Sale or purchase of a new construction: Rules to follow

If you are contacted by a building contractor or real estate developer to handle the marketing of new homes, or if you have a client interested in purchasing this type of property, you are bound by your duties and obligations under the Real Estate Brokerage Act and the Regulation respecting brokerage requirements, professional conduct of brokers and advertising.

However, when it comes to real estate transactions involving new constructions, the OACIQ regularly comes across problem situations which could have been avoided with a few extra precautions.

To properly carry out your role as representative of the seller or the buyer, the following are areas where you must be vigilant.

If you are acting as the seller’s broker

When you represent a building contractor or real estate developer:

  1. Make sure your client holds the right sub-category of contractor licence from the Régie du bâtiment du Québec (RBQ), based on the type of property, by checking the directory at Registre des détenteurs de licence RBQ:
    1. Sub-category 1.1.1: Bâtiments résidentiels neufs visés à un plan de garantie classe I (these are new residential buildings including single-family detached, semi-detached or row houses, whether or not held in divided co-ownership, and multifamily buildings from duplex to quintuplex not held in divided co-ownership);
    2. Sub-category 1.1.2: Bâtiments résidentiels neufs visés à un plan de garantie classe II (these are new residential multifamily buildings held in divided co-ownership comprising four or less stacked units).
  2. Make sure your client is accredited by the manager of the Guarantee Plan for new Residential Building (the “Guarantee Plan”) authorized by the RBQ, i.e. La Garantie de construction résidentielle (GCR), by checking the directory at Accredited Business Directory (in French only), or by asking for a copy of the certificate of accreditation issued by GCR upon initial accreditation or at renewal.
  3. Verify that the contractor or developer has registered the property with the Guarantee Plan at the earlier of:
    1. the signing of the enterprise contract (building contractor) or the preliminary sales contract (real estate developer);
    2. the issuance of the building permit; or
    3. the beginning of construction.
  4. If your services are required by a building contractor for a transaction involving the sale of a new building but the contractor does not own the land (e.g. when he is only the beneficiary of a right of ownership of the land conditional upon the completion of his construction project), where an Exclusive brokerage contract – Sale – Immovable (BCG) is signed with the contractor, indicate that the sale of the new building is conditional upon the acquisition of the land, and, if applicable, inform the buyer’s broker.
  5. If your services are required by a real estate developer for a transaction involving the sale of land for the construction of a new building by a contractor, where a BCG is signed with the developer, indicate that the sale of the land is conditional upon the construction of the new building by the contractor, and, if applicable, inform the buyer’s broker.

In the cases mentioned in points 4 and 5, the broker should refer to the article entitled Standard clauses for guidelines on drafting the clauses to include in the contract.

  1. Make sure the transaction under consideration is eligible for GST and QST rebates and deduct the amount of the rebate from the total sale price indicated on the preliminary contract for the purchase of the land and the new building in a single real estate transaction. Also, fill out the GST-QST New Housing Rebate Application published by Revenu Québec.
  2. Obtain a copy of the guarantee contract marked “Approved by the Régie du bâtiment du Québec” so you can give a copy to the buyer at the signing of the preliminary sales contract (land owned by the building contractor or developer) or of the building enterprise contract (land owned by the beneficiary).
  3. Obtain a copy of the plan and specifications so you can give them to the buyer and attach them to the preliminary sales contract.
  4. Obtain a copy of the subdivision plan so you can make sure to identify the correct lot.
  5. Ask whether the land is backfilled and if so, inform your client and the buyer.
  6. Make sure no notice of legal hypothec or notice of exercise of a hypothecary right has been registered in the Registre foncier du Québec (Québec Land Register) by any worker, contractor, sub-contractor, materials supplier, engineer or architect who has not been paid for his involvement in the building of the immovable. If such is the case, discuss this with your client and follow-up, including by continually monitoring the Land Register and Centris alerts.
  7. Limit the risk of your client facing the potential registration of a notice of legal hypothec by obtaining a complete list of his workers, sub-contractors and materials suppliers who are currently involved or have been involved in the building of the immovable. Try to obtain a discharge from these claims, and if unsuccessful, inform your client of the risks involved.

