Bao Lu Development Construction Co., Ltd.

1209th Commissioners' Meeting (2015)

Case:

Bao Lu Development Construction violated the Fair Trade Law when marketing its "North Taiwan-Jiang Nan Mansion" presale homes

Key Word(s):

Presale home, deposit, viewing of contract

Reference:

Fair Trade Commission Decision of January 7, 2015 (the 1209th Commissioners' Meeting); Disposition Kung Ch'u Tzu No.104003

Industry:

Real Estate Development Activities (6700)

Relevant Law(s):

Article 24 of the Fair Trade Law

Summary:

On May 14, 2014, the FTC's staff members visited the "North Taiwan-Jiang Nan Mansion" presale home reception center of Bao Lu Development Construction Co., Ltd. (hereinafter referred to as Bao Lu Development Construction). Seeing that the purchase contract was not openly displayed, the staff members expressed the interest in reviewing the contract but were requested to pay a deposit of 160,000 NT dollars (same currency applies hereinafter) before the contract would be provided. Since such a sales practice was in violation of Article 24 of the Fair Trade Law, the FTC initiated an ex officio investigation.

Findings of the FTC after investigation:

(1) The FTC sent staff members to the reception center to perform a second inspection but the purchase contract was still not openly displayed. Again, they asked to review the contract but the sales clerks still insisted on payment of a deposit (280,000) to see the contract. Bao Lu Development Construction contested that they had not made the contract accessible out of negligence amidst the chaos resulted from relocation of the reception center or the sales clerks might have requested homebuyers to pay a deposit out of the intention to increase their job performance.

(2) The data on sold units provided by Bao Lu Development Construction indicated that most of the homebuyers had paid the deposit and reviewed the contract on the same day. The FTC therefore administered a questionnaire survey and the result showed that 12 of those homebuyers had paid the deposit involuntarily before viewing the contract.

Grounds for disposition:

(1) Since presale homes have not yet taken form and the ownerships are not yet registered, related information available to homebuyers at the time of contract signature is limited and the real estate developer therefore has all the advantages as far as such information is concerned. Meanwhile, the builder has unilaterally decided the contract contents which fully disclose the facts about the object of transaction as well as the rights and obligations of both parties. When a real estate developer requests homebuyers to pay a deposit (or a certain expense) to see the contract, such payment will put homebuyers in a disadvantageous position and affect their transaction decision. It is obviously unfair to not only homebuyers but also competitors who provide purchase contracts to homebuyers free of charge. In other words, the unjustifiable restriction on homebuyers' right to review the contract was obviously unfair conduct likely to affect trading order and in violation of Article 24 of the Fair Trade Law.

(2) Another finding revealed that Bao Lu Development Construction had already been sold 416 units of the "North Taiwan-Jiang Nan Mansion" presale home project. Only seven of the homebuyers had reviewed the contract before paying a deposit. Those paying the deposit and viewing the contract on the same day and the ones paying the deposit before the day they reviewed the contract accounted for 98% of the total buyers. The FTC then administered a questionnaire survey and 12 of the homebuyers confirmed that Bao Lu Development Construction had indeed requested them to pay a deposit before the contract would be provided and the deposit payment dates were not only limited to in May and June 2014 when the FTC was conducting the investigation. In other words, the reason that triggered the FTC to launch the investigation had not been an accidental event.

(3) Although Bao Lu Development Construction assured that if a buyer cancelled the deal, the company would return the entire deposit. The company had no intention to confiscate it. However, the provisions in a home purchase contract are the clearest and most complete expression of the facts about the object of transaction and definition of the rights and obligations of both parties. They involve professional terminology and complex regulations. Allowing trading counterparts to review the contract before paying a deposit will give them the opportunity to seriously consider whether to make the purchase and the information asymmetry can be balanced. Even if Bao Lu Development Construction asserted that the company would return the entire deposit, the FTC's questionnaire survey showed that some homebuyers thought not being able to review the contract beforehand made it impossible for them to access information about the object in question and know their rights. Despite that the deposit could be returned, they were still worried about encountering obstruction when undergoing contract negotiations and the payment of deposit had an effect on their purchase decision. Homebuyers would still have to cope with the time cost resulted from the effort of Bao Lu Development Construction to communicate and negotiate in the hope of closing deals. They did not have the freedom to change their decisions like if they had not paid the deposit. From a different aspect, Bao Lu Development Construction could take advantage of homebuyers having paid the deposit and negotiate with them for a number of times and certain lengths of time and this was unfair competition for law-abiding competitors who provided the contract to be reviewed by interested parties before paying a deposit. Bao Lu Development Construction took advantage of the information asymmetry and demanded payment of deposit to review the contract. Such an unjustifiable restriction on reviewing of contract was obviously unfair to homebuyers as well as competitors who provided the contract to be viewed by homebuyers free of charge. It was obviously unfair conduct able to affect the overall trading order and in violation of Article 24 of the Fair Trade Law. For this reason, the FTC imposed an administrative fine of 1 million on the company.

