A commonly asked question I get is, My Builder has agreed to pay my legal costs for the purchase of my new home if I use their Lawyer to complete the transaction. I want to save money, but I’ve heard it might not be a good idea to use the same Lawyer because it is a conflict of interest. What does this mean and what should I do?
What is a Conflict of Interest? Although the purchase of your new home might appear to be one transaction it is actually two transactions – the sale of the home to you by your Builder and your purchase of the home from your Builder. A Lawyer who represents both of you has 2 separate clients – you and the Builder and each of you has separate interests. This difference in interest is referred to by Lawyers as a “Conflict of Interest”. The reference to “Conflict” doesn’t mean “Dispute”. It means a situation where the parties have different interests but there is no actual dispute between them.
Can a Lawyer act for the Buyer and the Builder? A Lawyer can act for both of you where there is a “Conflict of Interest” but not where there is a dispute so long as it is in the best interest of you and the Builder to do so. If the Lawyer (after considering a number of factors) considers it to be acceptable to act for both parties, the Lawyer must obtain the consent of the parties and explain the disadvantages and advantages of using the same Lawyer as opposed to using separate Lawyers.
It is your choice to decide to use the same Lawyer as your Builder. Here are some things to consider in making your decision:
Your mortgage lender may not allow you to use the same Lawyer as your Builder.
Your Builder’s Lawyer has done possibly hundreds of transactions for your Builder and is familiar with their process for closing which may make your purchase smoother.
Your Builder’s Lawyer wants to please their main client (the Builder) which means making the Builder’s customer (you) happy too.
Even though you are using the same Lawyer, the Builder’s Lawyer is still also your Lawyer and has obligations to you. The Lawyer is governed by rules that set out what happens if a dispute arises. These same rules also prevent a Lawyer from doing things like taking your money and misrepresenting things to you in order to benefit the Builder.·
If you use the same Lawyer, the Lawyer can share information between you and the Builder, that is, no material information received in connection with the transaction from one party can be treated as confidential so far as any of the other parties are concerned.
It may be cost effective to use the same Lawyer.
Even if you have your own Lawyer, your Lawyer may be limited by the terms of your Agreement with respect to negotiating holdbacks or paying the purchase price. So, if you have issues with items not being completed, your Lawyer may still have to pay the purchase price to the Builder because the Agreement says so.
If a dispute does come up between you and the Builder, it would be difficult for the Lawyer to properly advocate one side of the matter. The Lawyer would have to stop acting for each of you, unless, at the time the dispute develops, all of the parties agree to the Lawyer acting for one of them only. Consent given before the dispute develops is ineffective.
Even if you have your own Lawyer and a dispute arises with your Builder, you may have to get a new Lawyer anyway because there may be issues with your own Lawyer’s role in the transaction.
If your Builder is offering to pay for your legal services if you use the same Lawyer, the choice to use that Lawyer is yours. Do not hesitate to contact that Lawyer to have them explain to you the disadvantages and advantages.
