The Dirt: King Lofts shows growing perils, provides lessons for real estate lawyers

Among the recent high-profile solicitors’ negligence cases is King Lofts Toronto I Ltd. v. Emmons, an Ontario Court of Appeal decision that followed another notable ruling in Outaouais Synergest Inc. v. Lang Michener LLP.

While King Lofts was more recently before the appeal court, it was the trial decision of Superior Court Justice Paul Perell that was the more compelling read since the appellate reasons were brief and essentially upheld all of the motion results for essentially all of the reasons set forth by the lower court.

In King Lofts, the title search disclosed a laneway that cut through the property. The city, which wasn’t the vendor, owned the laneway. The solicitor duly found the laneway and told the client about it but unfortunately did so in such a way that suggested it was a minor issue they could address in a number of ways: conversion into land titles after closing for a few thousand dollars; asking the city to pass a bylaw to convey the lands to the purchaser; obtaining a vesting order based on prescriptive rights; or title insurance. As fate would have it, the conversion to land titles wasn’t a correct solution, the city required a six-figure payment for a conveyance of the laneway, prescription didn’t seem to be available, and the title insurance policy wouldn’t cover the cost of the city’s demand.

Although Perell and a unanimous panel of the Court of Appeal found the solicitor in King Lofts negligent, Perell went out of his way to redirect any personal disparagement away from the
solicitor, noting that as “the discussion of the facts will reveal, like many professional negligence cases, the lawyer’s error does not show incompetence, unskillfulness, lethargy, or inattention.”

Instead, Perell attributed the negligence simply to miscommunication: “Like many negligence cases, the error is a failure in communication. Thus, the critical facts are what was said, what was not said, what was described, what was misdescribed, what was clear, what was opaque, what was understood, and what was misunderstood.”

This is an increasingly common theme in solicitors’ negligence cases. The solicitor in King Lofts is well known in the real estate bar and enjoys an excellent professional reputation among his peers.
The real fact of the matter is that the level of communication now expected between solicitor and client (which, for all practical intents and purposes, means painstaking written communications) has reached comparatively new and soaring heights. Furthermore, this isn’t a novel concept brought about by the King Lofts decision. LawPRO and other professional liability insurers have been harping incessantly about the need for greater and better communications for years. King Lofts merely drives the message home through the forehead and with a nail gun.

Although there seems to have been a number of miscommunications between solicitor and client in King Lofts, the most profound issue related to the title insurance. Title insurers will often underwrite known title defects on a “limited marketability” basis or, depending on the nature of the defect, on a “forced removal basis.” These endorsements fall short of full coverage because, by their very terms, they indemnify against forced removal of the building (due to, for example, the existence of encroachments or easements) but won’t cover impaired marketability of the property or the diminution in value resulting from the title defect.

In King Lofts, the relevant endorsements indemnified the client if the city asserted rights to the laneway or required it to remove the building on the property but didn’t cover the diminution in value that the mere existence of the laneway would nonetheless cause. The city never asserted any remedy in respect of its claim to the laneway or forced the building’s removal but it did demand six figures as a purchase price if the client wanted to have the laneway conveyed back (which was a de facto quantification of the diminution in the value of the property arising from the laneway defect). Perell concluded the solicitor had failed to communicate to the client the limited scope of the “limited marketability” and “forced removal” endorsements and had effectively lulled it into a false sense of confidence about the title insurance coverage.

After King Lofts, solicitors now have a clear duty to explain the scope of title insurance coverage to their clients, especially when it’s for limited marketability, “forced removal only” or some other coverage that’s less than full coverage. Frankly, this may prove to be a daunting task since, even after all of these years, the exact scope of title insurance coverage remains somewhat fuzzy for many real estate solicitors and fuzzier still for most of their clients.

The trial decision in King Lofts is truly one of the more comprehensive decisions on solicitors’ negligence I’ve seen. It’s rich in case law references and shows great analysis and an unusual appreciation for the practical side of real estate law. In addition to the title insurance issue, the case also touched upon applicable limitation periods when title insurance is at issue, the need for expert witnesses in solicitors’ negligence cases, and other matters of interest to real estate litigators.

The negligence claim in King Lofts no doubt stemmed, at least in part, from the client’s unhappiness with the solicitor’s fees in the matter that were more than $270,000 on a $31-million acquisition. But frankly, this is trite since a client’s dissatisfaction with its solicitor’s performance is almost always directly proportionate to the fees charged. That has always been the case and isn’t unique to real estate law. Life as a modern real estate solicitor is, to quote a famous saying, nasty, brutish, and short. King Lofts has simply reminded us of that reality. 

Jeffrey W. Lem is a partner in the real estate group at Miller Thomson LLP. His e-mail address is [email protected].

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