Undertakings and Holdbacks in Real Estate Transactions

The closing of a real estate transaction in Canada is not usually the end of the legal process

Undertakings

In order to complete a real estate deal, the buyer, seller and their lawyers give undertakings to deal with issues after closing

In real estate transactions, an undertaking is a promise made in order to convince the other party to close the transaction

The seller will undertake to pay out its mortgage, tax, and utility accounts and to provide vacant possession. The buyer, and the buyer’s lawyer, will rely on those promises to

complete the transaction.

Sometimes the undertakings in the sale of a house or property are significant and the failure to comply could have serious consequences

If a seller does not pay out the mortgage, the seller’s mortgage holder could foreclose or sell the property to enforce payment of the mortgage

Where there is a potential for negative material consequences the buyer’s lawyer may insist that the seller’s lawyer also provide their undertaking

Lawyers are under professional obligations not to give an undertaking that they cannot complete

Holdbacks

A deal may not be able to be completed because some contractual obligation cannot be met at closing

For example, a seller may have contracted to sell the home with a working dishwasher, but just before closing the dishwasher stops working

If there isn’t time to complete the work and the parties want to close the transaction, then the seller may offer to have a holdback

● How much should be held back● Who will hold the funds● When and how the funds will be released● What happens if the estimated holdback amount is not correct

Negotiations can include:

The seller is not required to agree to the holdback however

The buyer’s remedy may to be close under protest and sue for an abatement (reduction) of the purchase price

Because litigation is costly, and the result is never certain, lawyers may encourage their clients to enter into a holdback arrangement for minor contractual issues.

Are you considering buying or selling a home, investment property for yourself or by way of joint venture, renting commercial space, mortgaging or developing land?

Contact us to learn more.

Stewart Esten has real estate lawyers on staff that know how to protect your investment