EXECUTIVE SUMMARY. 8. Moreover, real estate ownership and transactions are affected not only by the state of

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1 EXECUTIVE SUMMARY 1. Because of the historical manner in which the land registration systems developed in Ontario, and because virtually all transactions relating to land are based on a contract between two parties, lawyers have been central to the completion of the transaction and the giving of an opinion regarding title. 2. Buyers, sellers, lenders and borrowers have traditionally delegated to their lawyers most of the tasks of completing a real estate transaction for them. Lawyers assume responsibility for ensuring that the transaction is completed according to the agreement of purchase and sale or mortgage commitment and in addition, in accordance with the practical requirements or needs of the client. Lawyers have essentially become the "quarterback" of the real estate transaction. 3. The creation of a lawyer-client relationship involves obligations that extend beyond the lawyer's completion of technical or mechanical tasks for a client. Subject to the Rules of Professional Conduct, a lawyer must act in the best interests of the client. The lawyer's role in a real estate transaction is not simply to deliver an opinion of good title but to protect all of title client's rights and to act not only as a technician, but as a counsellor/advisor and fiduciary. 4. Traditionally, the real estate lawyer's primary focus was to provide an opinion regarding title consistent with the terms of the agreement of purchase and sale or mortgage commitment. However, agreements of purchase and sale and mortgage commitments contain rights and obligations that involve much more than the issue of good title. These rights and obligations should be protected by lawyers. For example, government regulation of land use is pervasive; real estate contract law continues to develop and change and affects parties' rights. The duties of purchasers, vendors and lenders continue to evolve. Lawyers appreciate that they are responsible for the protection of a client's rights under a contract interpreted in an environment of changing laws, and that their duties are not limited to assuring good title. 5. Lawyers have continued to be involved in giving title opinions in Ontario because of the need to establish and confirm a chain of title for lands in the Registry system and to ensure priority of registration, to appreciate the operation of the Land Titles system and the exceptions to the certification of tide provided by it and also to investigate title issues not recorded in either system. 6. Land Registration reform, the POLARIS project of the Government of Ontario, the computerization of titles in Ontario, and the conversion of Registry system lands to the Land Titles system are simplifying the task of searching title in order for a lawyer to render a title opinion. The Land Titles Assurance Fund offers compensation arising from errors in recording instruments under the POLARIS system. True title disputes are uncommon and title defects more often relate to documentation, description of land anomalies or technical deficiencies and not from actual claims between competing owners. 7. The title opinion itself, however, does not address any other aspects of the agreements between the purchaser and the vendor or the lender and the borrower. An opinion must be rendered regarding how the land may be used, contractual obligations of the parties, financing issues, the optimum manner of holding title, the accuracy of warranties or representations, or the actual quantity of land involved(a), subject to a survey of the property. 8. Moreover, real estate ownership and transactions are affected not only by the state of

2 title but also by the extent to which the use of land is regulated by government. Planning legislation governs the use, development, density, amenities and siting of improvements on land. Conservation regulation, heritage conservation, highway access, rent control and rental housing protection, landlord and tenant law, subdivision control, and environmental regulation are examples of the extent to which the use of land can be limited by government regulation and which can affect the value of land and the rights of parties to an agreement. 9. The lawyer, as quarterback of the transaction and as a fiduciary, must disclose all risks and all material information to a client and assist the client in determining that all obligations and rights contained in the agreement have been satisfied. The lawyer assesses the terms of the agreement, takes charge of the transaction, guides it to completion and advises the client of risks and responsibilities that flow from the agreement itself. The lawyer evaluates degrees of risk associated with the transaction, understands real estate ownership, advises about the agreement of purchase and sale or mortgage commitment, advises about survey, undertakes numerous offtitle inquiries relating to potential unregistered liens, rights, compliances, or charges, advises about title and the results of all property inquiries, advises about the manner of being named as owner, advises about rights and obligations as borrower or lender, advises when there is a dispute or problem and how to proceed, and advises about other types of property ownership. Lawyers have become the custodians of the Land Registry systems in Ontario. Their opinions on title depend on vigilance in the recording of interests in land. The diligence of lawyers in the use of the system has resulted in a system that is by and large reliable and dependable. The cumulative care of lawyers as givers of title opinions has probably facilitated the conversion of land to the Land Titles system and the computerization of records. At the same time, lawyers in their role as counsellor, advisor and fiduciary protect their clients' other rights contained in the contracts of purchase, sale or mortgage which are the foundation of every real estate transaction. 11. The Land Titles system assures title to the named owner of property subject to several exceptions. In the Registry system, a bona fide purchaser for value without notice is protected from many of the supposed gaps found in the traditional American title search. Computerization and the conversion of lands to Land Titles will make title searching, relying on the system and providing opinions, simpler and more free of risk. 12. Title insurance may be described as an agreement to indemnify a specific named insured up to a specific amount regarding a specific interest in a specific property for losses arising from specified causes. It is a legal contract with carefully crafted definitions, terms and exceptions. Title policies can vary from one insurer to another, from jurisdiction to jurisdiction and may depend on whether the insured is an owner or a lender. Owners' policies often exclude coverage for zoning, building restrictions, gifts, possessory claims not disclosed on registered title, taxes,1 or environmental issues. Coverage for lenders may have fewer exceptions, but the value of the mortgage and of the policy is only a percentage of the value of the property. The risk to the insurer is a calculated one given the nature of the expanded terms of coverage and the limited financial interest of the lender in the property. 13. Title insurance emerged in the United States for a variety of reasons, including the inconsistent and incomplete Land Registry systems in many parts of the country, the absence of mandatory insurance coverage for lawyers, the willingness to insure over and thereby ignore title problems, and the broader experience of insurers over lawyers. 14. When purchasing title insurance, professional assistance is advisable in assessing the

