Banning Incentives for Real Estate Lawyers Doesn’t Serve Public

If a lawyer receives an incentive from a title insurance company for arranging a client's policy, who should get the benefit: the lawyer or the client?

This question is at the core of an investigation now underway by a working group of directors (also known as benchers) of the Law Society of Ontario. This group has been considering practices involving the payment of fees and the offer of benefits by title insurers to real estate lawyers, or their staff.

(Full disclosure: I am a non-voting law society bencher.)

The working group has reported that some lawyers receive fees from title insurers without disclosing them to the client. It has also heard reports of benefits and incentives — such as volume discounts, contest opportunities and gift cards — offered to lawyers and their staff.

The focus of the working group seems to be protecting the public interest because, so the argument goes, the public is paying for these benefits without knowing that the cost is built into the pricing of their title insurance premiums.

For the last 20 years, the law society’s official position has been that a lawyer is entitled to accept fees from a title insurer for services rendered (such as completing the insurance application form), as long as the fees are disclosed to the client.

According to the latest report of the working group, approximately one-third of law firms that handle title-insured real estate transactions and receive fees from a title insurer were found by law society auditors not to have disclosed the fees in writing to their clients.

What is surprising to me is that only one member of the law society’s 11-member working group — which is considering changes to the rules governing title insurance — is a real estate lawyer. In my view, real estate lawyers should form a majority of the group if it is to recommend meaningful changes to the practice of real estate law in Ontario.

The law society is now seeking input from real estate lawyers to find out why lawyers choose particular title insurance companies to insure their residential purchase and mortgage transactions. Also on the society’s agenda is the issue of whether to prohibit lawyers from receiving any benefits at all from title insurers.

In my opinion, the existing rule that requires disclosure and client consent is more than adequate. Lawyers must, however, be reminded of their obligations and the disclosure rule should be enforced.

Each of Ontario’s title insurers provides something that, arguably, is built into the premium being paid for. However, any benefits do need to be disclosed to consumers, who should have the opportunity to consent to the arrangement.

The law society working group is wasting its time. As well, it seems that the law society is not adequately enforcing the existing rule requiring disclosure and client consent. But to ban incentives goes against established real estate relationships and does not advance the public interest.

Top image credit: pe-art

Bob Aaron is Toronto real estate lawyer. His Title Page column appears on this blog, Move Smartly, and in The Toronto Star. You can follow Bob on Twitter @bobaaron2 and at his website 

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