Electronic Title Registration Practice Issues

  1. Topic #1: The DRA and Closing
  2. Topic #2: Security Concerns re: PSP Discs and Passphrases
  3. Topic #3: Obligation to Automate
  4. Topic #4: Compliance with Law Statements
  1. Topic #1: The DRA and Closing

    Both sides of the purchase and sale transaction have signed the DRA as approved by the Joint Committee. Documents and keys have been exchanged. The transfer has been signed for completeness by both sides and released for registration by the vendor, but it has not actually been registered yet.

    1. The purchasers' lawyer gets a phone call from the purchasers saying that they have now realized that they paid too much for the house and do not want to close. They want their money back. What should the respective lawyers do?

    Discussion:

    • The purchaser's lawyer should:
      • confirm with the clients verbally and in writing that (i) this is not a valid reason to refuse to close under the Agreement of Purchase and Sale, and (ii) they will lose their deposit and may well be sued for additional damages if the vendor cannot re-sell the property for the equivalent amount;
      • send a written demand to the vendor's lawyer (in advance of the permitted release time under the DRA) for the return of their money and documents; and
      • advise the lender that the deal will not close and that the mortgage funds will be returned.
    • The vendor's lawyer is obligated under the DRA to return the money.
      • Query whether the vendor's lawyer should seek instructions from the selling client as to whether the client wishes to comply with the DRA, or immediately start an action and pay the money into Court. As the DRA is an undertaking of the law firms, albeit made on the client's instructions, it appears appropriate for the vendor's lawyer to take the position that he/she must return the money and then (if necessary) deal with any allegations that the client might make about the lawyer's authority to give the undertaking.
      • Note that the Acknowledgment and Direction (printed from the electronic registration system on a "per document" basis) should already have been signed by the client at this point in the deal; the Acknowledgment includes the client's instructions to close in accordance with the DRA (a copy of which should be attached).
    • The vendor's lawyer should confirm in the letter returning the funds that the purchaser's lawyer never advised of any deficiencies in the vendor's deliveries under the DRA, and that the vendor is still insisting on closing the transaction. 
    • (b) Although the transaction is otherwise ready to close, the vendors' lawyer receives a phone call from his/her clients saying that they just learned that the purchaser's last deposit cheque bounced. The vendors still want to close when the purchaser provides the missing funds. What should the vendors' lawyer do?

    Discussion:

    • The vendors' lawyer should:
      • immediately go into the electronic registration system and remove the completeness signature from the document, so it cannot be registered pending communications with the other side (note that making a change to the document will remove all approvals from it); and
      • subject to the clients' instructions, send an immediate written communication to the purchaser's lawyer (i) advising of the default under the Agreement of Purchase and Sale, (ii) demanding production of a bank draft or certified cheque to replace the missing deposit, and (iii) setting a new date for closing within a reasonable timeframe.
      (c) Assume that in the above scenario, the vendor's lawyer did not remove the completeness signature from the document (or otherwise electronically block its registration). The purchaser's lawyer had left for lunch, instructing the law clerk to register the transfer and notify the other side. The law clerk registers the transfer and then finds the fax from the other side (which had been sitting on the fax machine at the time of registration), saying "do not register".

    Discussion:

    • In that situation, the purchaser's law firm would appear to have breached the DRA.
    • The DRA requires that notice be given to the registering solicitor. The staff would be running the office as his/her agents during the period of absence.
    • Consider methods of encumbering title to protect the vendor's lien for unpaid purchase money.
    • Any lawyer involved in this situation should consider and fulfill any obligation to report a potential claim, if any, to LPIC under the Rules of Professional Conduct. (e) What if the law clerk in the above question had personally received a phone call, saying not to register, and still proceeded to register?

    Discussion:

    • There is no requirement under the DRA that the notice be in writing.
    • Once again, although it is not being given directly to the registering solicitor, one expects a Court would regard the staff as agents of the lawyer for notice purposes.

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  2. Topic #2: Security Concerns re: PSP Discs and Passphrases

    (a) The market for legal staff is currently volatile and your firm is experiencing high turnover. It costs money to obtain a Personal Security Pass for each new staff member. One of your partners suggests getting one pass for all the real estate clerks to share.

    Discussion: 

    • This is clearly forbidden under the Teraview Personal Security Licence Application.
    • It is also in contravention of subrule 5.01(8) of the Rules of Professional Conduct which provides that lawyers shall ensure that their non-lawyer employees do not permit others to use their personalized specially encrypted diskettes and do not diclose their personalized electronic registration pass phrases to others.
    • From a practical perspective, if any of the clerks undertook improper activities on the system (including spending the law firm's money in the Teraview deposit account without authorization) there would be no way to track the perpetrator.

    (b) Your real estate law clerk of 20 years is retiring, after being the champion of electronic registration at your firm. Do you have any responsibilities other than buying a gift and throwing a party?