3 extent of coverage required, negotiating the premium, properly naming the insured and describing the insured property, whether survey issues should be examined, the face amount of the policy, what endorsements are appropriate for added coverage and at what cost, the financial soundness of the insurer, and the reputation of the insurer in denying coverage or disputing claims with its own insureds. 15. In Ontario, lawyers have mandatory insurance for professional liability and are held to a high standard of care established by the Law Society of Upper Canada and by our judicial system. The responsibility and liability of the lawyer extends far beyond financial or title matters. The Land Registry systems in Ontario are generally wellorganized and reliable and in the vast majority of cases accurately reflect registered title. Titles in Ontario have been maintained properly, in large part, due to the duty of care required by lawyers to verify good title in the course of satisfying their professional and fiduciary responsibilities to their clients. Uncompensated losses by members of the public are virtually unknown. 16. A lawyer's duty is to ensure that the client obtains possession with good title and in accordance with the terms of an agreement of purchase and sale or mortgage commitment. A title insurer does not guarantee possession or good title or ensure that a transaction is completed properly but instead, assesses risk and the exposure it may have in the event that a claim is made under its insurance policy. A consumer acquires an insurable title and not necessarily good title or a completed transaction. 17. Insurable title can permit the perpetuation of title defects and the contravention of Ontario or local laws. Good title and satisfaction of all other terms of an agreement of purchase and sale require marketable title and in most cases, compliance with all laws applicable to the land. 18. At present, a title insurance policy cannot be issued in Ontario without a title opinion delivered by a lawyer who is not an employee of the insurer. Regulation 666 of the Ontario Insurance Act virtually requires the use of a lawyer by a consumer who is considering the use of title insurance. Reg. 666, therefore, ensures that the assessment of title is governed by the standards and duty of care established by the Rules of Professional Conduct, by the courts and by the Law Society of Upper Canada and not by the private assessment of risk and exposure of an insurance company. 19. The lawyer's duty of care in providing a title opinion ensures that real estate transactions continue to be recorded in the Land Registry systems and that title problems are canvassed with clients and usually resolved. Title problems are typically not ignored or 'Insured over. 20. The consequences of eliminating the requirement of a lawyer's opinion for title policies may be far-reaching. The title opinion will no longer be governed by the high professional standard of care and fiduciary obligation applicable to lawyers but by the internal requirements of title insurers which could have implications for the long-term status of titles in Ontario. The insurability of title and not good title may become the applicable standard, thereby diminishing the clients' rights to good title under their agreements. The public will not then receive the high level of protection (in terms of a standard of care, professional duties, fiduciary responsibilities and liability protection) that a lawyer currently brings to the transaction. The perception may develop that a title policy protects all interests of an owner or lender and is all that is required to complete a transaction. There will be no quarterback for the transaction. Costs of completing a transaction may be increased by title insurance with no appreciable increase in protection.

