Undertakings: how to avoid the traps

During a conveyancing transaction we may be asked to give one or more of a variety of undertakings. Usually, however, these will involve either the payment or retention of monies. It is important that every undertaking is given careful consideration before giving it. In particular, can the act required by the undertaking be carried out?

A failure to honour an undertaking is professional misconduct and it is therefore essential that obligations promised are fulfilled without delay. It is also important that, once an undertaking is satisfied, the firm honouring the undertaking formally requests to be released so that there is written evidence of its fulfillment. A good example of this would be the undertaking to send the contract to the other party on exchange. Unless expressly varied by the parties, the contract (and sometimes the deposit cheque) must be sent on the same day as exchange. Failure to do so is professional misconduct but will not invalidate the contract.

Of course, the undertaking must also be explained to the client and it must be made clear to them that once the undertaking is given and relied upon it will be extremely difficult to revoke, as this can only be done with the other party's consent. This should avoid any situation whereby your client changes his mind and instructs you not to carry out the requirements of the undertaking.

However, there may be occasions when circumstances prevent you from fulfilling an undertaking. For example, what if the mortgage company refuses to discharge the registered charge? Or the client cannot or will not pay sufficient funds to redeem the mortgage? In practice, it is likely that you will have obtained a redemption statement before the exchange of contracts and will know if a shortfall is due, and, if you have obtained a statement before the final one, you may be able to spot any mistakes. Of course, an error will not remove the client's liability to the mortgagee but it will make matters difficult for you on completion if there is an unexpected shortfall. If the error is small '“ i.e. a day's interest '“ then you may be able to have the lender waive this due to the error. Enquiries of your own client should be able to establish the approximate amount outstanding on the mortgage at the outset of the transaction and even sending a copy of the initially obtained redemption statement to the client will help avoid surprises down the line.

There is also the trap of giving a 'best' or 'reasonable endeavours' undertaking. It is clear that 'best endeavours' is more stringent than the other, and, in fact, the Court of Appeal stated that the obligors should 'take all those steps in their power which are capable of producing the desired results'¦ being steps which a prudent, determined and reasonable [obligee], acting in his own interests and desiring to achieve that result, would take' (IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335) '“ this could include bringing a claim.

Before you give any form of undertaking you need to carefully consider all the circumstances of the case and all possible outcomes so that if something does prevent you from fulfilling your obligation, then you have a back-up plan or you are able to mitigate.

The SRA issued a warning card in 2009 regarding undertakings and being SMART. In essence the SRA states that undertakings should be: specific '“ referring to a particular task or action; measurable '“ including agreed measures or steps understood by both parties; agreed '“ expressly agreed by both parties; realistic '“ should be achievable; and timed '“ should indicate when they will be enforced.

Gathering as much information as you can about a transaction and your client before giving an undertaking will help ensure that you do not fall short of your obligations.