When a lawyer is presented with an unconditional but obviously defective agreement of purchase and sale by a client, does he or she have an obligation to try to negotiate an improvement to its terms?
That was the question for the court to decide in the case of Graham v. Diamond, released by the Ontario Superior Court of Justice in June.
In July, 2002, Patrick and Heather Graham entered into an agreement to purchase a house on Carrington Lane in Quinte West from George Diamond. The agreement was conditional until the end of the month on the Grahams arranging satisfactory financing, failing which the deal would die and the deposit money would be returned.
There was no condition for either an environmental assessment or a home inspection.
After the financing condition had been waived and the deal was firm, the Grahams retained Belleville lawyer Raymond Kaufman to represent them in the transaction.
Prior to closing, Kaufman confirmed with the city of Quinte West that there were no outstanding work orders on file against the property. The transaction closed August 16, 2002.
Three years later, the buyers sued the sellers, their real estate agents, their lawyer, and others claiming damages for “serious and permanent injuries” resulting from apparent contamination of either the land or the building itself.
Among other things they claimed that Kaufman failed, neglected or refused to ensure that a proper environmental site assessment was performed at the property, and that it was a customary practice to have a home inspection performed on the property before the closing of the purchase.
In response to the law suit, counsel for Kaufman brought an application in the Superior Court of Justice in Belleville in May asking the court to dismiss the action against him on the basis that there was no genuine issue for trial.
Kaufman’s position in court was that he accepted the retainer from the Grahams after all the conditions in the agreement had been waived by them, that he completed all the standard title and other searches and had certified title in accordance with standard solicitor’s practice.
On June 4, Justice Michael Quigley released his decision dismissing the claim against Kaufman without the need to have a trial.
“There is no law,” wrote the judge, “to suggest that the Grahams were entitled to either a home inspection or environmental assessment unless there was a condition in the agreement to that effect.”
“Even if (Kaufman) had been alerted to such potential problems, I am not convinced that Kaufmann’s retainer to close the transaction could be extended to include an obligation on his part to examine the possibility of the existence of such problems. Once Kaufmann had completed the title search and found the property free and clear of any encumbrances and/or title problems . . . the Grahams were then obligated to close.”
In his decision, the judge asked, “Did Kaufmann have any obligation to negotiate a ‘better’ deal than the one negotiated by the Grahams themselves?”
Answering his own question, the judge wrote, “Firstly, he was never instructed to do so, and secondly, had he been so instructed, the Grahams were not entitled to a ‘better’ deal by virtue of their signed agreement of purchase and sale. In effect, the Grahams are asking the court to find that Mr. Kaufmann should have closed the barn door some days after the horse had bolted the stable.”
Several lessons emerge from the case of Graham v. Diamond:
• Lawyers should be consulted before an offer is signed, or at the very least, during the conditional period. Getting legal advice after the conditions have been waived is very risky.
• Buyers who sign agreements that are not conditional on home inspections are risking years of aggravation and huge expenses to remediate a defective house.
• Trying to renegotiate any part of a firm transaction is frequently a waste of time and effort.
• And finally, there is no such thing as a “simple” real estate deal which doesn’t require legal advice in advance. Even the most straightforward transaction can blow up, resulting in years of expensive litigation.