4 21. The public of Ontario has been well-served by the current system of conveyancing and the interaction of parties and professionals involved. The integrity and reliability of the title system has been maintained and at the same time, clients' other rights and obligations have been protected. Why change the system? Any change that eliminates lawyers from giving title opinions must be carefully examined and new legal structures created to address the implications. The present system operates with minimal public or government intervention because of the framework of duties and obligations within which the lawyer functions. If the title and non-title aspects of a real estate transaction are removed from that framework, a statutory, government monitored system will have to be created to replace all of the current protections. INTRODUCTION This paper has been commissioned for the public's information and assistance by the Lawyers' Professional Indemnity Company to understand the role of the Ontario lawyer in real estate conveyancing today and to consider the implications of a title insurance system in Ontario. Any entity, whether an individual, corporation or partnership, wanting to deal with land on its own behalf can legally do so without the intervention of a lawyer. To the extent that the Statute of Frauds2 requires documentation to affect an interest in land, anyone can prepare that 1. documentation. Similarly, if the creation of certain types of interests requires registration in a Government established system, anyone can tender the documentation for registration. For the mechanical aspects of a real estate transaction, a lawyer is not a requirement for the consumer who wants to act on his or her own behalf. Even though people can complete their own real estate transactions, in the course of the twentieth century, most real estate transactions have been guided, conducted, directed, led, handled - "quarterbacked" - by lawyers. From practitioners handling primarily residential real estate transactions for aspiring owner-occupiers to those specializing in land development projects or large commercial financings, it has become the norm to expect a real estate lawyer to be retained for the purchase, sale or mortgaging of a property. For example, many standard form agreements of purchase and sale prepared by local real estate boards have a section for inserting the names of the purchaser's and vendor's lawyers. Real estate agents have standard form letters for sending copies of the agreement to the respective lawyers, often with information Regarding the deposit being held with the agent and the balance, if any, of the commission owing. Typical agreements of purchase and sale authorize tender of documentation upon the parties to the agreement or upon their lawyers. In more recent years, title insurance has become a product available to owners of real estate and lenders relying on it for security. Some lenders are completing transactions for borrowers without involving a lawyer at all in the transaction but relying on title insurance to protect them. Questions have been raised regarding its utility and how it might change the role of lawyers or the manner in which real estate transactions are completed in Ontario.

5 In this paper, we examine the role of the lawyer in real estate conveyancing in Ontario, the emerging issues relating to the lawyer's work in completing a real estate transaction, the role of title insurance in transactions, the limitations of title insurance and the consequences of relying on a title insurance-based system for land transactions in Ontario, and the implications of revoking Regulation 666 of the Ontario Insurance Act. Why have people chosen in the past to retain lawyers and rely on them in their dealings with real property? Are those reasons still valid as the year 2000 approaches? Those questions can only be answered by an examination of the role of the lawyer in real estate conveyancing in Ontario and the emerging issues related to the lawyer's work, and then reviewing the concept of title insurance. REAL ESTATE TRANSACTIONS TODAY: THE ROLE OF THE LAWYER 1.INTRODUCTION In order to evaluate the role of real estate lawyers in the future, it is necessary to appreciate the nature of their work in recent years and as it continues at present. At the very core of every real estate transaction is the contract, the agreement of purchase and sale or the mortgage commitment. Fundamentally, the lawyers job is to ensure that the client's rights and obligations are protected according to the agreement the client has signed. In any purchase and sale transaction, the work of the lawyer will always depend on which parry to the transaction the lawyer represents, because the interests of the two parties (vendor and purchaser) vary. The purchaser is looking to the future, anxious to ensure that title to the land will be good, that the property is as represented, and that the future use will be as anticipated. The vendor looks to the day of closing as an ending, when monies will be obtained in accordance with the purchase price in the agreement of purchase and sale and there will be no further obligations relating to that property or its new owner. In a loan transaction, the lender wants to ensure that the security interest is valid and enforceable and meets the lender's lending criteria. The borrower looks to the advance of funds. The work of the purchaser's lawyer is largely directed to ensuring that the purchaser will receive what has been contracted for, that the purchaser will become the legal owner of the property with proper title, and that there are no other legal factors that will adversely affect the purchaser's future ownership and use of the property. Although both parties are normally bound by an enforceable agreement of purchase and sale, it is in the purchaser's interest to push the boundaries of the vendor's obligations, now and in the future, as much as possible. It is the role of the vendor's lawyer to ensure that the vendor is only required to comply with the contract, and no more, in return for delivery of the purchase monies. 2. FUNDAMENTALS OF THE LAWYER'S ROLE Real estate lawyers pursue the interests of their clients by "assuming carriage" of the transaction. Although the stage in any deal at which real estate lawyers become involved can vary, once they are retained, they are normally expected to take control of the transaction.3 According to the guidelines for real estate transactions published by the Law Society of Upper Canada, control of a real estate transaction by a solicitor is considered to be

