10. Declarations and obligations of the seller
A transaction proposal is not merely a unilateral undertaking by the buyer to purchase a property. The seller must also make various declarations and undertakings. The mandatory Promise to Purchase form, completed by the Declarations by the seller of the immovable form, allow him to do so.
The declarations made on the Promise to purchase form relate to the ownership of the immovable, the consent and concurrence of the seller’s spouse, and the seller’s resident status. It also includes statements regarding any existing transaction agreement for the immovable and the fact that it is not a new immovable sold by a builder or developer.
The undertakings made by the seller relate to the delivery of the immovable, ownership documents, possible costs of repayment and cancellation of any rights affecting the immovable, and possible defects or irregularities in the ownership title. It also includes an undertaking regarding the concept of family residence or the marital status, as well as an undertaking to pay damages to any broker bound by a brokerage contract to a buyer in the event of a fault on his part that prevents the signing of a deed of sale.
These declarations and undertakings are supplemented by the mandatory declarations made in the form Declarations by the seller of the immovable, in particular those relating to leases, mortgages, servitudes and other restrictions, including any notice of non-compliance received from an authority or an insurer. The declarations provided for in this appended form also cover all the immovable’s physical characteristics and systems.
Identity of the owner or authorization to act on his behalf
Canadian residence
Non-resident of Canada
Existence of a transaction agreement or a pre-emptive right in favour of a third party
New immovable – Builder or developer
Delivery of the immovable
Ownership documents
Costs related to repayment and cancellation
Defect or irregularity
Intervention of the spouse
Protection of the remuneration of the buyer’s broker bound by a brokerage contract to purchase
Identity of the owner or authorization to act on his behalf
The first declaration in this section is to be seen in conjunction with the first section of the Promise to purchase form, in which the seller is identified. This person confirms that he is the owner or is duly authorized to act on behalf of the owner. If there is more than one owner, they must all have been identified and make this declaration by signing the document.
If the buyer is represented by a broker and the seller is not represented, the broker must verify the identity of the seller, as he did for the buyer, and ensure that the seller is the rightful owner of the immovable by consulting the deed of acquisition in the Land Register, or that he represents the owner by obtaining a copy of the mandate, power of attorney or resolution authorizing him to do so. If the seller is represented, these verifications will have been carried out by his broker at the time of signing of the brokerage contract.
Canadian residence
In clause 10.1.2, the seller declares that he is a Canadian resident and that he does not intend to change his residence, otherwise the tax provisions allowing the tax authorities to recover what may be due will be applied. When this is the case, a portion of the sale price may be withheld by the notary in order to guarantee that any taxes due will be paid. The transaction can only be finalized when a certificate of compliance is issued by tax authorities. If these precautions are not taken, the buyer could, under certain circumstances, be responsible for them.
Non-resident of Canada
Where the seller is not a Canadian resident within the meaning of provincial and income tax legislation, the broker must cross out this statement, have the parties initial it and enter the information in clause 12.1 Other declarations and conditions or, if space is insufficient, in a recommended form Annex G – General. The broker representing the seller must have this information. If the seller is not represented, the buyer’s broker should have obtained this information at the time of his preliminary research. If the information is not obtained until after the promise to purchase has been drafted and presented, the broker should note the change in the form Counter-proposal to a promise to purchase. If the situation only comes to light after the promise to purchase has been accepted, and both parties agree, the change should be made on an Amendments form. If they do not agree to do so, then legal advice should be sought as this situation may prevent the transaction from proceeding as originally agreed and may have an impact on the broker’s remuneration.
For more information: Income Tax Act and Taxation Act concerning the sale of an immovable by a non-resident of Canada
Existence of a transaction agreement or a pre-emptive right in favour of a third party
Clauses 10.1.3, .4 and .5 require the seller to disclose to the buyer the existence of any agreement already in place to sell, exchange or lease the immovable, or any right of first refusal or preference that may have been granted to another person.
This could be a leased immovable for which the lessee has a right of preference or first refusal to purchase it if the seller puts it on the market. The terms of such a right vary depending on the situation. There may be an obligation for the seller to notify the beneficiary of the right of his decision to sell the immovable by giving him a certain period of time to manifest his intention to purchase. There can also be an obligation for the seller to forward to the beneficiary of the right of preference any promise to purchase that he may have accepted in order to allow him, within a certain period, to acquire the immovable by preference at the same price and conditions.
The declaration of co-ownership of some co-ownership properties provides that the co-owner or interest holder must first notify the other co-owners or interest holders of his intention to sell the property, and submit to them any promise to purchase received, so that they may have preference to purchase the property under the same terms and conditions as set out in the promise to purchase.
Finally, an immovable classified or located in a heritage site classified under the Cultural Heritage Act may not be sold without at least 60 days’ notice to the Minister responsible.
