An Easy Hack to Avoiding a Lawsuit

As a lawyer, manager of a brokerage and a member of the Real Estate Institute of Canada (REIC) I’m
surrounded by rules of professional conduct and codes of ethics. All of my actions – whether they’re related
to my work or not – are filtered through not only the Law Society’s Rules of Professional Conduct, but also
Real Estate and Business Broker’s Act and REIC’s Code of Ethics. While this seems like quite the process, I
discovered that being ethical just as good as having a lawyer on demand.

How to Develop Your Own Legal Intuition

If you practice ethical behavior consistently – from how you act with your family members to how you treat
your clients and other real estate professionals – you’ll become “lawsuit-proof”. This is because you develop
a very strong intuition around what is ethical and, defacto, what is legal.

How Intuition Works

Intuition, as it turns out, isn’t magic. Rather, it’s our brain quickly spitting out a mass amount of information
we’ve gathered and analyzed through years of repeated actions. An example of this is when you “just knew”
that the deal was going to fall apart or that the buyer wasn’t serious. Your gut instinct is not magic. Rather,
it’s your unconscious brain picking up on numerous cues and these cues trigger a “gut reaction” you’ve had
in the past to those very same cues.

Given how intuition works, it follows that developing a “legal mind” and lawsuit radar can be done through
memorizing the Code and practicing ethical behavior. The problem in doing this, however, is that ethical
behavior isn’t clear cut and memorizing the Code is not an easy or immediate solution. Given these obstacles,
I use Institute of Real Estate Management’s “Five Question Method”. By consistent application of the these 5
questions, I am not only able to clarify and examine ethical issues, but I’m also able to access a “built in
mini-lawyer”. These questions are:

1. Is it illegal?
2. Who is affected by your decision? And how?
3. What are the consequences of the decision?
4. How do you feel about the situation?
5. Have you examined all the alternatives?

If this is even too difficult, then an even simpler question to guide you is: “Would you like to see your action
talked about on the first page of your local newspaper?” If the answer is “no”, it is likely unethical and
possibly a breach of the law.

If it SAYS it’s binding, is it binding?

A version of this (true) story has happened to every real estate veteran. You’ve spent years chasing a client, a landlord, and another year negotiating the offer to lease.  The lease is now in the hands of the lawyers and your hard work is finally about to pay off … if the deal doesn’t die.

Since lawyers do have a reputation for being “deal killers”, you make sure that the parties have agreed to all material terms in the offer. For greater certainty, you further added a clause stating that:

  1. the offer is binding;
  2. the landlord and tenant have 20 days to use their best efforts to execute the lease.; and
  3. the final standard form lease is subject only to “minor non-financial amendments as may reasonably be requested by the Tenant which are acceptable to both parties…”.

You hand over the standard form lease to the lawyers assuming that the deal is bullet proof. But then…

The tenant (okay, the tenant’s lawyer) is unhappy with the standard form lease and makes 106 edits to the lease. You’re not overly concerned because most of the edits are minor and don’t affect the material terms of the binding offer you negotiated. Over a few months of back and forth, you’re relieved to find out at the landlord finally accepts 74 – that’s two thirds – of the edits. You’re sure the deal will close. After all, you have a binding offer and the parties have already agreed to the “important stuff” during the offer stage.  However, despite all of this, the tenant refuses to sign the edited lease and walks away from the deal. Can your client – the landlord – save this deal by suing the tenant for breach of the binding offer to lease?

When “NOT BINDING” Isn’t Good Enough

The court would agree that the tenant is in breach of the offer if the remaining 32 edits were minor and immaterial issues and if all of the material matters had been decided. If the 32 edits, or some portion thereof, however, touched upon substantive issues (i.e. material terms) then the landlord (and your commission) is in trouble.  In other words, despite the fact that the offer is binding and that material terms were discussed, if new material issues pop up then the landlord cannot insist that the tenant sign the lease and the landlord cannot sue for breach of contract.

How Can I Protect my Deal?

 To get a deal over the “goal post”, ensure you’ve negotiated all materials terms in the offer stage. To understand what is material, investigate the nature of the tenant’s business, as well as the landlord’s intentions with the property.  Even if you’re acting for the landlord, insist that all parties review the standard lease during the offer negotiations. Taking these steps ensures and protects you from any surprise material issues from popping up and ruining your supposed binding offer.  While this sounds like a lot of work, it’ll certainly be worth it when you hand over the offer to the lawyers knowing that it’s “lawyer proof”.