Brian Madigan LL.B., Broker
BRMadigan@iSourceRealEstate.com

RE/MAX West Realty Inc.,
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96 Rexdale Blvd. 
Toronto, Ontario 


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Interpretation of the Lawyer’s Approval Clause

November 9, 2017 - Updated: November 9, 2017

Interpretation of the Lawyer’s Approval Clause
 

This particular clause has always led to discussion.
 

The application of the “good faith and honesty” doctrine from the Supreme Court of Canada in a recent BC case* sheds some further light on the relevant issues.
 

The Buyers sought specific performance of a contract under which they agreed to buy a house in Vancouver, British Columbia. The sale did not complete because the Seller declined to remove or waive a condition that made the terms and conditions of the contract subject to her lawyer’s approval.
 

At issue in the case was:
 

1)    the meaning and scope of such a “lawyer’s approval” condition, and

2)    whether the defendant could refuse to complete for reasons that were not exclusively related to legal advice about the contract.
 

Could the Seller consider and ultimately accept another offer that she received after reaching an agreement with the plaintiffs but before obtaining a lawyer’s advice.
 

The following Lawyer’s Approval clause was included in the agreement:
 

“Subject to the Seller’s legal representative/lawyer approving the terms and conditions of the contract on or before October 17, 2016. This condition is for the sole benefit of the Seller. ...”
 

Justice Smith said:
 

“I find that nothing in the advice the defendant received from Mr. Lack (the lawyer) amounted to an explicit recommendation in which he gave or refused “approval” of the plaintiffs’ contract. He reviewed both the contract and Mr. Wang’s offer with the defendant, leading the defendant to the obvious conclusion that Mr. Wang’s offer was somewhat more financially attractive.
 

At the same time, the defendant was anxious to sell the Property. The price in the plaintiffs’ contract was within 8% of her listing price and within 3% of the counter-offer she had made to the plaintiffs. I find that, for all her discomfort and the hypothetical difficulties Mr. Lack told her about, she would likely have removed the lawyer’s approval condition and proceeded with the sale to the plaintiffs if she had not received the intervening higher offer from Mr. Wang. That conclusion is further supported by the fact that her agent did not communicate her decision to the plaintiffs until there was a completed contract with Mr. Wang.”
 

Justice Smith further stated:

 

"[36]        The Court of Appeal considered a lawyer’s approval clause in Dartington Properties Ltd. v. Harris, [1979] B.C.J. No. 729 (C.A.). The agreement in that case stated that “this offer is subject to the approval of purchaser’s solicitor”. The trial judge found that a purchaser who never consulted a solicitor at all was in breach of the agreement. The Court of Appeal upheld that result, but also agreed at para. 10 with what the trial judge said about the condition’s meaning:
 

          10        

In this case the condition is somewhat vague and general in form. It is "this offer" which is expressed to be subject to the approval of the purchaser's solicitor on or before the date set. A reasonable construction of that language would be that the wording of the offer contained in the Interim Agreement, that is to say, the clarity of the language, the accuracy of the arithmetic and the want of any ambiguity in terms were matters to be referred to and considered by the purchaser's solicitor. The sentence cannot be held to be meaningless.
 

[42]        On the meaning of the lawyer’s approval condition, Slatter J.A. rejected submissions that any lawyer’s disapproval must be based on purely “legal considerations”, stating at para. 77:
 

77.      ... Clients routinely consult their lawyers not only about legal matters, but about business matters, family matters, and personal issues. As an immediate example, a lawyer with a busy real estate practice may have as much knowledge as anybody in the community as to property values, and whether the business terms of the sale of land are commercially reasonable. The boundary between "purely legal" issues and other matters on which lawyers are routinely consulted is impossible to define. When a contracting party stipulates for its lawyer's approval, it should be presumed to encompass wide ranging advice on what is in the client's best interests. If nothing else, it follows that if any limits are to be placed on a clause that a contract is "subject to lawyer's approval", those limitations must be set out in the contract. ...
 

44]        The lawyer’s approval condition in this case was narrower than the one in Castledowns in that it explicitly limited the scope of lawyer’s approval to “the terms and conditions of the contract”. That does not mean that the defendant was limited to obtaining a simple “yes or no” conclusion from the lawyer.
 

[51]        The defendant does not suggest that this objective information from Mr. Lack about the plaintiffs’ contract was the sole, or even the primary basis on which she exercised her subjective discretion. I have already found that it would likely not have prevented her from completing if the plaintiffs’ contract had been the only immediate possibility of selling the Property.
 

[52]        Even if she did refuse to complete because of it, I find that would not have been a reasonable or good faith exercise of her discretion. She had no particular reason for believing the plaintiffs were any more likely than any other buyer to fail to complete and, even if they did, any complications relating to service would have made no difference to her remedy.
 

[53]        The reason the defendant chose not to waive the condition was that Mr. Wang was willing to pay more for the house than she had agreed to accept from the plaintiffs. To the extent that was related to any advice from Mr. Lack, it was only in that there would be a larger deposit to retain if Mr. Wang failed to complete.
 

[56]        I find that the defendant, in purporting to rely on the lawyer’s approval condition to consider and accept a subsequent competing offer, failed to act in good faith and was in breach of her contract with the plaintiffs. In view of her concession that specific performance is the appropriate remedy in these circumstances, I order that the Contract of Purchase and Sale of the Property to the plaintiffs be performed."

 

COMMENT
 

It is noteworthy here that the Seller was obligated to call her own lawyer to Court as a witness on her behalf and to review the discussion virtually line by line and word by word.
 

The lawyer never, ever said: “I cannot approve this contract”.
 

The Seller simply attempted to use this ruse as a method to weasel out of a contract. That won’t work.
 

At the very least, ask the question of the lawyer, and get the response in writing if it’s favourable to you.
 

Although the lawyer had the two documents in front of him, there was really nothing in the first Offer which was already accepted, that would not have met the lawyer’s approval test.

 

*Zhang v Amaral-Gurgel, 2017 BCSC 1561
 

Brian Madigan LL.B., Broker

www.iSourceRealEstate.com


Tagged with: lawyers approval meaning clause good faith honesty ontario law
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Brian Madigan LL.B. Broker

RE/MAX West Realty Inc. Brokerage

Independently owned and operated

96 Rexdale Blvd. , Toronto Ontario,

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