Annex R – Residential immovable
The terms and conditions for the purchase of a property vary from one transaction to another. Sometimes a buyer may wish to make his promise to purchase conditional upon the sale of another property. In such a case, Annex R – Residential immovable must be used with the following mandatory promise to purchase forms:
- Promise to purchase – Chiefly residential immovable containing less than 5 dwellings excluding co-ownership;
- Promise to purchase – Divided co-ownership – Fraction of a chiefly residential immovable held in divided co-ownership;
- Promise to purchase – Undivided co-ownership – Share of a chiefly residential immovable held in undivided co-ownership.
This annex can also be used to complement any other promise to purchase form that is recommended but not mandatory, such as the Promise to purchase – Immovable form.
1. Reference to principal form
The use of this annex requires a cross-reference to the main document to which it is linked, by completing the first section. The broker must enter in the boxes provided the number of the related promise to purchase form, which appears at the bottom right of the form and which usually consists of the letters PP, PPD or PPU followed by five digits. He must then identify the immovable to which the promise to purchase relates by entering the address of the property.
2. Optional conditions
Once the principal form has been referenced, the broker must check the boxes corresponding to the conditions to be added to the promise to purchase. An unchecked box does not apply.
R2.1 Sale of the buyer’s immovable
In residential real estate, it is not unusual for a buyer whose property is on the market but has not yet found a buyer to need the equity in his property to obtain financing and complete his purchase. He has no choice; unless his home sells, he can’t buy. There may also be times when the buyer can obtain financing without the condition of selling his property. In this case, the goal is to not increase his financial burden, even if he can. Generally, the buyer does this because he feels that the situation is urgent and he runs the risk that the property will sell quickly to someone else.
When the seller accepts this condition, it is a simple and firm undertaking on both sides, subject to the fulfilment of the condition. His decision must take into account the circumstances, his own situation and that of the buyer, general market conditions, the conditions specific to his sector, and the type of property.
In a very active market, for example, where properties sell at a price close to the listing price, or even higher in some cases, a promise to purchase conditional upon the sale of the buyer’s property is of little interest to the seller. If the broker represents the buyer, he should explain to his client that adding this condition to his promise could make it less attractive to the seller.
But in a market where buyers are scarce and the inventory of properties for sale is high, such a promise can be very attractive for the seller, and the broker will have to advise his client, whether buyer or seller, accordingly.
If the broker represents the seller, it may be advantageous to grant a right of preference in the circumstances, as this will reassure the buyer for a time. For the buyer, this approach is advantageous, as he will secure a right to the property, even if he is not in a position to purchase it right now.
Both the seller and the buyer have obligations arising from these conditions and will have to respect them; the first will have an obligation to sell his property, and the other, to put his property on the market and purchase the property on which he has made a promise to purchase should this property sell. They will not be released from these obligations until the end of the period to which they have agreed.
In the event that the promise to purchase is also conditional upon obtaining a mortgage loan, the condition will be satisfied by the submission, within the time period specified, of proof of an undertaking from a mortgage lender to extend a loan that meets the requirements of the financing condition, while being conditional upon the sale of the immovable described in R2.1.
The seller is giving the buyer a period in which to sell his property. The immovable to be sold must therefore be identified and the deadline by which the buyer must advise the seller that the sale has taken place and the condition has been fulfilled must be specified. The buyer will inevitably want to have as much time as possible, while the seller will want to minimize this period. The broker will have to advise the client he represents as to the deadline to be entered in this clause, taking into account the state of the market and the time it normally takes to sell this type of property, the time of year, the condition of the property, and the asking price
It is usually preferable, to make it easier to accommodate the particular circumstances and needs of the parties, to indicate the times of signing of the deed of sale (clause 11.1) and occupancy (clause 11.2) in terms of a time period calculated from a given event. When this is the case and clause R2.1 is used, the broker must ensure that the date in the clause is earlier than the end of the period for each of these two events by adjusting the wording of the clause concerning the signing of the deed of sale. For example, if the day of acceptance of the promise to purchase is May 1, and August 1 is indicated in clause R2.1, the broker must write in clause 11.1 of the promise to purchase regarding the signing of the deed “xx days following the fulfilment of clause R2.1” rather than “xx days following acceptance of the promise to purchase.” The number of days must be sufficient to allow the parties to do what they have to do. As for the occupancy date, it takes the form of “xx days from the signing of the deed of sale,” i.e. a period of only a few days. Furthermore, if the transaction is a link in a chain of transactions, the broker must ensure that the time frames provided for each one allow for each transaction to be completed.
Clause R2.1 is worded so that the buyer undertakes, before the date indicated, to notify the seller that the condition has been fulfilled; either he has in fact sold his property, or he waives the benefit of this condition, meaning that he buys the property even though he has not sold his own. In the latter case, he can only do so if he demonstrates to the seller that he has the necessary funds. If the promise to purchase is conditional upon obtaining a mortgage loan, this proof can be the unconditional undertaking by a mortgage lender to grant a loan corresponding to the financing conditions of the promise to purchase. Clause AV4.6 of the recommended form Notice and follow-up on fulfilment of conditions – Immovable may be used to send either of these notices.
Everything must be done within the specified time frame. If the buyer fails to notify the seller by the deadline of either of the two options available to him, or if he does so but does not accompany his notice with the required proof of availability of funds or financing, the promise to purchase becomes null and void.
The buyer is fully committed until the expiration of the deadline. He cannot withdraw during this period, as he is not given that option. Only one option for withdrawal may be available to him, namely when the promise to purchase provides that the seller may continue to offer his property for sale even though he has accepted a promise to purchase. The conditions under which this privilege is granted to the seller are set out in clause R2.2 of Annex R – Residential immovable, under which the seller grants the buyer a right of preference or first refusal.
