You receive a Promise to purchase


The Promise to purchase is a form used by the broker representing a prospective buyer to notify you of his client’s desire to purchase your property under certain clearly defined conditions.

When you receive such a promise, you have three options:

  • Accept the offer (in this case the Promise to purchase will be used to notify the buyer that you undertake to sell him your property);
  • Refuse the offer;
  • Respond with a Counter-proposal.

Your broker must use one of the Promise to purchase forms published by the OACIQ for this purpose:

Promise to purchase – Chiefly residential immovable containing less than five dwellings excluding co-ownership

Promise to purchase – Undivided co-ownership – Share of a chiefly residential immovable held in undivided co-ownership

Promise to purchase – Divided co-ownership – Fraction of a chiefly residential immovable held in divided co-ownership

Promise to purchase – Mobile home situated on leased land

GOOD TO KNOW

Your broker could be called upon to complete a prospective buyer’s Promise to purchase if the latter is not represented by a broker. However, since the broker representing you must be loyal to you, he must protect and promote your interests. He may not disclose to the buyer any confidential or strategic information concerning you.

Your broker may complete the buyer’s Promise to purchase and advise him objectively, including by recommending the inclusion of the usual clauses regarding inspection and financing.

A Promise to purchase is an offer from a potential buyer. You may receive several promises to purchase. In that case, your broker must present these offers to you as soon as possible after they are received, and inform the other brokers or potential buyers of the existence of any new promise to purchase, but without disclosing the content thereof. During this process, you may receive an enhanced offer from one of the buyers who have already submitted a Promise to purchase. As long as the initial offer is not accepted, expired or refused, a potential buyer may amend his offer to make it more attractive! Learn more on this by reading the article Receipt of several promises to purchase.

TALK IT OVER WITH YOUR BROKER

Several elements of the Promise to purchase must be fulfilled within a given time frame (for example the deadline by which to accept the Promise to purchase and, following your acceptance, the time frames in which the buyer must fulfil his conditions). Your broker must make sure you understand these time frames and make the necessary follow-up.

These are the main clauses of the Promise to purchase to which your broker will pay close attention. Make sure you understand them and don’t hesitate to ask for clarification.

New or on-plan construction

If you are selling a new residential property that is built or on plans, the Civil Code of Québec requires the use of a preliminary contract in lieu of the Promise to purchase, which is used by brokers for resale transactions. Your broker has a duty to require the use of a preliminary contract where appropriate. When this type of contract is drafted, he must also make sure that the form GST-QST New Housing Rebate Application: Rebate Granted by a Builder is duly completed.

Clearly understanding the clauses


1 - Identification of the parties

This section is used to identify the buyer and the seller or their mandataries, if applicable. It will include the name(s), address, telephone number and email address (if available) of the prospective buyer(s). The broker is responsible for verifying the identity of each of the parties to the transaction using an authorized form of ID.

2 - Objet of the promise to purchase

This is where the potential buyer promises to purchase your property. It also identifies the broker acting as intermediary in the transaction. (If the buyer is not represented by a broker, the name of your broker will be entered here).

3 - Summary description of the immovable

The Promise to purchase must contain a description of the immovable, including:

  • address;
  • cadastral description;
  • size and area of the lot.

Undivided co-ownership property

If the immovable is held in undivided co-ownership, the Promise to purchase must specify:

the exclusive uses related to the share being purchased;

the area of this share;

whether the area indicated on the certificate of location is “gross” or “net.”

Divided co-ownership

The Promise to purchase must include:

the cadastral description of the private portion;

whether the parking and storage spaces are also private portions, their cadastral descriptions must also be indicated since they are different;

the share and cadastral descriptions of the common portions.

Income property

An Annex L – Income property accompanying a Promise to purchase provides additional information, or documents concerning leased spaces, visits of dwellings and rent increases. It also contains a clause concerning the termination of a lease for occupancy by the buyer.

Its use is recommended for the buyer and his broker to clearly set down the conditions relating to this type of immovable, for example by allowing the buyer to make his Promise to purchase conditional upon obtaining information or undertakings from you regarding current leases or the status of the immovable.

4 - Price and deposit

This is the section where the buyer’s broker enters the price his client is offering for your property, which he undertakes to pay in full at the signing of the deed of sale. It is also the clause that specifies whether the immovable is subject to GST and QST, for example in the case of a new construction.

To show that his client is serious, the buyer’s broker may indicate that the buyer is giving his broker a deposit on the purchase price proposed. In accordance with his ethical obligations, the broker must recommend that his client pay a reasonable deposit.

The deposit will be placed without delay in the trust account of the broker or his agency, following acceptance of Promise to purchase. The name of the broker or agency entrusted will be identified. The buyer’s broker may have amended the clause to indicate that the deposit shall be given upon the fulfilment of conditions. If such is the case, you may require that the cheque be submitted earlier; this element then becomes part of the negotiation.