6 essential to performance of a lawyer's duties to a client.4 The lawyer oversees the general conduct of the file, providing advice and guidance regarding the legal implications of the transaction. Lawyers must remain cognizant of their obligation to obtain advice and guidance from another solicitor with special knowledge and expertise, if required, and ensure that their conduct, and that of any other lawyers or paralegals who work with them on the transaction, is in accordance with Rules of Professional Conduct regarding competency, quality of service, conflict of interest, mortgage lending, and conduct towards other solicitors.5 These requirements relate to the duties and responsibilities of lawyers as outlined in the Rules of Professional Conduct. Rule 16 of the Rules of Professional Conduct addresses the ability of lawyers to delegate some of their tasks to non-lawyers. Some limited delegation is permitted. However, the delegating lawyer remains ultimately responsible for all services rendered and for all the written materials prepared by non-lawyers. Even in situations where legal tasks have been delegated, the lawyer must maintain a direct relationship with the client, and cannot delegate those tasks which may only be fulfilled by a lawyer, involving (a) any special legal knowledge, or (b) the professional and legal judgment of the lawyer. Non-lawyers may only act under the supervision of a member of the Law Society.6 In a real estate context, permissible delegation according to Rule 16 includes attending to routine administrative matters and assisting with more complex transactions. Lawyers are required to review the title search report, review the documents relating to the transaction before they are signed, and review and sign any letters of requisition, title opinions or reporting letters to the client.7 3. OVERVIEW OF THE LAWYER'S TECHNICAL RFSPONSIBILITIES The Professional Standards Checklist: Residential Real Estate Law8 contains a breakdown of the duties to be fulfilled by the lawyer and those which may be fulfilled by non-lawyers. When acting for a purchaser of real estate, the lawyer must be involved in the following steps:9 1. Preliminary consultation, which will include, if applicable (a) advice with respect to the agreement of purchase and sale, financing, bridge financing, insurance, the costs to be incurred in the transaction and the need for a new survey or an up-date of an existing survey, (b) consideration of any restrictions on the property, (c) advice with respect to any counter-offers, (d) ensuring compliance with The Ontario New Home Warranties Plan Act ("ONHWP") with respect to new homes10 and (e) any re-drafting of the agreement of purchase and sale11 2. After the agreement has been executed, it should be reviewed immediately. Advice and assistance should be given with respect to any of the matters outlined above, as well as with respect to the manner of taking title. In our opinion, critical time frames and dates, such as the expiry of conditions and requisition dates, should be diarized and explained to the client, where necessary. 3. In processing the file, a plan of survey should be obtained, and the solicitor or a paralegal should conduct all the required searches on the property with respect to title, executions, local improvements, easements, work orders, deficiency notices, building and zoning restrictions, ONHWP requirements, and other relevant matters. 4. Once the title search has been received, it should be reviewed and checked against

7 the terms in the agreement of purchase and sale and for compliance with section 50 of the Planning Act and assistance should be provided in any necessary applications for severance.12 Any mortgages on title should also be reviewed to determine if the consent of a mortgagee is required for assumption of the mortgage if applicable, and the lawyer should assist in obtaining the required Consent. The survey should also be reviewed to check for encroachments and easements, and then discussed with the client. 5.The letter of requisitions should be drafted incorporating any of the problems arising out of the search, the agreement of purchase and sale, the survey, and any other inquiries, and sent to the vendor's solicitor within the time permitted by the contract. 6. Any correspondence and materials received from the vendor's solicitor should be checked for (a) answers to the requisitions, (b) the appropriate drafting of the transfer/deed, the statement of adjustments, any undertakings, directions, certificates, affidavits or declarations to be delivered on closing, and (c) documents proving compliance with work orders or other matters. Prior to closing, the lawyer should review the file and attend upon the signing of documents with the client. This should include review of (a) the title and other searches, (b) results of any inquiries or requisitions, (c) the survey with respect to encroachments, compliance with municipal by-laws, restrictions, boundaries, the location of buildings and access to the property, (d) the statement of adjustments, (e) the charge/mortgage and/or any charge/mortgage to be assumed or given back. The lawyer should also obtain instructions regarding any extensions or undertakings. 8.A checklist for closing should be prepared, and any conveyancer attending on closing should be briefed on what is required by the lawyer before closing. 9.The closing can be conducted by a paralegal. After closing, a paralegal can also perform most of the required duties,13 with the exception of confirmation of the closing and any additional special aspects of the deal with the purchaser, ensuring that discharges of charge/mortgages were obtained and registered when necessary, and that any undertakings are fulfilled. 10. A reporting letter should be prepared, including a title opinion from the lawyer and a review of the fees to be charged. Many of the detailed administrative matters not specifically referred to above can be undertaken by a paralegal under the supervision of a lawyer. When acting for a vendor of real estate, a solicitor is expected to be involved in the following steps:14 1. Preliminary consultations regarding (a) the role of the real estate agent, (b) the listing agreement, (c) the agreement of purchase and sale, including any re-draft of its terms and preliminary consideration of title issues, if applicable, and (d) whether the Family Law Act15 or income Tax Act 16 impact the transaction Once the agreement of purchase and sale has been executed, reviewing the agreement, listing any conditions and requisitions that need to be fulfilled and making the necessary arrangements to ensure they are fulfilled; giving advice with respect to the manner the purchaser wants to take title and the implications for any charge/mortgage being taken back by the vendor.

