FOLA calls for changes around all-inclusive real estate quotes
By Jennifer Pritchett, Associate Editor
The Federation of Ontario Law Associations (FOLA) is calling for changes around "all-inclusive" fee quotes in real estate transactions and how they are advertised.
The organization is urging a working group of the Law Society of Upper Canada (LSUC) to prohibit all-inclusive fee quotes in real estate transactions — and the advertising of them — to avoid any confusion around costs for the public.
“Real estate transactions can quickly and easily transform from simple to complex,” FOLA past chairman Eldon Horner tells AdvocateDaily.com.
“A simple residential transaction can suddenly become a difficult and challenging file for a myriad of reasons, including without limitation, if a title problem is discovered, a writ of execution is found, an encroachment revealed, an easement is claimed, mortgage conditions are not satisfied or a closing needs to be extended.”
The problem is, none of those issues can be identified at the outset so when fees are quoted as “all inclusive” and then the transaction becomes more complex, the fees have to increase, says Merredith MacLennan, FOLA’s real estate committee chairwoman.
“We don’t want members of the public to be confused,” she says.
Additional legal fees are charged as a result of certain complexities not known at the outset, or because certain disbursements were not included in the fee quote in the first place, MacLennan adds.
She says she is unaware of any Law Society rules around all-inclusive fees and the advertising of them.
FOLA has submitted its concerns about these practices in real estate transactions and a corollary issue that deals with the definition of disbursements to the Working Group on Lawyers and Real Estate.
LSUC benchers are expected to debate the issue in the coming weeks.
The federation says fixed, or block fee quotes, in real estate (excluding disbursements) are standard for residential transactions and are far more common than all-inclusive fees.
“Most block fee quotes are for residential transactions of ordinary complexity with one mortgage. With such a quote, there is some expectation by the consumer that the fees will be higher if any out-of-the-ordinary complexities arise or if there are additional mortgages involved,” FOLA writes in its submission to the working group.
With all-inclusive fee quotes, the consumer is expecting to pay only the quoted amount, and no more, FOLA says.
MacLennan also says without a definition for disbursements, there is inconsistency around lawyer fees associated with them.
FOLA’s position is that disbursements need to be defined for lawyers so members of the public can adequately compare fee quotes.
“This cannot be done if what is treated as overhead by one lawyer is charged as a disbursement by another lawyer,” FOLA writes in its working group submission.
“At a minimum, disbursements should be defined to exclude overhead or costs not actually incurred."
MacLennan explains that if lawyers provide fee quotes for real estate transactions, many generally quote the amount they keep as their compensation, plus estimated disbursements (which are out-of-pocket expenses that are passed on to the client), plus HST.
“Land Transfer Tax is also payable to the province and is based on the purchase price. The disbursements should be the same from lawyer to lawyer, assuming that they will each be conducting all necessary due diligence,” she says.
MacLennan says it’s crucial that the public knows what they are getting for the fees they are paying.
“It’s important the public gets to see what services they are getting for what price.”
MacLennan says her philosophy has always been that “the best deal is not always the cheapest," and she urges consumers to shop around.
She says consumers should be asking their lawyers:
- what is included in the fee quote;
- is a title insurance premium included;
- will the lawyer be conducting a full search of title and pre-clearing writ filings with the sheriff's office (if not, and anyone with a similar name has a writ, there could be issues or delays on closing); and
- will the lawyer be meeting with the client and be available for questions before or after closing, or will it be the lawyer's staff?
“You want to ensure that your lawyer is experienced in residential real estate transactions and that you know what is included in a quote or estimate of legal fees and disbursements,” MacLennan says. “It's good to obtain several quotes, but if there is a big variation between fee quotes, you should ask some further questions to find out why.”