This deposit will of course be returned to the buyer should the Promise to purchase become null and void. Otherwise, the broker will dispose of it in accordance with the Promise to purchase or with the legal requirements concerning sums held in trust under the Real Estate Brokerage Act.

GOOD TO KNOW

It is possible for a buyer to pay a deposit into a notary’s trust account or directly to a developer (for a new construction) in the course of a transaction, under certain conditions.

5 - Method of payment

The Promise to purchase specifies how the purchase price will be paid, broken down into deposit, additional sum, and the amount of mortgage loan required.

6 - New hypothecary loan

The terms of the mortgage loan which the buyer undertakes to obtain must be entered here. In addition to the amount required, the clause must specify the current interest rate that shall not be exceeded, the maximum duration of the amortization plan, and the minimum term desired by the buyer.

If the buyer does not provide proof of borrowing of the amount indicated in the form within the specified period, you may :

  • require that the buyer file a new application for a mortgage loan conforming to the conditions set out in the Promise to purchase, with a specific mortgage lender and within a given period of time; or
  • render his Promise to purchase null and void.

GOOD TO KNOW

If you do not avail yourself of these options within the specified time period, the Promise to purchase will become null and void.

7 - Declarations and obligations of the buyer

This clause specifies various elements:

  • The date on which the buyer visited the immovable;
  • That he is satisfied therewith;
  • That the notary’s fees (cost of the deed of sale, its registration and any copies) are at his expense;
  • That the buyer undertakes to pay the transfer duties (commonly known at the “welcome tax”), a tax levied by all municipalities when transferring ownership of a property on their territory;
  • That the buyer may not sell, assign or otherwise alienate his rights in the Promise to purchase without your prior written consent.

Finally, in the event that no deed of sale is signed through the buyer’s fault, the latter undertakes to compensate your broker by paying a sum equal to the remuneration that you would have had to pay him.

8 - Inspection by a person chosen by the buyer

This is where the buyer indicates if his Promise to purchase is conditional upon an inspection of your property by a building inspector or a professional. If so, the time period in which this inspection is to be completed will be indicated here.

The buyer may also choose to waive his right to inspect by checking the appropriate box. However, his broker has an ethical obligation to recommend an inspection that meets certain requirements under the Real Estate Brokerage Act.

Your broker may also have recommended that you have a presale inspection done in order to know the condition of your property before putting it on the market, identify major repairs that need to be made, and decide whether or not to make them.

Your broker must also recommend that you act with complete transparency by providing the information contained in this inspection report to any prospective buyer and disclosing its existence on the form Declarations by the seller of the immovable.

Divided co-ownership

The buyer may limit the inspection to the private portion. However, an inspection of the entire building is recommended.

9 - Review of documents by the buyer

This clause makes the Promise to purchase conditional upon the review and verification by the buyer of the documents mentioned, such as the municipal by-laws governing the property. It also specifies the maximum number of days in which to provide these documents to the buyer.

In the forms concerning divided co-ownership, certain documents are automatically listed, including the declaration of co-ownership, the by-law of the immovable and the minutes of meetings of co-owners.

GOOD TO KNOW

If the buyer does not obtain these documents within the specified time period, or if he is not satisfied following his review and verification, he has the right to cancel his Promise to purchase.

10 - Declarations and obligations of the seller

This is the clause where you declare that you are the owner of the immovable or are duly authorized to sign the Promise to purchase.

The declarations concerning the immovable are covered in the form Declarations by the seller of the immovable or Declarations by the seller of the immovable – Divided-Co ownership.

The buyer must receive the form Declarations by the seller of the immovable (or the divided co-ownership version if applicable) prior to submitting his promise to purchase.

Following are some of the declarations you make as the seller of the immovable:

10.2 Delivery of the immovable

In this clause you undertake to deliver the immovable in the condition in which it was when the buyer visited it. It is important to agree clearly on the inclusions and exclusions, which are often the subject of disputes. This can include light fixtures, the spa, appliances, etc. The inclusions must be in normal working order at the time of delivery of the immovable.

10.3 Ownership documents

The Promise to purchase specifies your obligations regarding ownership titles. You must provide the buyer with a valid title of ownership confirming that the immovable is sold free of any real right or other charges, other than the usual and apparent servitudes of public utility (Hydro-Québec, municipality, etc.).

You must also supply your act of acquisition and a certificate of location describing the current state of the immovable and reflecting any cadastral renovation. Caution: a change in zoning by-laws (e.g. flood, erosion or ground movement zone) requires a new certificate of location.

Divided co-ownership

If the immovable is held in divided co-ownership, you must provide the buyer with a certificate of location describing the current state of the entire co-ownership, which includes the private portion or, failing this, a certificate of location pertaining to the private portion only.

 

10.4 Costs relating to repayment and cancellation

For example, if the buyer learns of the existence of defects pertaining to the fireplace prior to the signing of the deed of sale and this defect was not disclosed on the form Declarations by the seller of the immovable attached to his Promise to purchase, he would not be obliged to buy the property with this defect if you do not remedy it.

