Lawyers are most often consulted for closing real estate transactions rather than putting them together. Specifically, the Agreement of Purchase and Sale (“APS”) is most often brought to lawyers already signed and legally binding on both parties. This is particularly true in the residential context. In some situations, the APS is conditional on review by a lawyer, thereby allowing the relevant party, usually the purchaser, to back out of the deal if their lawyer finds and convinces them that their interest would not be best served by completion of the purchase. However, even in these situations, the parties may view the review process as insignificant and just a formality– their hearts already set on closing the transaction and therefore not open to receive the advice of their lawyer in any meaningful way. They may also have the added pressure of their respective real estate agents who may just want the deal to close so that they can collect their real estate commissions.
The reality is that the APS is often prepared on templates created by the real estate industry, such as the OREA standard form, and modified at the relevant time by the real estate agent(s) acting on behalf of the seller and the buyer to reflect the terms under which the parties have agreed to transfer the property. This is a curious practice, to say the least, given that only licensed lawyers should be preparing contracts (which is what an APS is) on behalf of others and providing legal advice to them about these contracts before they are signed.
It follows, then, that it is generally the exception that clients ask their own lawyers to prepare the APS from start to finish, negotiate the terms of the transaction and advise them on issues of which they should be aware before signing the APS. There are many benefits to having your lawyer involved in your transaction from the start or at least as early in the formation of the transaction as possible before signing. Issues regarding the purchase price, description of the property, requirement for a survey, apportionment of insurance and many more can be specifically addressed to protect the interests of the relevant party.
However, as was seen in the case of Vanderburg v. Real Estate Council of Ontario, 2007 CanLII 29981 (ON SCDC), advice from a lawyer prior to signing the APS may not only help with respect to the terms of an APS but can also help a party to detect if the overall purpose and nature of a proposed transaction makes sense and whether all parties are acting ethically and legally. Furthermore, although lawyers are usually precluded from being able to give business or investment advice to clients, the legal advice they do give will often help clients to determine whether they should complete a proposed transaction while detecting possible breaches in law or in ethics. Very basic questions lawyers contemplate about transactions include: Who are the parties? What are their interests? What are they trying to accomplish? How and why are they trying to accomplish it? And again, does the overall transaction make sense?
In Vanderburg case, a broker for Century 21, Ben Vanderburg (BV) and his son, an associate broker, Daniel Vanderburg (DV), listed Parcels 7 and 8 in the Township of Mariposa on behalf of their owner, Katherine Warenycia (KW), for $69,900.00 and $79,900.00 respectively. BV is the broker of record, officer, director and majority shareholder of Century 21 Success Inc. (“Century 21”). Three months later, Century 21 entered into an APS with KW to purchase Parcel 7 for $5000 and DV purchased Parcel 8 for $7,000. The reason for the drastic reduction in price was that Parcels 7 and 8 were zoned as agricultural lands, which prevented the owner from obtaining a building permit to construct a home on the lands. BV and DV advised the complainant, KW, that she could apply for a zoning change but it was unlikely that Mariposa Township Council would agree. The complainant indicated that she did not wish to apply for rezoning, and agreed to sell the lands for the reduced price. The deal closed at the end of November 2000.
Century 21 and DV then applied for a rezoning of the two parcels and were successful. On January 13, 2002 (approximately 13 months after the complainant sold the lands to Century 21 and DV), Century 21 sold Parcel 7 for $60,000.00. When the complainant learned of the substantial gains Century 21 made from the sale of Parcel 7, she wrote a letter to the Real Estate Council of Ontario (RECO) complaining about BV and DV`s conduct in representing her. RECO`s Discipline Committee found that BV and DV engaged in professional misconduct in breaching several rules of RECO`s code of ethics. The breached rules included but were not limited to:
- Presenting an offer to the complainant without providing her with written information on his position and interest in the transaction and failing to obtain an acknowledgment of same;
- Failing to advise the complainant to seek independent legal advice (because of the potential conflicts arising in the dual agency situation).
When BV and DV applied to the court to have it review the findings of RECO`s Discipline Committee, the court upheld the Discipline Committee`s decision that BV and DV had indeed engaged in various forms of professional misconduct.
If you would like to consult a lawyer about a real estate transaction that you are contemplating to best ensure that your interests are adequately protected, please contact Andrea Kelly.
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Andrea Kelly, Lawyer, has extensive experience in wills, trusts, powers of attorney and estate administration matters. She provides clients with a high standard of timely professionalism and expertise, incorporating a very thorough fact finding process. This is quite often enlightening for her clients and facilitates individually tailored services. If you would like to know more, feel free to use the easy contact form or read Andrea’s bio.