When clients (the borrower) arrange for construction financing for their projects with lending institutions (the lender), both private and public lenders may request certification of an aspect of the project from a Holder of Certificate of Practice (the holder).

To manage expectations with client, architects are encouraged to discuss whether lending institutions may be involved at the onset of the project, prior to contract signing. This is sometimes not known, but flagging it and sharing potential issues may prevent challenging conversations at critical points in a project.

In order to lessen the potential exposure to liability, holders are advised not to sign and submit any lender’s forms, or to send any information directly to the lender or the lender’s insurer. Holders are further advised to consider the addition of appropriate qualifying statements in documents provided to the client, which may be forwarded to the lender.

Background

Conflicts of Interest may increase liability and should be avoided where possible. A conflict of interest arises if a holder is asked to provide advice to two parties with divergent interests, which, in this case, are the holder’s client and the lender. Therefore, lenders should retain their own advisors to serve their separate purposes.

The holder has no contractual relationship with the lender. However, the completion of the lender’s forms, which are addressed directly to them, can create a duty of care between holders and a lender. The lender can request copies of the holder’s certificates for payment and general review reports from the client, for which standard forms are prepared and recommended by the profession. The wording of such forms are compatible with the standard client/holder contract and the performance standards of the profession. The authorities having jurisdiction (AHJs), for example the building department, also accept these recommended forms.

In contrast, many of the forms created for use by the lending institutions contain wording that will increase the holder’s liability by requesting assurances through certification of matters over which the holder has no knowledge or control, constituting an impossible extension of professional services beyond the client/holder contract. These forms are often prepared, on behalf of the lender, without accounting for the holder’s professional services with regard to the design and contract administration of a project. Often, such forms explicitly state that someone other than the holder’s client is entitled to rely upon the certification or statement by the holder.

It is reasonable for a lender, or their insurer, to seek to limit their risk in advancing money for a construction project. It is inappropriate to transfer that risk to an architect by putting them in a conflict of interest or professional misconduct position.

Lenders or insurers can retain independent advisors to evaluate and report on the status of the construction. Those advisors may be other Certificate of Practice holders or other professionals, the cost of which may be added to the loan amount or invoiced directly to the client. The forms seen by the OAA’s Practice Advisory Services (PAS) staff team default to requesting the client’s architect issue the certification; thus attracting significant liability for this service.

Suggested Procedure

1. Discuss this issue with the client before the architectural services contract is signed. This gives the client time to discuss how the certification will be done before it becomes a potential source of delay during construction.

2. Add a disclaimer to documents that the client intends to send to the lender (e.g. certificates for payment and field review reports):

“It is understood and agreed that the information contained herein is for the client’s use, without any responsibility or liability of the [insert name of the holder of Certificate of Practice] to any lending institution, person or entity (lender) who may rely on the said information in relation to the lenders’ financing of the client’s project.”

[This is suggested wording only, and is not a substitute for involvement of your legal counsel. You are advised to discuss wording and requirements with your legal counsel.]

3. If requested to complete customized forms prepared by the lender, advise the client that:

• In lieu of completing the lender’s forms, the information that will be provided fulfils the requirements of standard client/holder contracts (refer to OAA documents & publications), construction contracts (e.g. Canadian Construction Documents Committee [CCDC]), and authorities having jurisdiction (e.g. EABO Standard forms, endorsed by the OAA, PEO, and OBOA); and
• Copies of the holder’s documentation can be forwarded by the client to the lender with a disclaimer, similar to the suggested wording above (then the lender may decide to retain an independent consultant to review the work in progress in order to satisfy the lender.

4. After offering these suggested alternatives, if the client insists you complete the lender’s custom forms, then contact your liability insurer and your legal counsel.

5. If the client should try to amend the client/holder contract (either through Supplementary Conditions—refer to PT.39.1—or after the beginning of services) by requiring the holder to complete the lender’s forms, do not agree to such an amendment without contacting your own legal counsel and liability insurer.

Additional Reading

Practice Tip PT.17, Lending Institutions – Architect’s Certificates.

Hackett, John C. A. 2020, ‘Risk Management Challenges: Two risks you can avoid now’, The Straight Line, Issue 12, pp. 1-2.

OAA Standard Forms of Contract for Services – Definitions.

RAIC CHOP, Chapter 3.8, Appendix C, Checklist: Contract Review.

CCDC Standard Construction Documents – Definitions; Role and Authority of the Consultant.

This article originally appeared in the Practice Advisory—the OAA’s bimonthly e-newsletter developed by the OAA’s Practice Advisory Services team, comprising architects and other staff, which offers numerous resources for both member and the public. The OAA does not provide legal, insurance, or accounting advice. Readers are advised to consult their own such representatives to obtain suitable professional advice in those regards.