purchase. Only by doing so will the positions of both parties on the market be fair and balanced. However, the FTC's investigation indicated that Jaysanlyn not only had not openly shown the contract or made it available to potential buyers but also requested people to pay a deposit in order to see the contract, putting potential buyers in a disadvantageous position of risking having their deposits confiscated or being forced to fulfill the contract because of their relatively weak position with regard to information about the object of transaction. In addition, the clauses in the contract were standardized terms that Jaysanlyn had single-handedly formulated in advance. By the time homebuyers read the clauses, after paying a deposit, they were already in a disadvantageous position because of their lack of access to the information up to this point. Their interests were jeopardized, including obstruction to viewing of contract, weakened contract negotiation capacity, the worry about getting the deposit confiscated if not signing the contract, lack of knowledge about the property they were purchasing or the related rights and obligations, and so on. Jaysanlyn took advantage of information asymmetry in its business operations. It was an illegitimate approach in violation of the principles of business ethics and performance competition. Even if Jaysanlyn agreed to return the deposits, it was still not enough to rectify or compensate for the disadvantage derived from homebuyers' decisions to make the purchases under information asymmetry. Therefore, by failing to provide the contract and requesting the homebuyers to pay a deposit in order to see the contract, Jaysanlyn had put the homebuyers in an inferior position with regard to access to necessary information and the disadvantageous circumstance of risking having their deposits confiscated or being forced to fulfill the contract. It had affected the homebuyers' transaction decisions.
   3. Regarding the general list of property shares, the FTC's investigation showed that Jaysanlyn did not provide it to the homebuyers neither. Over 90% of the homebuyers who filled out the questionnaire confirmed the company had not provided the said list. It is therefore true that, when marketing the "Jaysanlyn Castle above the City", Jaysanlyn never offered the list for people to look at, distributed it or made it publicly accessible. Subsequently, most of the homebuyers were unaware of how the common property was calculated or the percentage their share accounted for in the total common property. In addition, as the ownership of a pre-purchased home is not yet registered, the buyer is unable to acquire any information from the land administration office. Meanwhile, the division of the common property has something to do with the calculation of the total area being transacted and the value of the property, while the general list of property shares can help homebuyers understand how the entire compound is allocated and evaluate the fairness in such allocation. This is important information that can affect homebuyers' purchase decisions. It is thus regarded significant information in pre-purchased-home transactions. Therefore, by failing to disclose such information, the developer is apparently deceiving the homebuyers to influence their transaction decisions. Hence, when, during the transaction process, Jaysanlyn failed to disclose the general list of property shares that could show how the shares of the public facilities in the entire compound were calculated or list out the percentage of the common property each unit was allocated, the homebuyers had no other way to access such information and their transaction decisions was affected.
   4. In this case, Jaysanlyn, when marketing its "Jaysanlyn Castle above the City", did not exhibit the contract at the site but requested potential buyers to pay a deposit in order to see the contract. Neither did the company provide the general list of property shares that could show how the shares of the common property were calculated or list out the percentage of each unit's share of the common property or provide it for public access or distribute it. The conduct caused homebuyers to make their purchase decisions without enough information necessary for potential buyers. It put the interests of homebuyers in jeopardy. It was not only deceptive and unfair to the buyers but also depriving the company's competitors the opportunity for fair competition. It was deceptive and unfair conduct sufficient to affect trading order in violation of Article 24 of the FTL. After deliberating on the disposition and amount of fine in accordance with Article 36 the Enforcement Rules to the FTL, the FTC took action in line with the first section of Article 41 the FTL and ordered Jaysanlyn to immediately cease the unlawful act and imposed on the company an administrative fine of NT$3,000,000.

Appendix:
Jaysanlyn Construct Co.'s Uniform Invoice Number: 24300338

Summarized by:Yang, Chung-lin; Supervised by: Hung, Shui-hsing