Can We Both Use the Same Lawyer in a Real Estate Transaction?

This question comes up all the time in my Alberta real estate legal practice. I’ll get a call from a buyer or seller, we discuss the details of their purchase or sale and then the question comes up: “This is a simple deal and we want to save some money on legal fees. Can we both use you as our lawyer to close this deal?”

The short answer is maybe, but practically speaking, no. The Law Society of Alberta Code of Conduct actually allows for joint representation in a number of circumstances but the rules surrounding disclosure and the need to make sure all parties understand all aspects of what might happen make joint representation difficult to properly achieve. Here’s why. According to the Law Society of Alberta website:

Lawyers are able to do many things and engage in a wide range of activities in order to meet their particular client’s needs, but they also have ethical obligations and specific obligations to clients. A lawyer’s principal responsibility is to see that each client obtains the benefit of his or her legal rights and is aware of his or her legal obligations. In approaching this duty, lawyers have three fundamental obligations. Lawyers must:

1. serve clients competently;

2. be completely loyal to clients; and

3. keep client communications confidential

Any lawyer who acts for two parties in a real estate transaction has a great chance of being offside of their three fundamental obligations.

To serve clients competently a lawyer must not put any roadblocks in his or her own path. As soon as there are two clients in a real estate transaction, usually a buyer and a seller, there is a chance that something will go wrong. Something will come up in the transaction where the clients, if not fighting, at least have opposite viewpoints. Immediately the lawyer, if he or she is thinking clearly, has a problem. Serving one client competently may put the other client at risk. Every issue on a transaction needs to be looked at from both client perspectives.

The lawyer starts to engage in fuzzy thinking, attempting to balance the rights and issues of the buyer against seller. At this point, the lawyer is thinking to himself or herself, “why did I ever agree to act for both parties? I just cannot do a good job (act competently) for both of them.”

That leads us into point number two, which requires a lawyer to be completely loyal to his or her client. If you think about it, it is impossible to be completely loyal to both a buyer and seller. Completely loyal means that you have a client’s best interests at heart, will advance their interests or position wholeheartedly, and will fend off any competing or adverse party.

Even simple real estate transactions have issues, bumps that need to be sorted out. Settling issues and sorting out bumps usually means that there is an adjustment of some sort between the buyer and seller. Typically those adjustments relate to responsibility for contractual issues and the money that relates to sorting out those contractual issues. As soon as there is a discussion about who should have done what when and why they didn’t, there is a money attachment. A lawyer cannot be completely loyal to both parties when issues have to be sorted out.

Perhaps the most serious impediment to a real estate lawyer acting for a buyer and seller is the duty to keep client communications confidential. If a lawyer hears something from one client that is detrimental to that client’s interest, his or her obligation is to keep that information between lawyer and client. Easy to do when the lawyer is acting for only buyer or seller. But, if that lawyer is acting for both buyer and seller, nothing is confidential. Any information detrimental to one client has to be revealed to the other client.

For example, in acting for both buyer and seller the lawyer hears from the seller that the basement has flooded and that it always floods when there is a big rain. The lawyer is obligated to advise the buyer, who will of course be upset and want either compensation from the seller or perhaps to exit the deal. The lawyer is immediately in a conflict of interest and must cease acting for both parties. Of course, he or she should not have acted for both parties in the first place which takes us back to point number one that the lawyer is supposed to serve his or her clients competently. Just opening a file and agreeing to act for both a buyer and a seller has a good chance of illustrating incompetence on the part of lawyer.

One of the circumstances for a joint retainer as set out in the Code of Conduct is where the lawyer acts for the buyer and a new mortgage lender.

There are still disclosure matters to deal with but the real likelihood of a conflict developing is small. The theory is that the details of a purchase with a new mortgage are well enough known and documented that there is very little chance of a conflict of interest developing. The lawyer never sees the new mortgage until the buyer completes a new mortgage application with the lender, provides the lender with all the diligence material that the lender requires, and then is, finally, approved by the lender. Only at that point does the lawyer see any paperwork from the lender. Any issues between buyer and lender have been sorted out leaving almost no chance that a conflict of interest will develop.

But, even in this relatively standard borrower and lender circumstance, occasionally conflicts do develop. Examples are where a lender prohibits a third-party nontitle beneficial interest and the buyer/borrower reveals that there is such an interest. The lawyer must advise the lender and there is every chance the lender will not approve the transaction. Result? Conflict and the lawyer must withdraw. Another example shows up where a mortgage is approved, a buyer removes their financing condition, and then the lender withdraws their approval. This exposes the buyer to a lawsuit from the seller where the buyer might be blaming the lender. Again, conflict and the lawyer must withdraw.

So, there you have it. Both here in Alberta, and I expect across Canada and throughout the US, lawyers should avoid acting for more than one party in a transaction.

If you need an Edmonton real estate lawyer to represent you when buying and selling property in Alberta, get in touch now. Don’t worry if you don’t both have another lawyer. We can represent one party, and we work with lots of great real estate lawyers that we would be glad to refer you to.

“Money Fight” image by Frits Ahlefeldt-Laurvig (http://hikingartist.com/) used under Creative Commons Attribution-NoDerivs 2.0.