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Legal Fees Explained Series

Bradley Sinclair - January 2010

Part One - Sale of Property

Whether someone is selling a single family home or condominium property, the standard real estate sale contract requires that the seller obtain a lawyer to assist with the closing of the transaction.

There is sometimes a great deal of variation in the cost of hiring a lawyer, but when retaining a law office to conduct the closing, it helps to understand exactly what that lawyer does to earn the fee.

Judging legal fees based on the time a client spent signing papers with a lawyer is too simplistic as it represents only the tip of the iceberg for all of the work done on the file. In this Part One of the "Legal Fees Explained" series, I will explain the basic stages involved in the sale of property and the minimum practice standards that, in my opinion, a lawyer must adhere to in order to properly complete the file no matter what fee they charge.

A. Initial retainer/file opening

In most cases, a client will typically retain their lawyer once the sale of the home becomes unconditional. At this point the next steps are for the lawyer to open a file in the office admin/accounting system and, usually with the help of legal assistants, begin to gather up a great deal of preliminary information.

The lawyer will need a copy of the offer, any applicable waivers and other conveyancing information (often supplied by the realtor). It is absolutely essential for the lawyer to have this paperwork at the earliest possible stage in order to review the contract and look for any additional terms and addendums that are potentially relevant. If the realtor or the client are not clear as to what may or may not be relevant for the lawyer, they ought to ask directly at this stage.

In the case of a single family home or bareland condo unit, the lawyer will need a copy of the Real Property Report to determine if it is accurate and up to date or if an update needs to be ordered.

In the case of a condo unit, the lawyer will need to know the name of the management company to order the estoppel certificate and to determine the monthly condo fee contributions and whether there are any outstanding arrears of condo fees or special assessments.

The lawyer will need to conduct a tax search and a title search on the property. In the case of condo units, a copy of the condominium plan will need to be ordered. The tax, title and condo searches need to be reviewed to determine if there are any taxes owing on the property or any other liens, mortgages or other financial encumbrances (such as lake fees or home owner association fees) that need to be paid out and discharged from the title.

The lawyer may also need to review other non-financial encumbrances such as encroachment agreements, restrictive covenants or caveats on a case by case basis.

The lawyer will need to know mortgage reference numbers and lender contact information in order to obtain the required payouts. As well, the realtor will need to ensure that the lawyer has a copy of the commission statement so it can be reviewed with the client prior to closing and ensure timely payment.

The lawyer will need to obtain contact information (phone numbers and an email address) from the client. It is surprising the amount of times that the lawyer is not contacted directly by the client themselves or by the realtor - often all a lawyer receives is the conveyancing information via fax with no phone numbers or contact information on the paperwork.

It is very important to pull this information together at the outset of the file opening to determine that everything can go according to schedule. If a client is out of town, or going through a divorce/separation, or if a mortgage is in arrears or if there is no RPR on file, it is imperative that the lawyer be told in order that they may properly organize the file at this stage.

B. File document preparation

Once the preliminary information is organized, the lawyer's assistant will normally start to prepare the closing documents a couple of weeks prior to the possession date.

The first document is the Statement of Adjustments, which states the purchase price, deposits paid and adjustments for taxes and other applicable items such as condo fees as per the contract and the closing date. The Statement of Adjustments will state the final cash to close owed by the buyer.

The second document is a "cash proceeds or net sale proceeds" statement, which is an estimate of the calculation of funds that will be paid back to the client after closing. This document will determine the amount owing for items such as mortgages and other financial encumbrances, realtor commissions, condo fee arrears or tax arrears (if any), legal fee deductions, miscellaneous costs such as Real Property Reports or Estoppel Certificates.

The lawyer's assistant will usually put additional notes on the cash calculation sheet that need to be discussed with the client. For example, if there is a provision for a cash holdback in the contract, or if the sale proceeds are to be held in trust due to a matrimonial property settlement.

The third document is a Letter of Direction - signed by the client, giving the lawyer the legal authorization to pay out the cash to close in accordance with the net sale proceeds statement. It is very important for a lawyer to have this document signed as all funds are handled "in trust" on behalf of the client and authorization is mandated by our trust accounting rules.

The fourth document is often a statutory declaration which is attached to the Real Property Report, to be signed by the seller and indicating that the RPR is accurate and that there are no additional buildings or other improvements that are not shown on the report. This is a standard form which often assists in determining whether an older RPR is valid for the purposes of the contract, since the lawyer does not personally view the property shown on the report.

Some lawyers will prepare a separate GST exemption certificate, although in my opinion, it is not required as the contract states that- the purchase price includes any applicable GST. Almost all pre-owned residential property is exempt from GST in any event. The final - and most important - document is the Transfer of Land, which the seller executes to transfer ownership of the title to the property to the buyer. The lawyer needs to ensure all proper name spellings, legal descriptions and the purchase price are included in the proscribed format required by the Land Titles Office.

C. Meeting the lawyer/signing the closing documents

As indicated above, we now arrive at the tip of the iceberg in terms of what a law office does for the fee charged on a home sale. Often the legal assistant will contact the client to set up a suitable time to meet the lawyer and confirm the office address location.

The assistant will normally request that the client bring identification to comply with Land Titles and Law Society ID verification rules. The client will also be asked to bring in the RPR, if they have not already done so. Finally, the client will be asked to bring in a void cheque for a local deposit account if they wish to have their sale proceeds deposited to a bank on closing.

