Liability of Lawyer in Real Estate Purchase (Ontario)

Lawyer’s Obligations in a Real Estate Transaction

By Brian Madigan LL.B.

(Ontario Real Estate Source)

Increasingly, in the times of litigation, people want to know how to sue their lawyers. While it used to be that the lawyer was atrusted friend, now, legal services are just another commodity to be purchased, and they should come with a warranty.

If something goes wrong, then take it back to the store for a replacement. If there is something wrong with the property, then the lawyer must have made a mistake.
A few years ago, the Ontario Court of Appeal looked at the role of a solicitor in a real estate purchase. Judge John Laskin wrote the following:

Ontario Court of Appeal (1999, Wong v. Hui)

• A lawyer’s duty to a client will vary depending on the client’s instructions and the limits on the lawyer’s retainer.

• Here, Hui was given an executed agreement of purchase and sale by his clients and instructed to close the transaction.

• The agreement warranted the rental income on the building for a year after closing.

• But the warranty was given only by the vendor, a numbered Ontario company, and thus if the rent was not as warranted the respondents could look only to the numbered company for relief.

• The giving of a warranty by a numbered company should raise a red flag for a reasonably prudent lawyer.

• Ordinarily a lawyer should discuss this warranty with the client and warn the client of the risk of non-recovery should the warranty be breached.

• Mr. Lamont said as much and Hui led no expert evidence to the contrary.

• Indeed, if the respondents had retained Hui before they signed the offer, I would have no hesitation in holding that Hui should have raised with his clients the possibility, even the desirability, of obtaining security for the warranty and sought their instructions on whether to try to negotiate some form of security, be it a holdback on the purchase price of a vendor take back mortgage.

• But the respondents did not retain Hui until after they had signed the agreement of purchase.

• Having not sought his advice beforehand, they then sought to hold him liable for failing to improve on the deal they had negotiated without him.

• In Mr. Lamont’s opinion, Hui still had a duty to try and obtain security for the warranty.

• The trial judge echoed that opinion when she said “[n]o lawyer should presume that no rights can be negotiated.”

• In my view, the trial judge was not sensitive enough to the limitation on Hui’s retainer implicit in his being consulted after the agreement had been signed.

• Mr. Lamont’s opinion may represent a counsel of perfection, but I find it hard to admonish Hui, let alone make a finding of negligence against him, for failing to try to negotiation something to which is clients had no legal entitlement.

• Cases may arise where a duty of this kind should be imposed on a lawyer, but the court should at least take into account the timing of the lawyer’s retainer.

• I do not, however, rest my concern about Hui’s duty to negotiate security on any distinction between business advice and legal advice.

• Hui submitted that he had no duty to negotiate security for the warranty because this was a business matter, not part of a lawyer’s retainer.

• I do not accept this submission. Although ordinarily clients retain lawyers for legal advice not business advice, on some transactions the two are intermingled and no clear dividing line can be drawn.

• Thus, a lawyer may well have a duty to give advice on the financial or business aspects of a transaction, depending on the client’s instructions and sophistication, and on whether the client is relying on the lawyer for that kind of advice.

• As I have said, had the respondents consulted Hui before signing the agreement, they could reasonably have looked to him for advice on the risk of relying on an unsecured warranty by a numbered company, be it characterized as business advice or legal advice or a mixture of the two.

• But they consulted Hui only after they had assumed this risk by signing the agreement… The respondents believed that they had made a good deal; they did not want to get out of the transaction; and at no time did they ask Hui to improve the terms of their agreement.

• Thus, I am doubtful whether Hui had the duty imposed on him by the trial judge.

Comment

In this particular case, a client sued his lawyer Mr. Hui for failing to negotiate a better deal. At trial, the client was successful. Expert testimony had been given in this case by Mr. Lamont a pre-eminent real estate lawyer indicating that the lawyer should make an attempt to negotiate a better deal.

The Court concluded that was the counsel of perfection, and perfection was not a contract term.

So, the obvious clear message for consumers is to retain a lawyer early in the transaction, the sooner the better, because that increases the lawyer’s liability. Real estate agents should encourage their clients to retain lawyers early.

Also note that the lawyer may provide both legal and business advice. The Court thought that the two were often mixed.

In many situations, real estate agents believe that the lawyer’s role is restricted to legal advice and that they are the sole and only ones who deal with business matters. That is not the case according to the Ontario Court of Appeal. Lawyers can be held liable for both. But, in this case Mr. Wong had not retianed Mr, Hui early enough.

Consider the case of a real estate agent who delays, stating ‘let’s get the agreements signed first”. Now, the lawyer’s retainer is limited. And, the same person who was prepared to sue their own lawyer in this case, will sue their real estate agent for this failure (whatever it may be).

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com