Zen Far Architecture Co., Ltd.

Zen Far Architecture Co., Ltd.

1229th Commissioners' Meeting (2015)

Case:

Zen Far Architecture Co., Ltd. violated the Fair Trade law for demanding payment of deposits or certain fees to view presale home purchase contracts when marketing “Zen Far Da Du Hui” housing project

Keyword(s):

Presale home, deposit, viewing contract

Reference:

Fair Trade Commission Decision of May 27, 2015 (the 1229th Commissioners’ Meeting), Disposition Kung Ch’u Tzu No. 104041

Industry:

Real Estate Development (6700)

Relevant Law(s):

Article 25 of the Fair Trade Law

Summary:

On May 30 and June 19, the FTC’s staff members assumed the identity of regular consumers and visited the site where Zen Far Architecture Co., Ltd. (hereinafter referred to as Zen Far Architecture) was selling the presale home units named “Zen Far Da Du Hui” housing project. After conversation, the FTC’s staff members requested for a copy of the contract to take home and read. The salesclerk replied that a deposit of 200,000 NT dollars (same currency applies hereinafter) was required before the contract could be given to the consumers. Since such a sales practice was in violation of Article 25 of the Fair Trade Law, the FTC initiated an ex officio investigation to look into the matter.

Findings of the FTC after investigation:

(1) Zen Far Architecture contended that the purchase contract was placed on the counter at the reception center and homebuyers could ask for a copy to read at any time without paying a deposit. Payment of a deposit or a fee was for homebuyers intending to reserve their priority privileges to purchase a unit. It was no meant to restrict the right of homebuyers to view the contract. Homebuyers could just fill out the “contract-viewing request form” to acquire a copy without paying a deposit. In other words, Zen Far Architecture claimed that paying a deposit or not had nothing to do with homebuyers’ access to the contract. Moreover, it claimed that if any homebuyer decided not to make purchases after reading the contract and requested for contract cancellation, the deposit paid would be returned to the homebuyer unconditionally.

(2) According to the records of 315 already sold units provided by Zen Far Architecture, 300 of these homebuyers either paid deposits and acquired the contract on the same day or paid deposits on dates before acquiring the contract. To further investigate whether Zen Far Architecture had provide the purchase contract to homebuyers in the sales process and whether the company demanded homebuyers to pay a deposit or a certain fee to view the contract, the FTC conducted a questionnaire on the homebuyers. Seven of the homebuyers surveyed expressed that they had been unable to view the contract before paying deposits and such conduct had an effect on their interests.

Grounds for disposition:

(1) Compared to other consumer products, presale homes have the characteristic of being “high in value.” Moreover, since presale homes have not taken shape and their ownership is not yet registered, when the transaction on presale homes is conducted, related information available to homebuyers before signing of purchase contract is rather limited. Real estate developers undoubtedly are in a more advantageous position as far as information is concerned. In addition, real estate developers have unilaterally drafted the purchase contract, in which the facts about the object of transaction and the rights and obligations of both parties can fully disclose. Under such circumstances, when a real estate developer demands homebuyers to pay a deposit (or a certain fee under any title to reserve priority to purchase a unit) before the provision of the said contract, the collection of such a deposit or fee will be obviously unfair as it puts homebuyers in a disadvantageous position when they make their purchase decisions. At the same time, such conduct will also constitute unfair competition for competitors who act according to the law and provide homebuyers with the contract. In other words, such a practice is obviously unfair conduct of unjustifiable restriction on the right of homebuyers to view the contract. If deemed likely to affect trading order, it is in violation of Article 25 of the Fair Trade Law.

(2) The sales of presale homes of the “Zen Far Da Du Hui” housing project started in August 2013. More than half of the homebuyers paid deposits and were provided the contract on the same day or paid deposits before they were given the contract. Furthermore, in the aforementioned questionnaire survey conducted by the FTC, 7 out of 12 homebuyers who responded to the questionnaire survey expressed that Zen Far Architecture had indeed asked for a deposit before providing them with the contract. This means that not a small percentage of homebuyers attested that they had been unable to view the contract before paying a deposit and this had made it impossible for them to understand related information and their rights. Even if the company promised to return their deposits, having paid a deposit already became a constraining factor in their negotiating capacity in terms of entering into the contract or when they made their final decisions. In other words, it was impossible that the homebuyers’ transaction decisions had not been affected by the practice at issue.

(3) Although Zen Far Architecture contended that even if homebuyers had requested to cancel the reservation after paying a deposit and reading the contract, the company would return the deposit in full. However, there was no relation between the company’s returning deposits to homebuyers and homebuyers’ reading the contract beforehand. The provisions in the presale home purchase contract had been standardized contract information established by Zen Far Architecture unilaterally. They could best present the facts about the presale homes and the rights and obligations of the seller and the buyer. However, such provisions included professional terminology and complicated regulations. Viewing the content in advance would give trading counterparts the opportunity to seriously consider whether they would make the purchase. Only by doing so, the information asymmetry between the buyer and the seller could be balanced and the risk of homebuyers could be reduced. On the other hand, when homebuyers had to pay a deposit in order to view the contract, even if the deposit could be returned, they might still have to cope with the cost of time spent on negotiation and communication when the seller tried to save the deal. In other words, they could not be as free to come and go as when they had not paid the deposit. Zen Far Architecture could use the deposit in its hand as leverage to negotiate with the trading counterparts over and over again for an extended period of time. For law-abiding competitors who provided homebuyers with purchase contracts without asking for deposit payment, the practice of Zen Far Architecture constituted unfair competition.