8 3. The initial processing of the file, including (a) considering the applicability of section 50 of the Planning Act, (b) drafting the transfer/deed, (c) obtaining mortgage statements and any necessary consents for discharge or assumption of existing mortgages or charges against the property, (d) considering requirements for obtaining consent of a spouse under the Family Law Act, (e) drafting any additional documents required, including charge/mortgage back and mortgagee's statement of good standing, if necessary, (f) obtaining a Certificate of Status on the charge/mortgage given back (if a corporate purchase), and (g) arranging for transfers of any service contracts. 4.Review of the letter of requisitions to ensure they are received within the time permitted by the contract, and review of the file in order to answer any requisitions respecting the contract (title or conveyancing) and any other inquiries made by the purchaser's solicitor; communicating with the purchaser's solicitor regarding any problems with respect to the requisitions; arranging for payment Finalising of mortgages and removal of, or clarification of, the application of any outstanding executions, if necessary; preparing declaration of possession, if necessary; obtaining any necessary certificates and consents; and replying to requisitions and inquiries. 5. Reviewing documents and correspondence from the purchaser's solicitor with respect to directions as to title, any assumption agreements, any undertakings, and requesting amendments where necessary, providing details regarding any executions against the purchaser that are required to be removed prior to closing (if there is a charge/mortgage back). 6. Before closing, arranging for up-to-date searches of executions, preparing a checklist of documents required for the person attending on the closing, and ensuring all necessary certificates of compliance and consents have been received. 7.Prior to closing, the lawyer should review the file and necessary documents with the vendor and have them signed, including the transfer/deed and accompanying affidavits, any undertakings or directions, any necessary declarations under the Income Tax Act, any certificates pursuant to the Land Registration Reform Act18; Discuss the closing procedure and delivery of funds with the vendor, and take any instructions required with respect to extensions of time or further undertakings; and then brief the conveyancer. 8. Most of the actual closing and follow up after closing can be conducted by a paralegal under the supervision of the lawyer, with the exception of ensuring undertakings are fulfilled by the vendor and purchaser, and the final review of the file, including submitting a reporting letter and the account to the client. Other duties and responsibilities when acting for a vendor in a real estate transaction not specifically mentioned above may be performed by a paralegal under the supervision of the vendor's lawyer. If the vendor is taking a mortgage back on the land as part of the payment of the purchase price, additional steps are taken to ensure that the vendor will have a valid mortgage. For example, executions must be searched against the purchaser to ensure that there will be no prior claims as soon as the transfer/deed is registered, and the draft charge/mortgage must. be reviewed.

9 If the transaction involves a condominium purchase and sale, additional searches and other matters must also be addressed.19 Any transaction involving a commercial, rental or business Property carries additional complicating factors. In such situations, it is usually necessary for the lawyer to be even more involved to ensure that all of the client's legal interests are protected. Many of the same issues arise in a mortgage transaction. For the most part, the interests of the lender coincide with those of the purchaser. For instance, lenders want to ensure that the borrower has good title and that there are no prior encumbrances against the property. Lenders are concerned that the property complies with zoning by-laws, that taxes and utilities charges are current and that the property is not subject to work orders or other municipal requirements. If the lawyer is acting for the borrower, the lawyer must be able to answer any concerns the lender has regarding title and prior encumbrances, and ensure that the mortgage documents and the lender's other requirements are in accordance with the loan commitment CLIENTS' PERCEPTIONS OF LAWYER'S ROLE In our opinion, a client rarely looks clinically at the mechanics of a real estate transaction when retaining a lawyer. Rather a client tends to delegate full responsibility for the performance of the agreement of purchase and sale and the completion of the agreement of purchase and sale to the lawyer. To the average client, the lawyer's role and duties are to make sure "everything is legal" and that the deal closes. Beyond obtaining that feeling of comfort, the client does not likely care whether the title search was simple or complicated, the lawyer sent out one inquiry search letter or fifty, or any last minute construction liens appeared on title and had to be cleared. Apart from handling the "legalities", the lawyer (with the help of his or her staff) undertakes many tasks which the client may perceive as equally important. In most residential real estate transactions, the purchaser and vendor deal exclusively with real estate agents until the agreement of purchase and sale is signed. The real estate agents will ask each party the name of his or her lawyer, and the signed agreement will be forwarded to the respective lawyers. From that point until closing, most clients depend on their lawyers for direction and for ensuring that the transaction proceeds to completion properly. Clients look to their layers to advise them about all aspects of the transaction, not only the technical and legal issues referred to above, but also the many practical considerations and issues that arise with the purchase or sale of land, For example, a law firm will often (or in some cases, always): ensure that a purchaser immediately gets in touch with a home inspection service (if such an inspection is provided for in the agreement), making one or more recommendations if asked;. ensure that a purchaser immediately applies for a mortgage loan, once again assisting the purchaser with contacts if required; advise the purchaser early in the transaction regarding anticipated costs (such as Land Transfer Tax, search costs, and registration costs), so the purchaser will have a better appreciation of the monies required for closing; recommend one or more surveyors to a purchaser and often actually place the order for the survey;. advise the vendor to arrange, or arrange directly with the utility, for meter readings on the day of closing and to have the oil tank filled; contact the vendor's existing mortgagees) to determine the balance necessary to

