Before becoming a house owner, you will need to sign a preliminary contract by which you agree to buy the condo and then a contract of sale by which the transfer of property takes place.
Preliminary contract or promise to purchase?
In general, the sale of a condo is preceded by a promise to purchase. In the case of the sale of a new residential building, the law requires that it be preceded by a preliminary contract, and not by a promise to purchase.
The preliminary contract is a promise to purchase! The main distinction is that the preliminary contract applies to the purchase of new or building property and the promise to purchase applies to the purchase of home re-sales.
Another distinction is on the information that must be mentioned in a preliminary contract, and that there is no legal basis to include such information in a promise to purchase for used houses.
The preliminary contract includes specific information which is not included in a promise to purchase. It also contains essential elements on the terms and price of the sale. Once accepted, you agree to pay the expected price and take possession of the building on the agreed date. Make sure that the preliminary contract reflects your will since once accepted, it cannot be renegotiated.
The preliminary contract only applies if the land and the building belong to the builder.
What should be included and what does the preliminary contract consist of?
The preliminary contract is an agreement by which you agree to buy a house at the agreed price and the contractor agrees to build according to the requested characteristics, deliver it on the scheduled date, and transfer the title of the property.
In addition to your name and address, the preliminary contract must include information relating to the characteristics of the building and mention whether the price is subject to change.
Since there is no standard document required by law, here is a non-exhaustive list of elements to be included in a preliminary contract:
If your house is part of a complex including 10 or more residences with common facilities, the preliminary contract must be supplemented by an information note which indicates the names of the architects, engineers, builders and promoters, and contains a plan of the whole building project. If applicable, it includes a general plan for the development of the project, as well as the summary of a descriptive estimate.
This information note also gives the estimated budget, indicates the common facilities, and provides information on the management of the building. It must also mention the long lease rights and the surface property rights to which the building is subject, if applicable. Be sure to make note of this and to do the appropriate research.
You can cancel a sale if the promoter or the manufacturer has failed to provide a preliminary contract and if, because of this omission, you can demonstrate that you are suffering serious prejudice.
Before signing the preliminary contract!
Note that before signing the sales contract, you will be required to sign a preliminary contract according to which the seller, who is an entrepreneur or a promoter, agrees to sell the building and the buyer agrees to buy it at the agreed price.
Prior to the signing of the preliminary contract you must ensure that it contains the relevant conditional clauses relating to the inspection, mortgage financing, receipt of a certificate of location and the sale of your current residence, if applicable.
The conditional clauses of a preliminary contract protect you in the event of a planned event not occurring within the agreed period.
For example, if the sale of your current residence has not yet taken place, the contractor will not be able to ask you to meet your obligation of purchasing the house because you will have included in the preliminary contract a clause stating that you will acquire the condo provided you sell your current residence. Thus, if you have failed to sell your current home, the condition is not met, and you are not required to buy.
Can we renounce a preliminary contract that has already been signed?
As a rule, if you have promised to buy and have signed a preliminary contract to this effect, you are obliged to buy, and the entrepreneur is obliged to sell. However, when an individual promises to buy a new house in Quebec, the preliminary contract must include a clause that allows him to change his mind within 10 days of signing without having to justify his decision.
This is an additional protective measure which gives you the option of withdrawing from the preliminary contract in case you have signed on a whim and regret your choice the following day. It provides the promising-buyer time to evaluate the consequences of the promise.
Take time to read this clause carefully because it could allow for compensation to be paid to the seller in the event of cancellation. The law limits this to 0.5% of the agreed sale price.
Does your preliminary contract not include such a clause? The law still protects you and the promising seller cannot claim any compensation if you exercise your right of withdrawal within 10 days of signing the preliminary contract.
If in the end you change your mind, you must notify the promising seller within 10 days of signing, ideally in writing so as to be able to use it as proof.
Take time to read the withdrawal clause carefully as it may include a maximum indemnity of 0.5% of the agreed sale price that you will have to pay in the event of withdrawal.
For example, the preliminary contract signed on October 16, 2019 between Nicolas and "Construction ABC Inc." will be effective from date of signing (October 16, 2019), but the countdown will only begin on October 17, 2019. Nicolas may, if he changes his mind, unilaterally terminate the preliminary contract if he respects the 10-day deadline after signature. Thus, he will have until midnight on Monday October 28, 2019 to exercise his right of withdrawal and send his notice of termination. Note that the preliminary contract will be terminated as soon as "Construction ABC Inc." receives the notice of termination.
Indeed, when the deadline expires on a Saturday, which is our case (October 26, 2019) the rule requires that the deadline be extended the next business day, which would be Monday October 28, 2019. Note that the preliminary contract will be canceled from the time "Construction ABC Inc." receives the notice of termination.
Conditional clauses and the right of withdrawal are the only means usually included in a preliminary contract that protect you by allowing you to cancel the preliminary contract and dissolve the agreement.
Once the conditional clauses have been established and the 10-day period has passed, it is impossible to go back. Thus, you cannot use having found a more beautiful and cheaper condo or discovering minor defects or poor workmanship as a reason to desist.
The preliminary contract commits both parties. If you wish to withdraw from this contract without having a reasonable reason, you may expose yourself to recourse on the part of the contractor. He can force you to buy the house by an action to transfer title and pay him for the damage(s) suffered.
However, the seller may agree, under certain conditions, to terminate the preliminary contract. Be aware, however, that you will be entirely dependent on his good will.
Note that the corollary is also true: if the contractor refuses to sell after signing the preliminary contract, you can bring a legal action to force him to sell the house and claim he pay for the damage(s) suffered.
Therefore, before concluding this preliminary contract, be careful, do not hesitate to ask all your questions to the contractor and inquire with any legal professional to better understand your obligations arising therefrom.
*Updated on June 5, 2020