For more information: Cultural Heritage Act
Knowledge of this fact is essential for the buyer as it can have an impact on his interest in the property or on certain terms of the transaction such as deadlines, price offered or any other condition.
This information should be obtained before the promise to purchase is drawn up. This is not a question if the broker is acting for the seller, as he will already be aware. If the seller is represented by a broker, the buyer’s broker should ask him if there is already an accepted promise to purchase, with or without conditions to be fulfilled. The buyer must know from the outset whether or not his promise to purchase is conditional upon the withdrawal of the first buyer.
Whether the situation involves a promise to purchase conditional upon the sale of the buyer’s immovable, a lease, time periods related to the repossession of a dwelling, or time periods and terms to ensure that a person who already has a right to purchase under certain conditions or to purchase by matching any promise made will exercise his right or withdraw, the broker must take this into account when dealing with an immovable affected by such a right.
If indeed the immovable is already the subject of an agreement in favour of a third party for its sale or lease, the broker must strike out the paragraph, note a reference to clause 12.1 Other declarations and conditions where he will describe the agreement in question, and have the buyer initial it.
If it appears after the promise to purchase has been signed that there is in fact such an agreement, the broker, as with any aspect of the promise to purchase where the information is inaccurate, must make the required change by way of a counter-proposal, with the buyer subsequently being free to act on it or not.
A false declaration by the seller in this regard would likely constitute a breach of his undertaking and could jeopardize the transaction and cause prejudice to the buyer.
New immovable – Builder or developer
When a contractor or developer of a residential immovable built or to be built sells a building to a person who intends to occupy it himself, article 1785 of the Civil Code of Québec provides that the sale must be preceded by a preliminary contract.
The note at the very beginning of the mandatory Promise to purchase form is a reminder of this. If the sale of a residential immovable, built or to be built, is made by the builder of the immovable or by a developer to a natural person who intends to occupy it, this is not the right transaction document to use, in particular because it does not provide for specific clauses as to the characteristics of the building being sold,1 nor does it include a stipulation whereby the promising buyer may cancel the contract within ten days of its signing, since such a right does not exist in the Promise to purchase form.
For more information: Preliminary contract, a must for homes sold by a builder or promoter
1 Art. 1785 and following of the Civil Code of Québec
Delivery of the immovable
In the same way that the buyer has declared himself satisfied with the immovable visited on a given date, subject to the inspection that will be carried out and to any stipulation to the contrary made in clause 12.1, the seller undertakes to deliver the immovable in the condition in which it was at the time of the visit. Article 1718 of the Civil Code of Québec provides that the seller must deliver the property in the condition it is in at the time of the sale, with all its accessories. The seller shall have made any corrections or repairs, as indicated in clause 12.1, that he has agreed to make.
For example, during the visit, the buyer notes that the seller has started to remove the floor covering in the basement to replace it with previously purchased ceramic tiles. The broker must include in the Other conditions clause, subject to what is indicated in 7.1, that the owner must have completed this work, to the satisfaction of the buyer, before the signing of the deed of sale. The broker shall also provide, using standard clause 3.11 – Work to be performed by the seller, that a sum of money be withheld by the notary if the work is not completed; this amount will be used to reimburse the buyer for the costs he will incur.
Ownership documents
A seller who signs a brokerage contract for the sale of his immovable undertakes to provide to his broker a valid title of ownership and the ownership documents in his possession (see clause 8.3 of the brokerage contract to sell). The same undertaking is repeated in more detail in clause 10.3 of the Promise to purchase, this time to be provided to the buyer. The promise to purchase is also supplemented by accessory declarations relating to the guarantees given by the seller and certain actions that he must take.
By undertaking to provide a valid title of ownership, the seller confirms to the buyer that he is the owner and that no one else has rights to the immovable2. The notion of valid title is defined in the first paragraph, where it is specified that the immovable is sold free of any restriction to the right of ownership, other than the usual and apparent servitudes of public utility such as electricity, telephone and cable television services.
The seller also warrants against any violation of the restrictions of public law that affect the immovable and that are not governed by ordinary law, i.e. that do not stem from the Civil Code, but rather from specific laws. These restrictions may result from municipal zoning and subdivision regulations and from various related laws and regulations such as the Watercourses Act, the Cultural Heritage Act, the Act respecting the protection of agricultural land and agricultural activities and the Environmental Protection Act. The buyer must be informed of their existence and the seller mentions them in clauses D2.8, D2.9 and D.15 of the form Declarations by the seller of the immovable. He also mentions the existence of hypothecs, servitudes and any other charges or real rights.
The buyer’s broker must verify the existence of these restrictions of law and inform his client before drafting the promise to purchase. He must check the description sheet and obtain a copy of the declaration document and, if possible, a copy of the certificate of location. He can also consult the Land Register. By being informed of the existence of these restrictions, the buyer will be able to decide whether he wishes to buy under the same conditions, propose a different price or make the promise to purchase conditional upon their removal. These restrictions must be described in the promise to purchase along with any conditions relating to their cancellation or regularization.