10 discharge any encumbrances; ensure that the purchaser has arranged insurance to take effect as of the day of closing; calculate and receive closing funds from the purchaser and the lender, and ensure that they are available for closing; provide liaison for a "day of closing" inspection, if provided for in the agreement; facilitate the transfer of the keys; and pay the balance of the commission owing to the real estate agents. Lawyers undertake many practical tasks that in theory either (a) knowledgeable clients could look after on their own, or (b) real estate agents or others could handle. However, for reasons which are explained further in this paper, the evolution of the legal and practical aspects of land transactions in Ontario has placed the responsibility for all aspects of such transactions on lawyers. The lawyer assumes responsibility for ensuring that the transaction is completed according to the agreement of purchase and sale and in addition, in accordance with the practical requirements or wishes of the client. The vendor's and purchaser's lawyers are the linchpins among: the vendor the purchaser the listing broker and agent the selling broker and agent the vendor's mortgagee(s) the purchaser's mortgagee(s) the surveyor the home inspector the purchaser's insurance company the land registry office the municipality, and the utility companies. 5. GENERAL RULE OF LAWYERS The lawyer is bound by the Rules of Professional Conduct in carrying out any tasks that he or she undertakes for the client, whether "legal" in the narrow sense or not. Notwithstanding the client's instructions, the lawyer must act in a manner consistent with professional standards. For example, the lawyer must: act with integrity;21 be conscientious, diligent and efficient;22 seek advice from experts in other fields, when needed;23 keep the client reasonably informed, including responding to requests for information;24 maintain office staff and facilities adequate for the lawyer's practice;'s25 avoid self-induced disability which interferes with client service;26 be honest and candid;(27) advise the client promptly when a mistake has been made and recommend independent legal advice;28 hold information received from the client in confidence ;29 disclose any conflicting interest;30

11 not stop acting for the client except for good cause and upon appropriate notice.31 The lawyer also has express obligations when dealing with financial matters for the client. The Rules of Professional Conduct cover: the duty to preserve and exercise safekeeping over a client's property entrusted to the lawyer;32 the narrow circumstances in which a lawyer may borrow from a client;33.and the principles governing fees and disbursements.34 There are also extensive rules regarding the handling of client monies in Reg , under the Law Society Act. 36 Any of the above duties may be enforced by disciplinary proceedings under the Law Society Act, which may result in the suspension or disbarment of the offending lawyer. Furthermore, many of the lawyer's obligations fall within the scope of the "fiduciary duties" which the lawyer owes to each client.37 Breach of a fiduciary duty may be pursued by a client in the Courts, and there is no obligation to prove negligence. Once the breach of fiduciary duty is proven, a variety of remedies is available.38 In summary, the real estate lawyer has at least three roles in every real estate transaction: conveyancing technician, general counsellor and advisor, and fiduciary. In our view there is extensive protection for the client relying on the work of the lawyer and his or her staff. The lawyer is held to high standards by (a) the Rules of Professional Conduct, (b) the standard of care that has evolved over time, and (c) equitable fiduciary principles. These are overseen by both the Law Society of Upper Canada and the Courts. HISTORICAL ROLE OF SOLICITOR IN CONVEYANCING In our opinion, the most important duty of the real estate lawyer in past centuries was to ensure that the appropriate property interest in land was transferred or created as the result of the pending transaction. This focus was necessary because systems for transferring and documenting interests in land were less sophisticated in England and early Ontario (or its predecessor, Upper Canada) in the early years of land transfer systems. However, the process of completing land transactions has changed dramatically since Ontario was populated and land was granted by the Crown in the 19th century, and the focus has shifted. Land transactions are typically the subject of an agreement of purchase and sale or mortgage commitment containing obligations and rights that extend far beyond the issue of good title. Government regulation of land use is pervasive and affects every property in Ontario. Real estate contract law that includes the rights and obligations of the parties to agreements continues to develop and change. The duties of purchasers, vendors and lenders to one another continues to evolve. Lawyers appreciate that they are responsible for the protection of a client's rights under a contract interpreted in an environment of changing laws and that their duties are not limited to assuring good title. At the same time, the system of examining and opining on title has become simplified and

