Increasing compensation awards against attorneys negligent in real estate transactions

Recently, we have seen an increase in professional-negligence claims against attorneys handling real estate matters, alongside higher compensation awards to clients. An attorney who departs from professional standards in conducting legal and even financial checks may cause serious harm to clients, third parties and themselves. Such a departure may make the attorney liable for damage caused by their omission. The attorney's central role in these transactions, combined with the trust the parties place in them by virtue of that role, creates a heavy responsibility that cannot be taken lightly. Over the years, courts have expanded attorneys' liability; recently an attorney and their employer were ordered to pay their clients NIS 200,000.
According to attorney Uri Shiloh, a real estate specialist and partner at E. Shiloh & Co., this is not an isolated claim against a real estate attorney. It is not uncommon to encounter attorneys who are unfamiliar with the field and rely on superficial checks without a thorough understanding, falling prey to errors and real estate scams.
The attorney is responsible for preliminary legal investigations, including referring the client to specialists such as a surveyor, engineer, architect or appraiser. These checks aim, among other things, to protect the parties' rights, verify the identities of seller and buyer, examine the legal rights recorded with housing registration companies and the Land Registry, check charges and mortgages, investigate unauthorized construction with planning committees, and establish debts to authorities. Such work takes many hours and sometimes several days, during which the parties may pressure the attorney to accelerate the transaction. Excessive pressure may itself be a warning sign.

An inexperienced attorney who falls below the standard expected of a reasonable practitioner in these checks may endanger clients and even third parties to the transaction.
When drafting the sale agreement, the attorney must also include protective mechanisms minimizing damage that could occur during completion. Most transactions require part of the price to be held in trust to secure tax debts, municipal taxes and similar liabilities. An attorney unfamiliar with tax law may set the deposit too low. If it does not reflect the potential tax and other liabilities, debts may remain unpaid and the transaction may be impossible to complete by registering the buyer's rights.

According to a judgment given in December 2013, a couple retained a law firm to represent them in purchasing an apartment. They made clear that they wished to buy only if additional construction would be possible. Following a Land Registry check, an attorney at the firm prepared the sale agreement, and after obtaining a building permit the couple began work. Soon afterward, they received an injunction and were sued by their neighbors for compensation and restoration of the previous condition. The couple sued the firm, which had not established that the residents approved the extension. The court held that, at the very least, the attorney should have warned them that the extension depended on their neighbors' consent. Because the attorneys had not warned the couple to ascertain whether the neighbors agreed to the additions, they breached their duty of care to their clients. The attorney and employer were ordered to pay the couple NIS 200,000. (Civil Case 20881-06-09).

At the same time, it was held that “not every error of judgment or failure by an attorney constitutes an omission amounting to negligence.”

Courts have held that attorneys owe fiduciary duties and heightened responsibility to clients, requiring skill, professionalism in pursuing their interests and appropriate care. An attorney who fails to meet the standard of a reasonable practitioner in the circumstances may be liable for compensation in tort for negligence and contractually under the representation agreement. In every case, negligence is assessed according to the particular circumstances.

Attorney Shiloh therefore recommends first examining whom you choose, their recommendations and whether they are experienced and knowledgeable in real estate. Choosing an attorney solely according to the fee requested may prove a costly mistake with lasting consequences. It is also advisable to specify in the engagement agreement the client's expectations, the agreed preliminary checks, their allocation among the different professionals and their costs.