R2.2 Privilege of continuing to offer the immovable for sale, with a first refusal clause
It is always possible for a seller to continue to offer his property for sale even if he has accepted a promise to purchase. This situation may arise, in particular, when the buyer requests that his promise to purchase be conditional upon the sale of his own property. When the seller agrees, he may want to continue to search for, find and qualify another buyer, without losing the first one. If he does so, the way to proceed must be clear to both parties in the event that another promise to purchase is accepted from a second buyer. It should be noted that this privilege granted to the seller does not automatically accompany the opportunity given to the buyer to sell his property. The two provisions are often combined, but not necessarily so.
Note that clause R2.3 is designed to be used when clauses R2.1 and R2.2 are included in the first promise to purchase.
For more information: Understanding first refusal clause R2.2 of the mandatory form Annex R – Residential immovable
R2.3 Acceptance conditional upon cancellation of another accepted promise to purchase
As a result of the privilege he has been granted of continuing to sell his immovable even though he has already accepted a promise to purchase, the seller must, under clause R2.3, inform a second buyer of the existence of a first accepted promise, and include in the second promise to purchase a provision to the effect that he undertakes to take steps to obtain the cancellation of the first promise to purchase once all the conditions of the second promise have been fulfilled, except for the cancellation condition and the signing of the deed of sale. Before cancelling the first promise to purchase, the seller must ensure that the second promise is firm. He does not undertake to obtain the cancellation; he undertakes to take the steps in good faith and at his own expense. The second buyer must be aware that it is possible that the first buyer will not cancel his promise.
For more information: Use of clause R2.3 to cancel a first promise to purchase conditional upon the sale of the buyer’s immovable, The importance of providing sufficient timelines in clause R2.3 and Cancellation of a previously accepted promise to purchase
R2.4 Promise to purchase conditional upon cancellation of any other promise to purchase
A seller may accept a promise to purchase conditional upon the cancellation of any other promise to purchase, without undertaking to take any steps to obtain such cancellation. This second promise to purchase constitutes for him a fallback position in the event that the first promise becomes null and void, for example because a condition is not fulfilled. What is agreed upon between the buyer and the seller is that the latter must advise the former in writing, within a certain period of time, of the fact that such a promise to purchase has been cancelled.
It should be noted that the use of clause R2.4 in conjunction with clause R2.2 has the effect of preventing the mechanism provided for, namely that the seller who has accepted another promise to purchase whose conditions are fulfilled sends the buyer a 72-hour notice. When he accepts the second promise to purchase, the seller cannot send a notice to the first buyer asking him to waive his conditions or to render the promise null and void within 72 hours. However, the seller must inform the buyer of the existence of this other promise to purchase.
The second buyer is bound to the seller for the duration entered in the clause, but he does not have to begin fulfilling his conditions for the purchase of the property until he has received a reply from the seller regarding the cancellation of the first promise to purchase. The time periods for his promise to purchase begin to run upon receipt of this notice, whereas under clause R2.3, the time periods for the second promise to purchase begin upon acceptance.
The date to be entered in clause R2.4 of a second promise to purchase must be subsequent to the expiration of the various deadlines of the first promise. Since the content of the first promise to purchase is confidential, the broker cannot communicate the details to the other buyer or to his broker. The only information he can provide to ensure that the deadline is consistent is a date that gives enough time for all the conditions to be met. The description sheets generated by the information listing systems on the properties offered for sale usually allow this information to be displayed as CPP (conditional promise to purchase) to which a date or a time period is added.
As in the previous situations, the promise to purchase automatically becomes null and void if the person who was supposed to notify the other that the condition has been fulfilled does not do so (in this case, the seller having to notify the buyer).
Note that the use of clause R2.4 allows the seller to accept not only a second promise to purchase when he has already accepted one, but also several others if the prospective buyers accept. Obviously, everyone will need to be informed of the situation and how it evolves. General market conditions favourable to the seller or an extremely desirable property can generate such situations.
For more information: The difference between the clause R2.3 and R2.4 of Annex R – Residential immovable and Guideline – Collaboration and remuneration sharing: 7. Disclosing the existence of any transaction proposal
R2.5 Remuneration to the agency or the broker bound by a brokerage contract to purchase – Instructions to the notary
If the broker represents a buyer under a brokerage contract to purchase, the broker’s remuneration may be paid from the available sums payable to the seller at the time of signing of the deed of sale, provided that the seller and the buyer agree to this in the promise to purchase. If this is the case, clause R2.5 of Annex R – Residential immovable must be appended to the promise to purchase, whether or not the seller is represented by another broker. If the seller is represented, the use of the clause is only relevant if the buyer’s broker’s remuneration is greater than that which the seller’s agency or broker has agreed to pay the seller as remuneration sharing in accordance with the terms of the brokerage contract to sell and as recorded on the detailed description sheet.
For more information:
Instructions to the notary regarding remuneration: a specific clause on this subject
Billing in cases where clause R2.5 is used
Including remuneration in the financing
New version of Annex R: To remember
Guideline – Collaboration and remuneration sharing: 9. Remuneration
3. Additional terms and conditions
If the promise to purchase includes provisions supplementing the previously selected clauses of Annex R – Residential immovable or other provisions not included in this or any other annex, the broker must set them out in clause R3.1 of section 3. Additional terms and conditions. Alternatively, they may be included in an Annex G – General.
4. Initials
In all cases where initials are required, the broker must ensure that all persons who are parties to the transaction, or their representatives, initial the document. A witness, whether the broker or another person, should also initial the document. Although the initials section does not include a date, the annex, if attached to the promise to purchase, must be initialed at the time of signing and not later.
