"Avoid A Claim" Blog

The Residential Real Estate Transactions Practice Guidelines, adopted by the Law Society of Upper Canada in January, 2007 (the “Practice Guidelines”), provide guidance to lawyers in residential practice in a world where title insurance has become the norm. The Law Society of Upper Canada Real Estate Checklist (first adopted in the 1980s and revised in the mid-1990s) has never been updated to take title insurance into account. The Law Society’s Rules of Professional Conduct contain some mandatory requirements relating to lawyers’ use of title insurance, but these regulatory amendments made in 1997 do not really guide the lawyer aspiring to use title insurance in his/her practice in a positive, client-centred way. The Practice Guidelines thus provide useful insights and recommendations for the practising real estate Bar, given the reality of real estate conveyancing in the new millennium.

In particular, the Practice Guidelines provide guidance in the conduct of a title-insured transaction as follows:

• The lawyer is encouraged to obtain necessary and relevant information from the client at the outset of the transaction. This information assists the lawyer in meeting the due diligence requirements of title insurers and ensuring that appropriate endorsements are obtained, if needed. For example, special searches may be required by the title insurer if the property has private services and a rural property endorsement may then be available from the title insurer.
• The lawyer is encouraged to communicate with the client at the outset of the transaction about the future use of the property. This, once again, allows the lawyer to determine if a special endorsement should be obtained for a proposed future use involving a change of the property. It also allows the lawyer to consider whether to recommend title insurance at all, or to advise the client to obtain an up-to-date survey and fuller inspections/searches to determine more conclusively if the proposed use can be implemented.
• The lawyer is reminded to review with the client what searches or inquiries the lawyer will not be undertaking (if any) due to the choice of title insurance and the possible impact of those searches. For example, in many cases a Building Dept. search will not be undertaken if title insurance is being purchased. If the property includes a basement apartment, some clients may be more interested in knowing that the apartment is definitely legal and can be rented out than knowing that they are entitled to make a claim under an insurance policy for a loss of property value if the apartment must be removed. Also, there are possible adverse consequences for the client if the lawyer allows a requisition date to pass without making a given search, a problem comes to light before closing that would have been revealed by the relevant search and the title insurer will not insure over the problem. The lawyer needs to bear that issue in mind, along with any published policies of title insurers on the issue, when deciding not to make a given search.
• The impact of the knowledge exclusion in a title insurance policy is highlighted, so that the lawyer remembers to determine if the client has any adverse knowledge that must be disclosed to the title insurer.
• The lawyer is reminded to review with the client the coverage that will be available under the client’s title insurance policy before closing, the lawyer having him/herself reviewed the exclusions and exemptions in the draft title insurance policy. The Guidelines provide an overall list of items for the lawyer to consider when reviewing the draft policy or binder/commitment.
• The lawyer is reminded to issue the policy as soon as possible after closing, in case the client needs to put in a claim in the early days of owning the property, and to compare the issued policy to the draft.

Most title insurance policies generally available in Ontario do not include legal service coverage (although the TitlePLUS® policy for purchases and/or mortgages does). All of the above are possible areas of liability related to the use of title insurance for the unthinking lawyer. The Practice Guidelines are a resource and a safety net for lawyers wanting to maximize their clients’ protection through title insurance while managing their own risk exposure along the way. Please take a look at them as they could help you AvoidAClaim.