Real Estate Undertakings

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Real Estate Undertakings

Buying a home is an exciting time, whether it be your first or your tenth property. When a real estate transaction closes, the property’s title is registered under the buyer’s name, the seller receives the sale proceeds, and keys are released to the buyer. But did you know that your real estate lawyer’s job does not end there? Often times, in order to complete the real estate transaction certain undertakings must be met. The seller, buyer, and their respective lawyers provide undertakings that each party can rely upon to resolve issues that materialize after closing.

What Does An Undertaking Mean?

In the context of a real estate transaction, an undertaking is a binding promise. The purpose of them is to persuade parties to close the transaction. Much like a contract, an undertaking is enforceable. The Law Society of Alberta, an organization that regulates both practicing and non-practicing lawyers in Alberta, states that lawyers are prohibited from making undertakings they cannot keep. If lawyers fail to follow through with an undertaking they make, they may be subject to professional discipline. This discipline can include disbarment and being liable for any loss the buyer suffers due to their reliance upon the undertaking.

When Is An Undertaking Used?

In every residential real estate purchase, the seller’s lawyer will send a trust letter to the buyer’s lawyer. This letter encloses the closing documentation and any undertakings that need to be provided by the seller’s lawyer. The seller’s and the buyer’s lawyers, both, provide undertakings to the other to deal with any outstanding issues after closing.

When buying a property, common undertakings the seller’s lawyer makes are:

  • paying out the seller’s mortgage, lien, tax and utility accounts registered against the title of the property;
  • providing proof of the discharge after closing; and
  • providing proof of vacant possession.

The buyer’s lawyer will rely on these promises to complete the real estate transaction. Without such undertakings, the consequences could be significant. For example, if the seller fails to pay out the mortgage and defaults on payments, the property could continue to be subject to the mortgage. This means that the lender could foreclose the property to collect payment on the new owner.

 Four Main Types of Undertakings

In a residential real estate transaction, there are four kinds of undertakings that may be given, namely:

  1. A client’s undertaking made on behalf of himself or herself;

    • This form of undertaking takes place when a seller undertakes to readjust the statement of adjustments themselves. This is done to reflect the payment of utility and realty accounts.
  2. A solicitor’s undertaking made on behalf of his or her client;

    • This undertaking takes place when the client is unable to complete an undertaking on their own behalf. The solicitor can only make this undertaking if the client provides clear instructions to accept it.
    • A common example of such an undertaking is when the seller must to provide the buyer with a Real Property Report with municipal compliance free of the seller’s representations and warranties. The seller’s lawyer will undertake to provide such a Real Property Report to the buyer if the seller determines that they are unable to attain such a Real Property Report on their own and as such, will instruct their lawyer to attain it on their behalf.
  3. A solicitor’s personal undertaking; and

    • This undertaking takes place when the seller’s lawyer must undertake to do something on their.
    • An example of such an undertaking is when the seller’s lawyers undertake to discharge a lender’s mortgage. Since this task cannot be done by a client, or the buyer’s lawyer, but is needed to provide the buyers a clear title, such an undertaking falls on the seller’s lawyer.
  4. A solicitor’s “best efforts” undertaking.

    • This undertaking is the riskiest type of undertaking. It is risky for the solicitor to make this undertaking because they should never give an undertaking that they cannot fulfil. As such, the outcome in this type of undertaking is out of their control.
    • A common example of such an undertaking is when an individual or a municipality must agree to, or approve something, in order to fulfill the undertaking. Since the matter is out of the control of the lawyer, if they are unable to fulfill the undertaking, there could be serious repercussions for the lawyer who took on the undertaking.

A real estate transaction can only close once the lawyers ensure that there are no more fund left in trust, no more outstand balances owing, and that all undertakings have been completed. As such, often times, a file can stay open for months after keys are released to the buyers and the sellers have received their funds.

Retaining Calgary Based Lawyers

Whether you are buying or selling a property, we know it can be a stressful process. We deal with the issues to make life easier for you. Kahane Law real estate lawyers do most residential sales purchases on a flat rate basis. Our flat rate fees ensure that clients know the fees for a standard transaction before they hire us. Please see our flat rate fees for details. Call 403-225-8810 or email today to contact us.