Can you back out of an offer to purchase in Quebec? Yes, but only under specific conditions. If you cancel a promise to purchase improperly, you risk legal action, substantial costs, and financial penalties.
In this article we cover the legal ways that you can get out of the promise to purchase in Quebec. Specifically what we will cover is as follows:
- What is a promise to purchase?
- Under what conditions can you cancel a promise to purchase?
- Different cancelation rules for new builds
- Can an offer to purchase be canceled after the inspection
- Final remarks
What is a promise to purchase?
A promise to purchase is a legally binding offer made by a buyer to purchase a property under specific terms and conditions. The contract becomes enforceable once the seller accepts it within the specified timeframe. From that point on, the buyer and the seller must act in good faith and take all necessary steps to fulfil their obligations and complete the transaction.
Once the buyer and the seller fulfil or waive all of their respective conditions within the deadlines, the buyer must purchase the property, and the seller must transfer ownership to the buyer. Failure by either party to comply in good faith with the fulfilment of the terms of the promise to purchase may expose them to legal consequences.
** IMPORTANT **
Under what conditions can you cancel a promise to purchase?
It is generally impossible to cancel a promise to purchase unless one of the following four things happen:
- The offer is withdrawn before the seller receives it;
- The contract already includes an escape or cancellation clause;
- One of the conditions in the contract is not fulfilled in a significant way;
- The buyer and seller mutually agree to cancel the promise to purchase.
Now that we know what the high level conditions are, let’s dig deeper.
The offer is withdrawn before the seller receives it
You can withdraw your offer to purchase before the seller receives it. Essentially this can happen only if the promise to purchase has not been sent to the seller or their listing agent.
For example, in Quebec real-estate, a promise to purchase is normally communicated by the buyers broker who will compile all of the documents that they want to include in an offer. This will include your signed promise to purchase, pre-approval or financing documents, cover letter and so on. While your buyers broker is still in the process of preparing the documents, you can still cancel your promise to purchase.
However, once the documents have been sent and the seller has received it, the buyer is bound by law to details of their offer even if the seller has not made their decision known yet.
The contract already includes an escape or cancellation clause
You can add three ways to cancel your promise to purchase once the seller has received it. These are:
Let’s take a look at what each of these are, now.
1. Cancelation clause
If an offer to purchase includes a clause granting a right of cancellation (also called a “right of withdrawal”), the buyer is given an additional period to reconsider their decision. This type of clause is rare in Quebec residential real estate and must be expressly stated in the promise to purchase. When included, it allows the buyer to withdraw from the agreement within a specified timeframe, even after the offer has been accepted.
A cancellation clause that includes a penalty, on the other hand, allows one of the parties to withdraw from the agreement for any reason in exchange for financial compensation, thereby limiting the legal consequences of the withdrawal.
A cancelation clause is not part of the standard OACIQ promise to purchase templates. As such it should be either annexed to the promise to purchase or added to Clause 12, “Other declarations and conditions”. A cancelation clause should include (as a minimum), a deadline, the method of notice and, optionally, any penalty or compensation that you are willing to pay upon cancelation.
2. Unmet conditions
There are several clauses in the promise to purchase that allow the contract to be canceled if either the party fails to meet certain conditions. For instance, if the buyer is unable to get financing for the purchase at the rates agreed on Clause 6, “New Hypothecary Loan”, then the buyer is able to cancel the promise to purchase. Similarly, if during a pre-purchase inspection the buyer discovers a major issue with the property, the buyer will be able to cancel the promise to purchase.
However, there is an assumption that both parties will act in good faith to fulfil on the conditions of the contract. Therefore, if a buyer attempts to torpedo a deal by deliberately refusing to obtain financing at the agreed rates, this may give rise to legal liability for acting in bad faith. In the same way, if a seller has deliberately mislead a buyer as to the conditions of the property, they may also be liable.
Buyers Note
3. Obtain mutual consent
A promise to purchase can also be canceled if both the seller and the buyer agree. In this case, you should ask the seller to provide a written and signed agreement to release you from the terms set out in the promise to purchase.
Can an offer to purchase be canceled after the inspection
Yes, the buyer can get out of the promise to purchase is the pre-purchase inspection reveals a major problem with the property that seriously impacts the properties value or rental value. The key word here is “major”. Whilst there is no hard and fast rule that says exactly what “major” means, there is jurisprudence that provides guidance. For instance, courts will generally assess the nature of the defect, the extent of the work required, and its effect on the property’s value or intended use.
For example, let’s say that you make a promise to purchase on a detached house in the West Island of Montreal for $650,000. You request the right to a pre-purchase inspection using Clause 8 of the promise to purchase. During this inspection, the inspector finds an issue with the property foundation and informs you that the cost of repair is going to cost between $20,000 – $50,000. At this point you would most likely be able to cancel the promise to purchase or re-negotiate the purchase price with the seller.
Conversely, if your pre-purchase inspection finds that you need to fix a few windows and replace your bathroom fan with total repairs costing roughly $5000, you will most likely not be able to cancel your promise to purchase.
Different cancelation rules for new builds
When you buy a new or off-plan residential property from a builder or developer in Quebec, you don’t use the standard OACIQ Promise to Purchase form that’s used for resale homes. Instead, the law requires a “preliminary contract” (contrat préliminaire) before the sale proceeds.
One of the most important differences with new builds is the automatic right to withdraw from the contract for any reason within 10 days after signing. This is known as a “10 day right of cancelation” or “cooling off” period and it is provided for in the Civil Code of Quebec. You do not need a special “condition” in the contract to exercise this right, it is automatic and mandatory under the law. No justification is required during this 10-day period, you can simply decide not to proceed.
Although you can withdraw within 10 days, the builder may claim compensation. Although this is limited, the builder can ask for up to 0.5 % of the agreed selling price as compensation. For example, on a $300,000 home, that could be up to $1,500. This compensatory amount exists to protect the builder a little for administrative or preliminary planning costs, but the buyer retains the cancellation right.
Can the seller cancel the promise to purchase
Unlike the buyer, the seller is not automatically bound by a promise to purchase upon receiving it. The seller may review the terms and is free to accept the offer in writing, reject it, or allow it to expire once the deadline set by the buyer has passed. Therefore, provided that the seller has not accepted the offer, they can cancel the promise to purchase at any point.
Final remarks
A promise to purchase is a contract between a buyer and a seller in which the buyer sets out the terms and conditions under which they are willing to purchase a property. Once the seller receives the promise to purchase, the buyer generally cannot cancel it unless a condition set out in the contract is not met, the seller agrees to cancel it, or the property is a new or off-plan residential property subject to special statutory cancellation rights.
If you are looking to cancel a promise to purchase for any reason, we strongly advise that you seek advice from a lawyer or a notary. If you cancel a promise to purchase improperly, you may face legal proceedings and be exposed to significant consequences, including tens of thousands of dollars in legal fees, damages for breach of contract, and, in some cases, a judicial order to complete the transaction.
Need help from an expert?
There are more than 17,000 realtors in Quebec all that have different areas of expertise. At Immovision, we analyze millions of real-estate transactions and broker reviews, to find you the broker that is an expert in your exact type of project.
See which realtors are the best fit for your project.