(4) When marketing its presale homes, Zen Far Architecture demanded homebuyers to pay a deposit before the company would allow them to view the purchase contract. It took advantage of the information asymmetry it had over homebuyers to restrict without justification the right of homebuyers to read the contract. Moreover, the practice also constitute unfair competition to competitors who allowed homebuyers to read the purchase contract as required by the law. Zen Far Architecture adopted the said practice without complying with the business ethics in effective competition on the market and was therefore obviously unfair conduct able to affect trading order in violation of Article 25 of the Fair Trade Law. Therefore, the FTC imposed an administrative fine of 800,000 on the company.

Appendix:

Zen Far Architecture Co., Ltd. 's Uniform Invoice Number: 13173721

Summarized by Tsai, Hui-Chi; Supervised by Ho, Yen-Jung

(1)	Compared to other consumer products, presale homes have the characteristic of being “high in value.” Moreover, since presale homes have not taken shape and their ownership is not yet registered, when the transaction on presale homes is conducted, related information available to homebuyers before signing of purchase contract is rather limited. Real estate developers undoubtedly are in a more advantageous position as far as information is concerned. In addition, real estate developers have unilaterally drafted the purchase contract, in which the facts about the object of transaction and the rights and obligations of both parties can fully disclose. Under such circumstances, when a real estate developer demands homebuyers to pay a deposit (or a certain fee under any title to reserve priority to purchase a unit) before the provision of the said contract, the collection of such a deposit or fee will be obviously unfair as it puts homebuyers in a disadvantageous position when they make their purchase decisions. At the same time, such conduct will also constitute unfair competition for competitors who act according to the law and provide homebuyers with the contract. In other words, such a practice is obviously unfair conduct of unjustifiable restriction on the right of homebuyers to view the contract. If deemed likely to affect trading order, it is in violation of Article 25 of the Fair Trade Law.
(2)	The sales of presale homes of the “Zen Far Da Du Hui” housing project started in August 2013. More than half of the homebuyers paid deposits and were provided the contract on the same day or paid deposits before they were given the contract. Furthermore, in the aforementioned questionnaire survey conducted by the FTC, 7 out of 12 homebuyers who responded to the questionnaire survey expressed that Zen Far Architecture had indeed asked for a deposit before providing them with the contract. This means that not a small percentage of homebuyers attested that they had been unable to view the contract before paying a deposit and this had made it impossible for them to understand related information and their rights. Even if the company promised to return their deposits, having paid a deposit already became a constraining factor in their negotiating capacity in terms of entering into the contract or when they made their final decisions. In other words, it was impossible that the homebuyers’ transaction decisions had not been affected by the practice at issue.
(3)	Although Zen Far Architecture contended that even if homebuyers had requested to cancel the reservation after paying a deposit and reading the contract, the company would return the deposit in full. However, there was no relation between the company’s returning deposits to homebuyers and homebuyers’ reading the contract beforehand. The provisions in the presale home purchase contract had been standardized contract information established by Zen Far Architecture unilaterally. They could best present the facts about the presale homes and the rights and obligations of the seller and the buyer. However, such provisions included professional terminology and complicated regulations. Viewing the content in advance would give trading counterparts the opportunity to seriously consider whether they would make the purchase. Only by doing so, the information asymmetry between the buyer and the seller could be balanced and the risk of homebuyers could be reduced. On the other hand, when homebuyers had to pay a deposit in order to view the contract, even if the deposit could be returned, they might still have to cope with the cost of time spent on negotiation and communication when the seller tried to save the deal. In other words, they could not be as free to come and go as when they had not paid the deposit. Zen Far Architecture could use the deposit in its hand as leverage to negotiate with the trading counterparts over and over again for an extended period of time. For law-abiding competitors who provided homebuyers with purchase contracts without asking for deposit payment, the practice of Zen Far Architecture constituted unfair competition.
(4)	When marketing its presale homes, Zen Far Architecture demanded homebuyers to pay a deposit before the company would allow them to view the purchase contract. It took advantage of the information asymmetry it had over homebuyers to restrict without justification the right of homebuyers to read the contract. Moreover, the practice also constitute unfair competition to competitors who allowed homebuyers to read the purchase contract as required by the law. Zen Far Architecture adopted the said practice without complying with the business ethics in effective competition on the market and was therefore obviously unfair conduct able to affect trading order in violation of Article 25 of the Fair Trade Law. Therefore, the FTC imposed an administrative fine of 800,000 on the company.