If you are acting as the buyer’s broker

A) Before signing a preliminary sales contract

When you represent a buyer, before the signing of a preliminary sales contract, make sure that:

  1. the building contractor or real estate developer holds a sub-category 1.1.1 or 1.1.2 RBQ licence, depending on the type of property, by checking the directory at Registre des détenteurs de licence RBQ;
  2. the building contractor or real estate developer is accredited with GCR by checking the directory at Accredited Business Directory (in French only), or by asking for a copy of the accreditation certificate issued by GCR;
  3. you obtain a guarantee contract marked “Approved by Régie du bâtiment du Québec” upon the signing of the preliminary sales contract (land owned by the building contractor or real estate developer);
  4. you recommend that your client read the guides published by GCR for buyers of new co-ownership properties or new houses, and that your client contact GCR if necessary;
  5. you review the plan and specifications with your client;
  6. you verify the subdivision plan in order to be able to identify the correct lot on the preliminary sales contract;
  7. you ask whether the land is backfilled and, if so, inform your client;
  8. no notice of legal hypothec or notice of exercise of a hypothecary right has been registered in the Registre foncier du Québec (Québec Land Register) by any worker, contractor, sub-contractor, materials supplier, engineer or architect who has not been paid for his involvement in the building of the immovable, as this type of claim is not covered by the Guarantee Plan. If such is the case, discuss this with the broker representing the building contractor or real estate developer and follow-up, including by continually monitoring the Land Register and Centris alerts.
  9. you limit the risk of your client facing potential legal hypothecs, including:
    1. before paying any deposits required, by trying to obtain a list of all workers, contractors, sub-contractors, materials suppliers, engineers or architects involved in the building of the immovable and of the sums due to them by the contractor to finish the work. This list will also enable you to contact them directly to find out the status, and therefore to advise your buyer adequately on the measures to take to protect himself;
    2. by getting the notary to retain a sufficient amount out of the sale price to pay the claims of anyone holding a legal hypothec on the immovable, until such time as the seller provides a discharge from these claims;
    3. by informing your client that a buyer can also take out title insurance in certain situations.

B) When drafting the preliminary sales contract

When you assist your client with the drafting of the preliminary sales contract, make sure that:

  1. in addition to the usual information required on the various preliminary contract forms published by GCR, particulars such as the conditions of obtaining a mortgage loan or of selling the buyer’s property are indicated;
  2. the specifications are attached and initialed by the parties;
  3. any other addition or requirement is mentioned in an annex;
  4. the subdivision plan is attached;
  5. the GST/QST rebate applies to your client as the individual purchasing the property to use a habitual residence for himself or for a close relation;
  6. the amount of the GST/QST rebate is deducted from the total sale price indicated in the preliminary contract for the purchase of the land and the new construction;
  7. the form GST-QST New Housing Rebate Application: Rebate Granted by a Builder, published by Revenu Québec, is duly completed;
  8. the buyer is informed of the fact that he may have to reimburse the building contractor or real estate developer for the amount deducted from the total sale price, including applicable interest and penalties, should the authorities refuse to grant the rebate to the buyer;
  9. you recommend to your client not to pay any deposits required by the building contractor or real estate developer beyond $50,000, which is the maximum amount protected under the Guarantee Plan;
  10. you inform the buyer that, under section 43 of the Regulation respecting brokerage requirements, professional conduct of brokers and advertising, a deposit must be deposited in the trust account of the broker’s agency, and if he refuses, he will lose the protection offered under the Real Estate Brokerage Act. If the buyer wishes to pay a deposit to the building contractor or real estate developer, make sure he has been clearly informed in writing of the protection he is waiving and obtain his signature authorizing this; and
  11. the property is registered with the Guarantee Plan.

C) At the time of delivery of the immovable

When the immovable is delivered:

  1. Recommend that the buyer conduct a thorough pre-acceptance inspection accompanied by a professional or a building inspector and note any relevant information on the form Formulaire d’inspection préréception – Bâtiment non détenu en copropriété ou bâtiment détenu en copropriété divise published by GCR and approved by the Régie du bâtiment du Québec, which may be obtained from the building contractor or real estate developer.
  2. After the inspection, your buying client has three days to complete this form and add items to the list of items to be corrected or finished (as long as he has not moved into the new property). Keep this completed list, duly signed by the buyer, and make sure to send a copy to the building contractor or real estate developer, as well as to GCR.
  3. Inform the buyer of the claims procedure and periods indicated in the guarantee contract in case of failure on the part of the building contractor or real estate developer to fulfil his contract obligations, and of the possibility of retaining sums from the amounts due on the sale price.

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Last updated on: October 11, 2022
Numéro d'article: 204116