Lawyer’s Approval: What Clause to Use?

You have already decided to include in an Offer “subject to lawyer’s approval”, but what particular clause do you want?

Case law seems to suggest that in Ontario, a general clause would not only permit a lawyer to embark upon the review of the business terms, but require such a review. Otherwise, the failure to do so could constitute solicitor’s negligence.

There are several different types of clauses for lawyer’s approval:

1)     general,

2)     specific, restrictive, legal terms only,

3)     specific, open, legal and business terms.

So, the first decision to make is what type of lawyer’s approval clause do you really want? The general clause is the one in most common usage and it can be adapted for either the buyer or the seller.

1) General

Here is what the general clause might look like in full:

“This Offer is conditional upon the approval of the terms hereof by the Buyer’s Solicitor. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than _____ p.m. on the _____ day of __________, 20_____, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.”

This same clause could easily be modified to protect the Seller.

The operative part of this clause in terms of its application and meaning is the first sentence, namely:

“This Offer is conditional upon the approval of the terms hereof by the Buyer’s Solicitor.

2) Specific, Restrictive, Legal Terms Only

An example of this type of clause would include this sentence at the outset:

“This Offer is conditional upon the approval of the agreement by the Buyer’s Solicitor as to form and content provided such approval is restricted to the legal terms, terminology and phraseology of the agreement including the legal liability of the Buyer, but does not extend to approval of the business terms, including the financial terms and time periods set out therein.”

Naturally, this sentence could be made even more restrictive depending upon the requirements.

However, a common limitation is “approval as to form and content”, without any further words. Although better than the general wording it is not, in my view, quite clear enough. A few more words might just nail it home.

3) Specific, Open, Legal and Business Terms

This clause might commence with a sentence that reads something like the following:

“This Offer is conditional upon the approval of the agreement between the parties by the Buyer’s Solicitor including both the legal terms and the business terms, more particularly the financial terms, time periods, liabilities arising out of this agreement, and any other agreement, undertaking or liability that might arise by reason of the Buyer having entered into this agreement.”

This latter clause should be selected where the solicitor is indeed to review the entire transaction together with its implications for the Buyer.

The reason that we might need this clause is that the Ontario Court of Appeal has yet to consider such a case, and if it followed a narrow interpretation that has been chosen in some jurisdictions, the general wording might be construed to mean “legal terms” only. We just don’t know at this point in time.

You will also appreciate that there are some issues that we haven’t considered including, good faith, proof, evidence, and communication of non-approval. It would be wise to deal with those issues as well in an agreement.

Brian Madigan LL.B., Broker

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