Understanding first refusal clause R2.2 of the mandatory form Annex R - Residential immovable
Clause R2.2 of the mandatory form Annex R – Residential immovable, the so-called “first refusal", generates a lot of questions from brokers and consumers. In fact, the OACIQ Info Center receives many calls to this effect. Followings are a few clarifications to help understand how it works.
Clause R2.2 enables the seller to continue offering his immovable for sale while guaranteeing the buyer a right of preference (or right of first refusal). The mechanisms used in this clause and in clause R2.3 are meant to avoid losing the first buyer without knowing if the second has the capacity to buy, and to verify the first buyer’s capacity to buy in case the latter avails himself of his right of first refusal.
Under clause R2.2, when a second promise to purchase has been accepted and the second buyer has fulfilled all the conditions, to the exclusion of course of the signing of the act of sale at the notary’s and the cancellation of any other promise to purchase that has already been accepted (clause R2.3), the seller must send the first buyer a notice asking him to waive condition R2.1 (promise to purchase conditional to the sale of the buyer’s immovable) and all other conditions of the promise to purchase that have not yet been fulfilled, or to render his promise to purchase null and void. The notice must give the buyer 72 hours in which to avail himself of one of these options.
The seller may choose to send this notice by telegram or by any other means where receipt by the buyer can be confirmed. If he opts for a telegram, the 72-hour period begins as soon as the message is recorded with the telegram company.
If the seller chooses another method, the 72-hour period begins from the time the notice is received by the buyer and not when the notice is received by the buyer’s broker. A simple and effective way to proceed in this case is to ask the buyer to acknowledge receipt of the seller’s notice on a copy of this notice and to indicate the date and time of receipt. The seller must retain this copy as proof. In fact, this procedure should be favoured.
The buyer will therefore have 72 hours to remit to the seller or his broker a written notice of his intention to waive the benefit of clause R2.1 and all other conditions of the promise to purchase that are not yet fulfilled, or render his promise to purchase null and void. If the buyer chooses to waive the benefit of clause R2.1 and the other conditions, he must demonstrate to the seller that he has the necessary funds to purchase the immovable, otherwise he cannot take advantage of this option. Should the buyer fail to notify the seller within the period and in the manner indicated in the clause, the promise to purchase becomes null and void.
The use of the form “Notice and follow-up on fulfilment of conditions – Immovable” is recommended to transmit the various notices and follow-ups on fulfilment of conditions indicated in “Annex R – Residential immovable” form.
It is important to note that the buyer must make himself reasonably available to receive the 72-hour notice. For example, if the buyer plans to be out of town, he must leave an address or telephone number where he can be reached in case the notice is sent. Failing this, if the notice is sent by telegram, the buyer risks receiving the notice when it is too late to avail himself of the option to firm up his promise to purchase.
The OACIQ also wishes to remind members that the mechanism described under clause R2.2 does not relieve the seller’s broker from his duty to collaborate. He must inform the broker representing the first buyer of the existence of a new promise to purchase immediately, and not only at the time of sending the 72-hour notice. The same applies if the broker also represents the first buyer. Since he must treat all the parties fairly, he shall inform his client of the existence of any new promise to purchase immediately.
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