Appendix:
Bao Lu Development Construction Co., Ltd. 's Uniform Invoice Number: 80178746

Summarized by Tsai, Hui-Chi ; Supervised by Hung, Shui-Hsing

! : For information of translation, click here

(1)	Since presale homes have not yet taken form and the ownerships are not yet registered, related information available to homebuyers at the time of contract signature is limited and the real estate developer therefore has all the advantages as far as such information is concerned. Meanwhile, the builder has unilaterally decided the contract contents which fully disclose the facts about the object of transaction as well as the rights and obligations of both parties. When a real estate developer requests homebuyers to pay a deposit (or a certain expense) to see the contract, such payment will put homebuyers in a disadvantageous position and affect their transaction decision. It is obviously unfair to not only homebuyers but also competitors who provide purchase contracts to homebuyers free of charge. In other words, the unjustifiable restriction on homebuyers' right to review the contract was obviously unfair conduct likely to affect trading order and in violation of Article 24 of the Fair Trade Law.
(2)	Another finding revealed that Bao Lu Development Construction had already been sold 416 units of the "North Taiwan-Jiang Nan Mansion" presale home project. Only seven of the homebuyers had reviewed the contract before paying a deposit. Those paying the deposit and viewing the contract on the same day and the ones paying the deposit before the day they reviewed the contract accounted for 98% of the total buyers. The FTC then administered a questionnaire survey and 12 of the homebuyers confirmed that Bao Lu Development Construction had indeed requested them to pay a deposit before the contract would be provided and the deposit payment dates were not only limited to in May and June 2014 when the FTC was conducting the investigation. In other words, the reason that triggered the FTC to launch the investigation had not been an accidental event.
(3)	Although Bao Lu Development Construction assured that if a buyer cancelled the deal, the company would return the entire deposit. The company had no intention to confiscate it. However, the provisions in a home purchase contract are the clearest and most complete expression of the facts about the object of transaction and definition of the rights and obligations of both parties. They involve professional terminology and complex regulations. Allowing trading counterparts to review the contract before paying a deposit will give them the opportunity to seriously consider whether to make the purchase and the information asymmetry can be balanced. Even if Bao Lu Development Construction asserted that the company would return the entire deposit, the FTC's questionnaire survey showed that some homebuyers thought not being able to review the contract beforehand made it impossible for them to access information about the object in question and know their rights. Despite that the deposit could be returned, they were still worried about encountering obstruction when undergoing contract negotiations and the payment of deposit had an effect on their purchase decision. Homebuyers would still have to cope with the time cost resulted from the effort of Bao Lu Development Construction to communicate and negotiate in the hope of closing deals. They did not have the freedom to change their decisions like if they had not paid the deposit. From a different aspect, Bao Lu Development Construction could take advantage of homebuyers having paid the deposit and negotiate with them for a number of times and certain lengths of time and this was unfair competition for law-abiding competitors who provided the contract to be reviewed by interested parties before paying a deposit. Bao Lu Development Construction took advantage of the information asymmetry and demanded payment of deposit to review the contract. Such an unjustifiable restriction on reviewing of contract was obviously unfair to homebuyers as well as competitors who provided the contract to be viewed by homebuyers free of charge. It was obviously unfair conduct able to affect the overall trading order and in violation of Article 24 of the Fair Trade Law. For this reason, the FTC imposed an administrative fine of 1 million on the company.