Example 1: An income property has four dwellings; however, the basement dwelling does not comply with municipal by-laws on entrances and exits. The irregularity with respect to this restriction of public law must be corrected since a potential inspection by the municipality could result in the loss of rent and, consequently, a decrease in the value of the property. In a situation where the buyer is aware of the irregularity before making his promise to purchase, he should include a condition indicating that the seller undertakes to carry out work to bring the building into compliance, before the signing of the deed of sale.
Example 2: The purchase of an immovable located in an agricultural zone or an immovable classified or recognized as cultural property. Here again, the conditions and deadlines for obtaining the necessary authorizations must be specified.
2 Art. 1723 to 1725 of the Code civil du Québec
Costs related to repayment and cancellation
This provision clarifies for the parties to the promise to purchase the costs of repayment and cancellation of existing mortgages, as is done with the seller in clause 4.3 of the brokerage contract to sell.
Defect or irregularity
It can happen that, once the promise to purchase is accepted but before the deed of sale is signed, a defect or irregularity comes to light affecting one of the declarations made by the seller or one of the obligations he has undertaken in the promise to purchase. This can concern the right of ownership, titles and conditions, or the quality, warranties and compliance of the immovable and the buildings erected thereon. The consequences of this can be significant. The seller will have to remedy them. If he cannot do so, the buyer may wish to withdraw his offer or to go ahead with the purchase anyway, even if the seller’s obligations under the promise to purchase are reduced since the problem was disclosed.
This can lead to complex situations that are challenging for the parties involved because they may arise late in the transaction. They require problem-solving skills on the part of the broker. The promise to purchase provides a procedure to follow should this happen.
When a situation of this type arises, the first to be informed could be the seller or the buyer, depending on circumstances. The examples are many: a new certificate of location shows that the pool is within the clearance zone required by the electricity supplier, the notary discovers that, under the terms of a legal decision, an entry in the Land Register was never cancelled, the property gets flooded, causing severe damage to mature trees on the lot, contaminated soil, a garage encroaching on the neighbour’s lot, a non-compliant septic tank, a building declared uninsurable due to the zoning change, etc. Of course these must be situations that have not been previously disclosed by the seller, including in the Declarations by the seller of the immovable form. If applicable, the declarations form must be modified using an Amendments form.
If the seller is the first to be informed, he must notify the buyer in writing, describing the defect or irregularity. He may also immediately indicate his intention to remedy or not to remedy the defect. If the buyer learns of the situation, whether from the seller or otherwise, he must notify the seller of the defect in writing to trigger the mechanism set out in clause 10.5 of the promise to purchase.
The diagram below illustrates the first sequence of events set out in clause 10.5 of the promise to purchase:
For more information: Clause 10.5 of the promise to purchase, to ward off unpleasant surprises
Intervention of the spouse
In clause 10.6 the seller declares that his spouse, if applicable, consents to and concurs in the promise to purchase and will intervene in the deed of sale.
The circumstances are well defined: there will be intervention by the spouse if part of the immovable constitutes the seller’s family residence, or if the seller’s marital status makes this necessary, as is the case when the seller is married under the community of property regime.
The same applies to the way in which this is to be done. The seller must provide the buyer, upon acceptance of the promise to purchase, with a document attesting to the intervention of the spouse. If he fails to do so, the buyer may notify the seller that he renders his promise to purchase null and void.
The provision also allows, under specific circumstances, for the seller to provide a copy of a judgment authorizing the sale of the immovable without the consent or concurrence of the spouse.
The intervention of the spouse, set out in section 16. Signatures, allows the seller to fulfill this obligation. If the spouse does not sign at the time of acceptance of the promise to purchase, the seller may deliver another document signed by the spouse confirming this.
It may happen that the spouse consents and concurs to the promise to purchase, but cannot be present at the signing of the deed of sale. The document given to the seller must attest to the spouse’s consent to sell the immovable and confirm to the buyer that the seller can proceed without the spouse’s intervention.
For more information: Professional Practices Guide – The real estate broker’s practice and the law: Persons who are married or in a civil union
Protection of the remuneration of the buyer's broker bound by a brokerage contract to purchase
Clause 10.7 Damages is reciprocal to the provision in clause 7.6 for the payment of damages by the buyer to the seller’s broker if, through his fault, the deed of sale is not signed. The purpose is to protect the remuneration of the buyer’s broker who is bound to his client by a brokerage contract to purchase in the event that the seller, through his fault, causes the deed of sale not to be signed despite the fact that the promise to purchase has been accepted (e.g.: the seller unilaterally withdraws, without justification, and refuses to sign the deed of sale).
As with the previous clause, this clause does not protect the buyer against damages incurred should this situation occur. The buyer will have the option of suing the seller.