    Discussion:

    • You must retrieve the PSP disc from the departing employee and immediately notify Teranet in writing to remove this user from your account.

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  3. Topic #3: Obligation to Automate

    As a newly called practitioner in an "automated" part of the province, you find yourself on a tight budget and query whether your real estate practice actually needs access to electronic registration.

    (a) Should you just go to the Land Registry Office and have the staff there create your registrations?

    Discussion:

    • It may be a lengthy process at the counter. The "walk-in" registration process will be increasingly geared to occasional consumer registrations.
    • The Final Report of the LSUC-OBA Joint Committee stated that lawyers cannot rely on attending at the Land Registry Office to prepare and register documents in an electronic format. This is not an alternative to properly outfitting the lawyer's office with the necessary hardware and software. (b) Should you rely on the lawyer on the other side to do the electronic work on the file?

    Discussion:

    • It is your obligation to equip yourself to practice competently. The Practice Guidelines of the Law Society, in accordance with the suggestions in the Final Report of the LSUC-OBA Joint Committee, noted that a lawyer's failure to automate will result in serious inconvenience to the other lawyer, as well as raising concerns about the unautomated lawyer's ability to fulfill his or her duty to the client.
    • It is most likely that you would have to retain someone else to do the electronic part of your file.
    • Even if the other lawyer does the work, the above publications provide that the unautomated lawyer should compensate the other lawyer for the costs of undertaking this work.
    • Lawyers undertaking electronic registrations on behalf of other lawyers should ensure that the scope and extent of work to be performed is very clearly defined in writing.

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  4. Topic #4: Compliance with Law Statements

    a) You are acting on an estate conveyance where one of your options is to make a Compliance with Law Statement (a "CLS"), as opposed to filing supporting documentation at the Land Registry Office. You cannot decide whether to make the CLS, although you are satisfied as a matter of law that all relevant requirements have been met.

    Discussion:

    • The ability to make a CLS is a significant benefit for the legal profession, which should not be overlooked or treated lightly.
    • Given your confidence in your client's position, you could be jeopardizing your client's interests if you present the actual documentation and a dispute arises with the other side to the transaction, even if it is misdirected as a matter of law or merely tactical.
    • If you are genuinely unsure as to your client's ability to convey a valid title, without any inappropriate encumbrances, you would be well advised to consider retaining counsel for a second opinion, rather than relying on the opinion of the other side or the staff of the Land Registry Office who will not be looking at the transaction just from the perspective of your client.
    • The combined effect of Sub-sections 57(1) and (12) of the Land Titles Act and Sub-section 40(3) of O.Reg. 19/99 is to limit the exposure to third parties (including the Land Titles Assurance Fund) for the lawyer making the statement. The lawyer's liability (if any) for an improperly made CLS should be limited to a claim directly from the client (presumably in negligence, if applicable). The lawyer should, nevertheless, retain the evidence upon which the CLS is based in his or her file. (e) Your client is purchasing a property which in the past was conveyed in a power of sale transaction where a CLS was made. Should you investigate the propriety of the earlier lawyer's use of the CLS?

    Discussion:

    • Assuming the vendor in your transaction appears as the registered owner on the parcel register, there is no reason to query or investigate the past use of a CLS, especially as you would not now (in the paper system) investigate the propriety of the decision of the Land Registrar (based on paper materials) that led to title being transferred on the Land Titles parcel register. (b) Your client is purchasing a property under power of sale, and the lawyer for the lending institution intends to use a CLS. Should you requisition evidence to support the use of the CLS?

    Discussion:

    • There is an argument that the obligation of the purchaser's solicitor is simply to ensure that what will be put before the Land Registrar will be sufficient for him or her to transfer title on the parcel register to the purchaser. For example, the purchasing solicitor should check that the appropriate statements have been selected, in accordance with the legislation, regulations and electronic registration software requirements. This is similar to current use of Planning Act statements. The purchaser's solicitor does not require evidence from the vendor's solicitor that he or she actually made the inquiries of the transferor to determine that the transfer does not contravene the subdivision control rules, or that he or she is an Ontario solicitor in good standing.
    • What happens if the other solicitor made an error and an encumbrancer not properly served under the power of sale proceedings (for example) contacts the Land Registry Office before certification occurs under Sub-section 78(4) of the Land Titles Act? That risk also exists in the current paper system, because there is no standard of practice for solicitors to do more than review the supporting documentation as it will be presented to the Registrar to ensure that it meets registration requirements. Solicitors do not independently verify the truth and accuracy of the contents of the supporting documents.
    • Of course, any adverse knowledge on the part of you or your client would require further inquiry on your part, and may at that point give rise to further inquiries of the vendor.
    • It should be noted that LawPRO has taken the position that there will be no deductible or claims history levy surcharge implications for any lawyer (under the LawPRO policy) who innocently relies on a CLS made by the lawyer on the other side to the transaction. This information is available on LawPRO's website, www.lawpro.ca .

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