10.5 Defect or irregularity

The Promise to purchase provides a mechanism in the event that, after signing, the buyer discovers a defect or irregularity that affects the declarations and obligations of the seller contained in the form.

For example, if the buyer learns of the existence of defects pertaining to the fireplace prior to the signing of the deed of sale and this defect was not disclosed on the form Declarations by the seller of the immovable attached to his Promise to purchase, he would not be obliged to buy the property with this defect if you do not remedy it.

Following a written notice from the buyer, you will have 21 days to notify him that you have remedied the problem or that you will not remedy it.

TALK IT OVER WITH YOUR BROKER

Make sure he walks you through the steps of this process.

10.6 Intervention of spouse

This clause stipulates that you must provide proof of your spouse’s consent:

  • if your immovable or a portion of it constitutes your family residence; or
  • if your matrimonial regime requires it.

10.7 Damages

According to this clause, in the event that no deed of sale is signed through your fault, you undertake to compensate the broker bound to the buyer by a brokerage contract to purchase by paying damages equal to the remuneration which the buyer would otherwise have had to pay. An example would be if you don’t show up at the notary’s

11 - Declarations and obligations common to the buyer and the seller

The Promise to purchase includes declarations and obligations that are common to both parties:

  • The date of signing of the deed of sale at the notary’s;
  • The date and time of occupancy of the premises;
  • The date when adjustments will be made for taxes (real estate, general and special), co-ownership fees, fuel reserves and income and expenses relating to the immovable;
  • If necessary, the amount of compensation that will be paid to the buyer if you occupy the premises after the signing of the deed of sale;
  • The instructions to the notary regarding the payment of remuneration;
  • The items included in and excluded from the sale;
  • Any leased equipment or goods covered by a service or leasing contract (or any other contract which must be assumed by the buyer).

TALK IT OVER WITH YOUR BROKER

What are the potential repercussions relating to the dates proposed? If occupancy by the buyer comes after the signing of the deed of sale, the monthly amount payable by the seller as compensation must be entered. This amount should include the cost of heating, electricity and general maintenance for the premises. In addition, the seller must provide the buyer with proof of liability insurance, at his own expense.

12 - Other declarations and conditions

This is where the buyer’s broker will include any special clause necessary, for example a clause requiring you to start the pool in a case where the deed of sale is signed after the date where the pool should normally be started.

13 - Annexes

The Promise to purchase can refer to annexes, which form an integral part thereof. Among other things, the form Declarations by the seller of the immovable must always be attached to a Promise to purchase. As for other annexes, your broker can help you understand their clauses.

Here are a few examples of annexes:

  • Annex F – Financing, which contains the clauses relating to the taking over of the existing hypothecary obligations and the balance of sale price required for the purchase of the home;
  • Annex R – Residential immovable, which contains other clauses concerning the transaction, such as the condition of selling the buyer’s current property. The buyer could have included his broker’s remuneration in the purchase price in order to include it in his financing. This information would appear in the Annex R attached to the Promise to purchase;
  • Annex – Expert report, which includes clauses that make the Promise to purchase conditional upon the performance of certain tests, analyses or studies (including on soil quality);
  • Annex – Drinking water and septic system, which includes clauses that make the Promise to purchase conditional upon the performance of certain tests, verifications or analyses regarding drinking water and the septic system.

GOOD TO KNOW

When a buyer wish to pay in cash, your broker will require the buyer to provide proof of availability of the funds for your protection. This will be indicated on a mandatory form Annex F – Financing. Once this step is successfully completed, the broker will recommend that you sign the deed of sale as quickly as possible, among other things to ensure that you have the funds at your disposal before you make other commitments. On this topic, see the article entitled Certain precautions are required for a cash purchase.

14 - Conditions of acceptance

This clause sets the deadline (date and time) by which you must signify your acceptance of the buyer’s Promise to purchase. This deadline is important, because if it is not respected, the Promise to purchase is cancelled.

If the buyer changes his mind during this period, he cannot withdraw his promise to purchase. However, the Civil Code of Québec allows him a short period in which he can cancel his offer, which is the period between the time when he signs the Promise to purchase and the time when it reaches you. A cancellation that reaches you before the Promise to purchase renders the promise null and void. However, you should know that promises to purchase are usually presented to sellers very quickly.

15 - Interpretation

This section specifies that the Promise to purchase and the performance thereof are governed by the laws of Québec.

16 - Signatures

The Promise to purchase matches what you wanted for the sale of your home? It is time to accept it. The Promise to purchase must be signed by the buyers, the sellers and, if applicable, the sellers’ spouses. A good practice is to have the signatures witnessed. If you are not satisfied with the offer, you may consider making a Counter-proposal.

TALK IT OVER WITH YOUR BROKER

Ask your broker any questions you may have so that no doubt remains in your mind. For example, are you satisfied with the date of occupancy?