Michael Ford (post until Oct. 31/19)
Civil Litigation

Legal malpractice in real estate transactions – not a simple matter

By Michael Lesage

Recently, in this case, the court addressed the issue of solicitor’s negligence (legal malpractice) arising out of a real estate transaction. In that case, issues arose after the initial owner sought to divide his Mississauga property into two lots, subsequently severing and selling the lot to the purchaser in 2005.

The purchaser, a realtor and real estate investor, retained a lawyer to close the transaction on his behalf. Through oversight, the lawyer failed to notice that title for both lots was transferred to the purchaser (i.e. he obtained title to both lots, including the one owned by the initial owner). As a result, the purchaser was taxed upon the full value of the undivided property (i.e. as the owner of a 100’ lot rather than a 50’ lot).

The purchaser subsequently complained about this to the Municipal Property Assessment Corporation, and when that proved unsuccessful, (and years later) retained the lawyer to bring an application with the court, seeking to return half of the property to the initial owner and for reimbursement of property taxes paid by the purchaser in error. All issues in the application were resolved, other than the purchaser’s claim against the lawyer for damages, which is discussed in this post.

In addressing whether the lawyer breached the Standard of Care, the court held that:

“[The lawyer’s] duty to the [purchasers] was to ensure that they received good, marketable title to the property that they had purchased. He would have been aware that the property had been subdivided. As a result, he breached the duty of care to his clients.”

Unfortunately, the purchaser apparently took a ‘kitchen sink’ approach to damages, claiming entitlement to a refund of the fees paid to the lawyer associated with the purchase of the property, costs of the application related to the initial owners (including additional fees charged by the lawyer), speculative business and investment losses, (arising from hypothetical future leveraged real estate transactions), extra carrying costs, interest on the overpayment of property taxes, along with significant personal injury damages for aggravation and mental distress.

However, the only testimony elicited at trial was from the purchaser, his expert witness and the defendant. Ultimately, the expert witnesses’ evidence was ruled inadmissible, and the court referred to the purchaser’s evidence as lacking. Not surprisingly, he enjoyed little success.

With regard to his claim for a refund of fees paid to the lawyer in connection with his purchase of the property, the court noted that it appeared to have been abandoned. While not expressly stated, such fees would have been incurred in any event, meaning that to put the purchaser in the position he would have otherwise been, it would be more appropriate to look at additional fees incurred as a result, i.e. foreseeable losses.

Next, the purchaser retained a charted business valuator to opine on what he could have done with money, had he been able to sell the property in 2009 (which he was not able to do at the time, though the court found was this to be the result of his asking price being several hundred thousand dollars above the appraised property value, rather than as a result of any title issues).

The chartered business valuator provided an opinion that the resulting losses were $390,000, based on what could have been earned purchasing other properties. However, most of the information used by the chartered business valuator was provided to him by the purchaser and was not verified (such that the court held he was essentially just engaging in arithmetical calculations based upon evidence provided to him by the purchaser).

Additionally, the purchaser was unable to substantiate his claim (having no documentation showing an intent to purchase, and having refused to provide his financial information at discoveries). As a result, the court held that this proferred evidence failed to meet the basic requirements for admissibility (which are typically very low).

The purchaser enjoyed some success in his claim for transactional costs, namely, judgment for the $5,000 he had paid to the lawyer in 2010 to correct the error. However, the majority of his other claims in this regard were either costs (i.e. properly submitted during costs submissions, rather than as legal damages), or were again, not properly substantiated.

Additionally, the purchaser claimed damages for additional carrying costs, as he had purchased a new home prior to resolving all of the issues with title. However, as he had known about those issues since the year of purchase, the court found they were not foreseeable, and in any event, could not succeed because of the delay in raising the issues (implicitly relying upon the Limitations Act).

Next, the purchaser claimed damages relating to interest for the overpayment in property taxes. This claim was also dismissed due to delay. Additionally, the purchaser also failed to substantiate his claim, to show how the taxes were ultimately divided with the initial owner and had not pursued such damages from him in any event.

Finally, the purchaser claimed significant personal injury damages for aggravation and mental distress. In this regard, the purchaser testified that the transaction caused uncertainty, a loss of hope and a loss of confidence, resulting in a host of health problems. However, no testimony was provided by any medical professionals in this regard, which resulted in the court concluding that:

“there is no evidence before me as to the nature or extent of any medical conditions that any of the [purchasers] suffered from. In addition, there is no evidence, other than [the purchaser’s] viva voce testimony that these conditions (if they exist) are related in any way to the mistake on the title for [the address].”

The above case clearly demonstrates that not every mistake made by a lawyer results in a viable legal malpractice claim, and provides a caution against plaintiffs who try to overreach. Likewise, it serves as a reminder that the burden rests with the plaintiff to prove damages, and that care and attention must be spent in this regard.

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