12 more exact. Ontario's geographical recording system and the expansion of Land Titles (and the conversion of lands to that system) are making the title opinion a smaller component of the time necessary to ensure completion of an agreement. Good title is not the only precondition to a closing. Clients' rights under an agreement depend on more than the delivery of good title. Moreover, our land registry systems have developed to a level of sophistication that the state of title does not constitute an area giving rise to substantial risk or exposure to the property owner or lender. The development of that system and the protection for land owners is described on the following pages. 1. HISTORY OF LAND TRANSFER IN ENGLAND The system of land ownership and transfer in Ontario was initially based on the system of land ownership and transfer that existed in England. The basis of all English land law is that the land is presumed to be ultimately owned by the Crown, and the landholders are either direct or indirect tenants of the Crown. From 1645 until 1926, land ownership and transfer consisted primarily of two systems: the freehold system and the copyhold system. A transfer of land under the freehold system involved a conveyance of land in fee simple (subject only to the Crown's ultimate ownership). Record-keeping was essentially a private system and the relevant documents for establishing title were ordinarily held by the current owner of the land (rather than a government official). As of the mid-1800s, proof of title was facilitated by the use of an abstract containing a summary of documents and events relevant to the vendor's title. The purchaser was given a certain period of time after delivery of the abstract by the vendor to examine it and make objections and requisitions. Part of this process involved the examination either by the solicitor or the purchaser of the original deeds or documents listed in the abstract. Examination of the abstract itself was also usually done by a conveyancing lawyer, pursuant to instructions from the purchaser's solicitor.39 Under the copyhold system (which involved the distribution of land holdings still based on the old feudal system), the land v6-as considered to be held according to the "custom of the manor", and transfers also had to be conducted within that custom. Under the copyhold system, tracing interests in the land A-as somewhat easier because the books of the manor contained a record of the land transactions and operated like a register of title.40 Aside from the record-keeping in the copyhold system, there was little registration of transfers or other interests in land. Although some legislation was passed in the mid to late 1800's requiring registration of actions relating to land, annuities and rent charges, registration did not become a fundamental part of the system of land conveyancing in England until passage of the Land Charges Act, 1925 which made a large number of important interests in land registrable.41 HISTORY OF LAND TRANSFER IN ONTARIO (a)current Land Regis-tration!Transfer Systems Two land registry systems exist in Ontario to facilitate the recording and transfer of interests in land. The Registry system, which became entrenched in most of southern Ontario and parts of northern Ontario, was introduced first into the province. It developed from earlier English land ownership and transfer systems.

13 The Land Titles system developed later and was introduced first in northern Ontario. It takes the form of an absolute register of title, and introduced a means of registering interests in land distinct from the development of the Registry system. It is closer in character to a later model of land registration and transfer developed in England under the Land Transfer Act, (b) Historical Roots of Ontario's Systems As stated above, conveyancing law in Ontario has developed from English law. Essentially, when the settled land in Canada was divided into Upper and Lower Canada, the legislation of English civil law was introduced into the Province of Upper Canada (Ontario) in However, even though the English system of conveyancing was initially incorporated into the laws of Upper Canada, the Ontario law subsequently evolved apart from English law due to different circumstances affecting the transfer of property in Ontario. First, vendor's abstracts were not used as much in Ontario as in England. This system of conveyancing was quite complex, and it has been suggested that the low value of much of the :gad in Ontario meant that use of such a complex system was not often warranted.44 Second, the development of the Registry system (discussed further below) reduced the need for vendor's abstracts.45 Third, by 1865, most of the settled areas of Ontario had been surveyed into townships, road allowances, concessions and lots which made it easy to introduce the geographical (or tract based) index implemented under the Registry Act. This encouraged the development of a central government registry, instead of the privately-run conveyancing system which relied heavily on vendor's abstracts, as then existed in England. The land ownership and transfer system in Ontario developed along the lines of the English freehold system. Essentially, a fee simple would be created by Crown grant. Once the Crown had granted the land to a purchaser, the purchaser was free to alienate the land through a subsequent transfer.46 Transfers occurred usually by way of bargain and sale, which were required to be in writing.47 (c) (i) Land Registry System Background The first government regulation of land transfers in Ontario came in the form of the Registry Act.48 Under that Act, the system of indexing land transactions consisted of an alphabetical calendar of all townships and parishes within which land instruments were recorded in "registers" (also known as copy books). Most of those instruments consisted of "memorials", which were more akin to a notice of ownership or an interest in land than registration of the actual title documents. The person who owned the land, or held an interest in it, retained the documents evidencing the interest in the land and its nature.49 The impact of this Registry system was also limited because registration was not compulsory, and the legislation did not provide that the registry or the memorials should be shown to persons wishing to make a search of them.50 Since the title documents to land were still held by the owner under this system, it was necessary for purchasers of land to engage the services of a lawyer to examine the title deeds, compare them to the abstract: of interest provided by the owner and the memorials, and provide an opinion regarding the validity of the owner's claim to title or an interest in the land being transferred.

