Requisition: a process, not just a letter
By definition, a requisition is the act of formally requiring or calling upon someone to perform an action. However, one cannot demand performance without fully knowing what to request. Requisitions are not merely a means of communication between two parties but a process by which matters requiring attention, such as defects in title, are investigated and properly dealt with in a timely fashion in order to fulfil the requirements of a purchase contract to the parties’ satisfaction.
Continuing malpractice claims and caselaw highlight the requisitioning process as an important function of real estate conveyancing. Lawyers have a duty to ensure that their purchaser clients receive good and marketable title to the properties they have contracted for; and to vendor clients, to ensure that they act in good faith and are able to close deals smoothly and free from post-closing undertakings and liabilities. Some provinces such as Ontario and Nova Scotia have a framework for the requisition process in purchase agreements. And most purchase agreements set out contractual obligations to deliver good and clear title.
Although due diligence, such as the investigation of title, is an important part of the process to ensure your purchaser client gets what s/he is contracting for, the response by the vendor to questions resulting from the investigation is equally important.
As a purchaser’s lawyer, if you fail to follow the requisition process, you jeopardize your client’s position:
- Your client may not get good and clear title
- Your client may have to rectify a problem after closing, which could be costly (and could have been passed to the vendor if properly investigated and requisitioned)
- Your client may lose the right to not close the deal
- You miss an opportunity to obtain important information the vendor may possess to address a cloud or issue on title
- Failure to requisition or late requisitions may show bad faith
As a vendor’s lawyer, if you fail to follow the requisition process, you jeopardize your client’s position:
- Your client may not be able to close the deal, which may lead to litigation
- More post-closing undertakings may be necessary
- Failure to respond to requisitions may show bad faith
Real estate claims constitute a significant portion of claims reported to LAWPRO®. Many of these claims are due to inadequate investigation and lack of communication, and sometimes involve a failure to requisition or a failure to respond to requisitions, either in time or at all.
The likelihood of such claims can be reduced by ensuring proper investigation, communication and documentation at all stages of the transaction.
Claims against real estate lawyers for inadequate investigation may include:
- Failing to complete relevant searches, such as a building work order searches
- Misreading the purchase agreement, survey, search or reference plan
- Failing to inquire into environmental issues or the status of tenancy agreements
As a result of inadequate investigations, the purchaser’s lawyer may be unaware of clouds on title or other issues with the property that would have come to light if a more thorough investigation had been conducted and dialogue with the vendor’s lawyer had been initiated through the requisition process.
Communication-related claims may include:
- Failing to explain the issues and risks to the client
- Failing to obtain or understand the client’s instructions
- Failing to inquire into the client’s long-term plans for the property (and as a result failing to ensure the client can use the property as intended under the appropriate zoning or bylaw)
- Acting without the client’s consent
- Misunderstanding or miscommunicating with the client
- Failure in communication between the purchaser’s and vendor’s lawyers
- Failure to document advice and/or discussions with the client
These types of claims are avoidable by maintaining an open line of communication with the client throughout the transaction. Advice to clients and clients’ instructions regarding requisitions should be confirmed with the client and recorded in writing. This will help ensure that you and your client are on the same page and you have not misunderstood the client’s instructions.
Submitting all necessary requisitions (or responding to them) in a timely manner may help reduce the likelihood of negligence claims against lawyers, either when acting on the purchase – or later, on the sale. Claims show that lawyers who act for the purchaser and fail to requisition do not escape exposure. Rather, they simply postpone liability to when the property is sold, a time when less information may be available to deal with an issue.
Transfer of good and marketable title is a fundamental aspect of a real estate purchase or sale transaction. Ignoring the due diligence process (requisitioning), which involves a discussion between the parties, may result in claims of negligence against the lawyer, but also reduces the value and experience a lawyer brings to real estate conveyancing.
This article by Ray Leclair (VP, Public Affairs at LAWPRO) and Mahwash Khan (Communications Specialist at LAWPRO) originally appeared in the July 3, 2015 issue of The Lawyers Weekly published by LexisNexis Canada Inc.