Use of clause R2.3 to cancel a first promise to purchase conditional upon the sale of the buyer’s immovable
Clause R2.3 of Annex R – Residential immovable allows for the acceptance of a promise to purchase conditional upon cancellation of a promise previously accepted by the seller. With this clause, the seller promises to undertake, in good faith and at his own expense, reasonable steps to obtain cancellation of every previously accepted promise to purchase the immovable. Several real estate brokers wonder about the extent of the steps that need to be taken by the seller to obtain cancellation of a first promise to purchase conditional upon the sale of the buyer’s immovable (clauses R2.1 and R2.2).
Under clause R2.2 of Annex R, the seller may continue to offer his immovable for sale even if a promise to purchase has been accepted. This privilege is granted in exchange for a right of preference (right of first refusal) granted to the buyer whose promise to purchase has been accepted. If the seller accepts a new promise to purchase conditional upon the cancellation of the first one, he shall, as soon as the second buyer has fulfilled all the conditions contained in his promise to purchase (financing, building inspection, water or soil quality test, etc.), except for the signing of the deed of sale in the presence of a notary, send a notice to the first buyer, within the period indicated under clause R2.3, before notifying the second buyer of the cancellation of the first promise to purchase. To do this, the broker can use the Notice and follow-up on fulfilment of conditions form.
The first buyer has 72 hours following receipt of this notification (or of the time sent if sent by telegram)(1) to notify the seller or his agency or broker in writing of his decision to waive the condition regarding the sale of his immovable and any other conditions contained in his promise to purchase that have not been fulfilled yet, or to make his promise to purchase null and void. If the first buyer chooses to waive the condition regarding the sale of his immovable, he must at the same time demonstrate to the seller that he has the necessary funds to cover the purchase price. In some cases, this may mean that the buyer will need to send a second letter of commitment from the mortgage lender that does not contain any conditions. If the buyer does not avail himself of the provisions of clause R2.2 within the 72-hour period, the promise to purchase becomes null and void.
Should the first buyer waive the benefit of the condition set out in clause R2.1, as well as all other conditions of the promise to purchase that have not yet been fulfilled, excluding the signing of the deed of sale at the notary, and notify the seller within 72 hours, the condition of clause R2.2 will be fulfilled. The seller's broker must then inform the second buyer, either verbally or in writing. The second promise to purchase will become null and void upon the expiry of the period specified in clause R2.3. If the parties agree to obtain a cancellation before the expiry of the period, an Amendments form must be completed for this purpose and signed by the parties.
The period granted to the seller, in the second buyer’s promise to purchase, to obtain cancellation of a previous promise to purchase conditional upon the sale of the buyer’s immovable, should exceed by at least five days the longest period provided for the fulfilment of the conditions of the new promise to purchase. This is the minimum reasonable period to allow the seller to send his 72-hour notice to the first seller, get proof of receipt and notify the second buyer of the cancellation of the first promise to purchase. One should not hesitate to make this period even longer if circumstances require.
Before the seller notifies the second buyer of the cancellation of the first promise to purchase, he must make sure it has indeed been cancelled. The seller’s broker should never advise him to send the notice to the second buyer if any uncertainty whatsoever remains regarding the cancellation of the first promise to purchase. This could be the case if, for example, the buyer gave an ambiguous reply to the 72-hour notice.(2) In this case, the broker should advise the seller to consult his legal advisor to determine out whether he is liberated from the first promise to purchase.
Once cancellation has been obtained, the real estate broker can fill out a Notice and follow-up on fulfilment of conditions – Immovable form in order to notify the second buyer that condition R2.3 has been fulfilled.
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(1) The 72-hour period shall commence at the time the message was recorded with the telecommunications company.
(2) For instance, rather than waiving his conditions, the buyer were to indicate simply that he is still interested in buying and will make every necessary effort to complete the transaction.
For more information, please read the following articles:
- The importance of providing sufficient timelines in clause R2.3
- Cancellation of a previously accepted promise to purchase
- Understanding first refusal clause R2.2 of the mandatory form Annex R - Immovable