Agent’s Negligence in the Selection of the Title Search Date
It seems unusual for a real estate agent to be selecting a title search date without speaking to the Client's lawyer, yet, they do all the time. Rarely, if ever, is there any pre-agreement consultation.
But, what if the title search period ends too soon? That can be bad news for the Buyer. And, what if the title search period ends too late? That can be bad news for the Seller.
The real problem is that the agents often select these dates without any real knowledge of the facts in the case. The decision most frequently is based on "usual times in most cases".
Let's have a look at the title search clause:
"8. TITLE SEARCH: Buyer shall be allowed until 6:00 p.m. on the .......................... day of...................................., 20......., (Requisition Date) to examine the title to the Property at Buyer's own expense..."
It requires a purchaser's solicitor to search the title, determine if there is anything that might constitute a title defect, and requisition the appropriate solution.
For example, the purchaser would like to place a large swimming pool in the rear yard. The purchaser bought the property because it backed onto a ravine and offered plenty of privacy. He thought that the Muskoka-like backyard would be ideal for a pool. However, the title search revealed a15 foot easement through the middle of the rear yard, effectively severing it into two parcels, neither of which were large enough to permit the installation of a swimming pool.
Let's assume that the Requisition date is June 15th. That means that the purchaser's solicitor must send over a requisition to the vendor's solicitor by 6:00 pm on June 15th. It can be sent either by courier, fax or email.
Likely, it will read something like the following:
8. REQUIRED: On or before closing a release of the property from the easement registered in favour of Melrose Construction Company Limited on 25 August 1980 as Instrument No. 342574 providing the company, its servants, agents, contractors and suppliers with ingress and egress over a temporary roadway a distance of approximately 20 feet from the edge of the ravine, being 15 feet in width.
This is a valid requisition. The question is whether or not it is delivered in time. That means by 6:00 pm. It does not mean 6:01 pm.
What are the consequences?
If the requisition is "in time", the purchaser may elect to terminate the transaction; providing, of course, that the seller's solicitor cannot rectify the problem.
If the requisition is "out of time", the purchaser cannot terminate the transaction, and the seller's solicitor does not need to rectify the problem.
Truly, if the purchaser wants a swimming pool, this is the wrong property.
Rectification of the Title Defect
The next question deals with the rectification of the title defect. Is this a solvable problem? What is the solution?
In this case, there was an old access driveway which ran along the edge of the ravine during the construction period. Now, that driveway would run through the rear yards of all of the houses backing onto the ravine. It was needed for a few years, until all the houses were constructed, but it is not really needed now. Everyone has a lawn and landscaping in the rear.
However, the easement was created over 30 years ago. Where is the constriction company now? Will it sign a release? The issue is just arising now because this is the first time someone wanted to install a swimming pool.
Now, we have a problem for the vendor and the vendor's solicitor!
Can this title defect be repaired in time?
It seems simple enough, but what is the time limit? Under the terms of the agreement of purchase and sale, the time limit is the day of closing. That means the actual day of closing by closing time (usually 6:00 pm in the Agreement, but the Registry Office shuts down at 5:00 pm). It does not mean a day or two later. There is a provision in the agreement which states that "time is of the essence". That means that all time limits will be strictly observed.
So, the important date here is the closing date, not the requisition date. Let's assume, the closing date is June 21st. That might be enough time if you could find the signing officers of Melrose, but certainly not nearly enough time if you need a Court Order. In fact, the same is likely true, if the closing were June 30th. That's just two weeks, again a very short period of time, if this problem is to be solved.
And, don't discount the premium costs. A law firm is likely to charge more, if everything has to be undertaken on short notice. That basically means that a $5,000 Court Order becomes a $15,000 Court Order, if it is required urgently.
A much more likely date, for a resolution, would be mid July or even late July. This is fine provided the purchaser wants the property and is anxious to close the deal. What if the market has fallen and the purchaser believes he has overpaid by $30,000.00? In this case, he is less likely to consent. Perhaps, he would if a reduction in price were offered.
The question here, is whose mistake was this?
The seller's agent should have been aware of this issue. The agent should have determined this fact early. The agent is under a legal obligation to verify the facts. The agent would then know, that if a buyer wanted to install a pool that this easement would be a problem. Also, the seller's lawyer would require a period of four to six weeks to solve it. Had the Requisition date been amended to May 30th or May 15th then there would have been sufficient time to solve the title problem. Without the amendment, the falling market will force the seller to reduce the price by $30,000.00.
That's a $30,000.00 mistake, and could have been eliminated will a slight change in the requisition date.
All in all, that simple careless act cost the seller $30,000.00 and would be negligence on the part of the seller's agent for failing to change it. Or, at the very least have cautioned the seller about this risk.
So, agent's negligence arises in the improper setting of the title search dates:
1) the purchaser's agent having a period that is too short, and
2) the vendor's agent having a period that is too long.
The risks arise by following a standard rule of thumb:
· The search period does not end prior to the expiration of conditions
· The solicitors are not provided with copies of the agreements until expiration of conditions (or generally, simply too late)
· The search period runs too close to the closing date
Solve these issues simply:
· If you are acting for the purchaser, the search period can run right up to the day of closing
· Deliver the agreement immediately to the purchaser's solicitor
· If you are acting for the vendor, make sure that the search period ends 30 to 45 days prior to the closing date, so there will be adequate time to resolve matters
· Deliver the agreement immediately to the vendor's solicitor
· If you are acting for either party, consult with the client's solicitor before the agreement, afterwards, is too late.
Far too often, the agents will have a compromise date, very close to the closing date. This is not always suitable. The other issue that can arise is the conflict of interest situation when the agent acts for both parties. What requisition date is selected in those circumstances?
Premium Solution for Inability to Respond
I am suggesting time periods of 4 to 6 weeks for Sellers. Frequently, 2 week time periods are being accepted. Usually, there’s no discussion between the Listing Agent and the Seller about the significance of this date.
Let’s assume that the requisition date is a Friday before a long weekend. If the requisition letter arrives at 5:59 pm, it is likely that no one will see this for several days. Everyone left at 5:00 pm. However, this is the first thing that they will see on Tuesday morning. We just lost 3 days due to inactivity. Now, we have to be aware that an Originating Notice of Motion must be served with 10 days’ notice. We only had 14 days to work with in the first palce. This is only leaving us with one day to identify the problem, investigate possible solutions, select the appropriate solution, draft up the necessary material for the Court application and serve the necessary parties. In our example, that was the Melrose Construction Company that hasn’t been around in 30 years. That’s a lot to do in a day! Another alternative is to bring the Application on short notice due to the urgency of the request. This is a possibility. But, again we are asking the law firm to do everything on short notice. THIS is going to be COSTLY.
Another issue to bear in mind is that the lawyer bringing the application in Court does litigation whereas the lawyer on the real estate file does conveyancing. So, we are probably looking at a file transfer at this point.
If matters can be dealt with in the normal course, for a certain fee, then, when it’s urgent, and there’s no time to spare, it can easily be three times that amount.
This is an area where there is a significant risk of professional negligence. Be careful!
Brian Madigan LL.B., Broker