What is a Lawyer’s Undertaking? Staying Informed About Your Real Estate and Business Transactions

[Photo by Gabrielle Henderson on Unsplash]

An article published by CBC reported that an Ontario law firm allegedly swindled clients out of millions of dollars.

Nicholas Cartel and Singa Bui (of Cartel and Bui LLP) are currently facing 15 lawsuits after millions of dollars of client funds have gone missing from the firm’s trust accounts. Buyers allege that Cartel and Bui LLP neglected to pay off mortgages in real estate transactions, and instead kept the money for themselves. Following an investigation, the Law Society of Ontario suspended Cartel and Bui for breaches of something called undertakings.

An undertaking is a written commitment made by a lawyer to another party to do or not do something. Lawyers must fulfill every undertaking they give and must report to their law society of any other lawyer’s failure to fulfill an undertaking. Undertakings are commonly used in real estate transactions, where lawyers will facilitate the flow of funds in a real estate purchase and sale transaction. In the context of a real estate sale transaction, a lawyer acting for the seller will ordinarily give an undertaking to a buyer’s lawyer to first utilize the sale proceeds to pay out and discharge the seller’s mortgage.

Undertakings are essential to both residential and business transactions because they are an efficient way for parties to exchange funds while also protecting buyers and sellers. However, there have been a few situations where lawyers have taken advantage of their ability to give and receive undertakings, which has the possibility of discrediting the public’s trust in the legal profession. For that reason, courts and legal scholars have repeatedly emphasized the importance of lawyers strictly adhering to any undertakings they give, as well as enforcing harsh punishments for those who do not.

If you are concerned about undertakings, here are some questions to ask your lawyer:

• What policies does your firm have in place to ensure undertakings are followed?
• Have you ever been disciplined by the Law Society for breaching an undertaking?
• (If the matter has a mortgage) Can you send me proof when the mortgage is discharged?
• How do trust accounts work, and how do they help lawyers fulfill undertakings?

At Waterstone, we value the trust you place in us in completing your important transactions, but want you to feel empowered to inquire about undertakings so you can feel confident and understand the process in how your funds are being handled. If you have questions regarding undertakings, please reach out to our Real Estate Transactions group.