14 In 1865, the Registry system was significantly revised.51 The instruments were registered on a geographical basis, rather than an alphabetical basis. Notice filing was discontinued; duplicates of the original documents were required to be registered and were transcribed at length in the Registry books.52 However, the original deeds and title documents were not required to be deposited in the Registry offices until passage of The Custody of Titles Deeds Acts53 Despite these new Registry requirements, solicitors were still employed primarily to search title, in order to ensure that title to the property being sold had a "good root". "Good root" was considered to be (a) the original Crown grant, or (b) a quieting of title under the Quieting Titles Act. At a minimum it was the practice to search 60 years back from the date of the transaction. If "good root" was found within that 60 year time period, no further searches were required. However, if there was no Crown grant or quieting of title within that 60 years, then the search would have to go further back to find the "good root" to the title.54 In 1930, legislation establishing the forty year search period under the Registry system became effective.55 Essentially, an owner of land would only have to prove good title going back 40 years from the date of the transaction, and certain claims would be extinguished if they had not been registered within that forty year period. However, this legislation did not diminish the need for solicitors to search title for several reasons. First, the legislation did not affect the interest of the Crown in unpatented land.56 Second, a leasehold interest granted in the land continued to be protected by the original registration even where the term of the lease exceeded forty years; therefore one still required a search back to the Crown grant to ensure no such leaseholds existed.57 Third, it was not clear (a) whether the forty years was expected to contain a "good root" of title, as was required to be found within the time period as under the 60 year practice discussed above, and (b) regarding the approach to be taken with respect to extinguishments of claims against the land.58 Finally, it was necessary to ensure a proper chain of title within the 40 year search period and that any outstanding interests be dealt with. (ii) Present Operation of Registry System 59 The Registry system consists of an inventory of instruments affecting title. In general, any instrument which affects land may be registered against the land, with limited exceptions relating to instruments that in their contents refer to other unregistered interests.60 Records are kept in a number of different "books", including the abstract index, the copy book 61, the by-law index62 and the general register.63 The abstract index contains a list of all instruments registered or deposited against each piece of land, with a concise description of the instrument and the date the instrument was registered. The abstract books are organized on a geographical tract basis. One requests the book affecting the parcel of land one is searching. Sometimes only one property will appear in a book. In other cases, the book will be for an entire lot in a concession (based on the historical surveying of land in Ontario) and the documents in the book may relate to many separately-owned properties. In this latter scenario, re-constructing the "chain" of title can be a more time consuming undertaking.

15 So long as the instruments are in the proper form and affect an interest in land, the instruments may be registered. Under this system, accepting the document for registration does not make the Government responsible for the legal validity or effect of the instruments so registered.64 The value in registering one's transfer/deed (or other document) is that registration constitutes notice to everyone in Ontario of one's interest.65 A bonafide purchaser for value without notice of any other competing interests is entitled to rely on the documents registered as reflecting the true state of title to the land.66 Although the Registry Act does not provide, as a matter of statute law, certification that a given individual owns the property, it does enable the purchaser, who is ignorant of any conflicting interests in the land, to rely on the last transferee as owning the land and to expect a defensible title upon registering a transfer/deed from that person.67 Where land is registered in the Registry system, lawyers for purchasers and lenders continue to undertake forty year searches of the abstract books and registered documents to determine that there is nothing registered that would defeat the client's interest in the property. They also must have regard to the current exceptions relating to unpatented Crown land 68, leases with a term of less than seven years where actual possession goes with the lease 69, certain by-laws70, and the impact of the subdivision control provisions of the Planning Act on the validity of instruments. In 1981, persons aggrieved by virtue of a deletion or an entry, or an error or omission in an entry, on the register under the Registry Act be. =e entitled to compensation from the Land Titles Assurance Fund.71 This applies where the aggrieved individual is unable to recover the loss from any person whose acts caused it, and the claim is made within six years from the time the person discovered the error or should have discovered it.72 (d) Land Titles System Background The Land Titles system of land registration was introduced into Ontario in 1885 with the passage of An Act to simplify Titles and to facilitate the Transfer of Land." It was based on a system used for the transfer of ownership of ships, which was adopted in 1875 for the transfer of land in England and later modified for use in Ontario.74 This system was purely permissive and not meant to replace the Registry system, although land under the Registry system could be transferred to the Land Titles system by means of a "first registration" application. Ownership of the land would be registered on a title record, and the record would be kept up-to date by adding the most recent ownership and encumbrances to the register and deleting any superseded entries. The records would then act as proof of title, so that no searching of previous ownership or reference to the title instruments would be required to establish the title of the current owner.75 Thus, unlike under the Registry Act, there was no need for 60 or 40 year searches in order to find a "good root" of title. Yet transactions involving parcels registered under the Land Titles legislation were subject to certain, specific exceptions to the absolute title granted under the Act. In the 1914 legislation, these exceptions included: provincial and municipal taxes and other duties, charges or rates; easements, rights of way and watercourses; liens (including rights of adverse possession) that had not yet expired under the existing limitation periods; leases with actual occupation and less than three years to run; rights of dower or curtesy; mechanics' liens if the time for registration had not yet expired; rights of