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Undertakings

11 June 2009

We have, in the past, reported that the scheme has experienced a sharp increase in conveyancing claims during the past few years. A large number of these claims arise out of undertakings by conveyancers to bridging finance companies.

In many instances the convevancers sign the standard undertaking provided by the bridging finance company without having regard for the implications. In order to protect your firm against such a claim we recommend the following:

  1. Amend the undertaking to safeguard your firm should the transaction not proceed for some reason or another.
  2. Never sign an undertaking that does not give you the right to withdraw from the transaction when it is either cancelled by the parties or when the finance is withdrawn.
  3. Do not confirm that the transaction is "unconditional and there is no outstanding requirement or impediment to the registration of transfer" until you have done a thorough investigation. This includes scrutinizing the conditions of the title deed, as well as doing a preliminary finance check to ensure that adequate finance is available on date of registration. You should disclose to the affected parties any condition which may impact on the registration of the transaction.
  4. Notify the bridging finance company if the transaction is delayed (taking more than the standard 90 days) or if the transaction is cancelled by one of the parties.
  5. When providing multiple undertakings on one transaction, ensure that there will be sufficient funds available on registration to cover the balance due to the bridging company.
  6. Ensure that your client's tax affairs are in order before you sign the undertaking, as SARS will require you to first settle any money due to them before you can honour the undertaking. This may leave you with a deficit in your account.
  7. In most firms the conveyancing secretary is the person dealing with the matter from inception to registration. When the undertaking is brought to you for signature, make sure that the application for bridging finance is on file and that all necessary documents are signed and in your possession. Ensure that the preliminary finance check provides for sufficient funds to be available on registration before you sign the undertaking.
  8. Always have a designated director/s in your firm to sign the undertaking. Many conveyancers only find out about the undertaking on registration when the conveyancing secretary informs them that there is a shortfall on the transaction. In many cases this is the first time that the conveyancer finds out that the firm gave an undertaking.
  9. If a person is authorised to apply for finance on behalf of a Company or CC, ensure that you are in possession of the resolution. Compare the resolution to CIPRO in order to verify that the directors/members, who signed the resolution, are indeed the directors/members.
Bridging finance companies act on the strength of the undertaking signed by the conveyancer. Great care should be taken by conveyancers to ensure that that they will be able to honour the undertaking provided.

For a detailed discussion of undertakings by attorneys, please refer to Ridon v Van der Spuy & Partners (Weskaap) Inc. 2002 (2) SA 121 (C).
Hesma Strydom
Legal Adviser

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