Once the client attends for the signing, they will typically meet the lawyer in person. It is strongly recommended that the lawyer actually meet with the client in order to ensure that the documents are properly signed and explained.

The difficulty with a non-lawyer attending to document signing is the potential liability of the legal assistant for giving improper advise or information about anything the client may ask or want to know at this stage. Only on rare occasions will a legal assistant in my office meet the client for execution of closing documents.

The meeting may take anywhere from 15 to 30 minutes, depending on the issues. The client will be told about how the process works, how the title is transferred and how the money is paid on closing. The client will also be asked to provide their forwarding address and contact information for the final report letter.

The client is lastly instructed to call the realtor to arrange for handover of the keys to the property, at which point they can wait for the funds to arrive.

D. Completion/Possession Date

Once the client has signed their documents, the seller's lawyer will send a "trust letter" to the buyer's lawyer with instructions on how to close the transaction, register the title and forward the cash to close. Then the seller's lawyer simply waits for the buyer's lawyer to comply with the trust conditions in order obtain release of keys.

The closing date is often a very hectic day in the office of any lawyer. Unfortunately many transactions fall on certain days like the first or last day of the month. Fridays and Mondays are also common closing dates. It would not be uncommon for a busy office to have 15 or 20 sale closings on a busy summer month end.

In these cases, the legal assistants are often extremely busy dealing with key releases and the disbursement of funds. Mortgages and realtor commissions are paid out, and the client is paid their net sale proceeds.

It is extremely important to say here that a lawyer must have well trained and reliable assistants to do this kind of work. A careless or thoughtless error could result in accounting mistakes that can cause legal liability or financial loss and damage to both the client and the lawyer. Because of this, it is very important that a law office have good accounting procedures and solid office administration.

Our office will almost always pay out the mortgage, realtor commissions and net sale proceeds to the client on the same day as the closing. The only time this does not happen is if there is some administrative delay in closing on the part of the buyer, in which case the delay is rarely more than a day or so.

Keep in mind that, although the process looks very easy at first glance, there is a massive transfer of funds on a closing - usually from a lender to a lawyer to another lawyer and finally to the client in a time frame of around 6 hours - it's practically a miracle that most deals actually close on time.

In the rare occurrence of a problem, late closing or some last minute contractual dispute, the client and the realtor will immediately be made aware of the issue and instructions will always be obtained as required.

At this stage, once the file is "closed" legal fees are usually deducted.

E. The Legal Bill and Client Report

In our office, we usually bill based on a flat-rate, all inclusive charge. In our experience it provides the client with an easy and clear advance picture of what they are paying for. Some offices charge a basic "fee" and add on additional disbursements and other charges such as the tax and title search, faxes, photocopies and couriers, postage and other miscellaneous fees plus GST.

At the end of the day, there is nothing wrong with a lawyer rendering their bill either way. The main thing is that the client understands the overall picture of what work is involved from start to finish and that they are satisfied that the lawyer did a proper job for the fee they charged.

In addition to the lawyer's account, the client is entitled to a final report which encloses a copy of the Statement of Trust Monies, which shows all funds received and disbursed by the lawyer on behalf of the client. The client should also be given copies of all documents showing what the lawyer paid out - ie mortgage, commissions - and a copy of the Statement of Adjustments should be included in the report which ought to be summarized on a cover page. The report ought to be mailed to the client within one or two weeks of the closing date at the latest.

F. Final file clean up matters

Once the client has received their funds and final report, they can for the most part file their papers and forget about the transaction, but for the lawyer the file is not yet complete.

In almost all sale transactions, the seller's lawyer must undertake to payout and obtain discharges of the seller's financial encumbrances/mortgage. In the Province of Alberta a lender has 30 days after the mortgage is paid out to provide the discharge to the lawyer, at which time the lawyer will register the discharge and obtain a new copy of title to the buyer's lawyer. When the final title is cleared up, the seller's lawyer has completed their obligations and the file may be closed.

Unfortunately, it is not always routine to get the mortgage discharge so easily. Often a lender may take two or three months or longer to follow up the discharge and the seller's lawyer may have to make several phone calls or threaten to go to court to obtain the discharge. This can add considerable time and expense to the lawyers process.

This follow-up can often make or break a law office. If a lawyer does not have adequate administrative procedures in place to deal with discharges and final reports, the lawyer's office could suffer an administrative breakdown.

This is also not limited to mortgage discharges. Sometimes lawyers have undertakings to deal with holdbacks of funds or must deal with problems such as RPR compliance and encroachment issues. These are all time consuming and tedious administrative jobs that are done after the bill has been rendered and the lawyer is paid.

But just because the bill is paid, the lawyer cannot forgo their obligations to fulfill their undertakings on files. Such failures can result in complaints to the Law Society and a corresponding loss of goodwill and confidence in the lawyer. In short, if the lawyer can't properly follow up all closings after the funds are paid out, it may put them out of business.

Luckily this is the exception and not the general rule.

G. Conclusion

Please remember that this paper is a basic summary of what tasks a lawyer must do to complete a sale file. It is not a comprehensive list of things that may come up before or after closing and it certainly does not cover the scope of advise a lawyer may be asked at the stage where the offer is still being negotiated.

In any event, I have attempted to explain what we do for our fees and hopefully I have given the reader some better understanding of the scope and range of service that a lawyer must do to properly represent a client in the sale of their property.

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