Notice and follow-up on fulfilment of conditions
When the negotiation between the seller and the buyer ends in an agreement, there are usually conditions attached to the agreement that must be acted upon within specified time frames. These conditions are set out in the promise to purchase, in the accepted counter-proposal, in the annexes, which can include Annex R – Residential immovable, and in any other document such as the Amendments form that completes or amends their agreement.
To guide his client in the follow-up on conditions, the broker should follow the calendar and use the tools at his disposal, such as the standard letters or the recommended form Notice and follow-up on fulfilment of conditions – Immovable. This document can be used in most situations where a client needs to send a notice to the other party.
The form Notice and follow-up on fulfilment of conditions is not to be used to amend a promise to purchase, but only for one of the parties to an accepted promise to purchase to notify the other party that conditions have been fulfilled or that the promise to purchase is null and void.
For more information: Accepted transaction proposal: The importance of obtaining proof of receipt when following up on conditions
AV1. Identification of the sender
Since this is a notice from one person to another, the first step is to identify the sender and the recipient by checking the appropriate box for each and entering their respective names. The names of all buyers and sellers must be entered.
AV2. Identification of the immovable
The address of the immovable concerned must be entered. It must match the address entered on the promise to purchase and on the other transaction documents.
AV3. Identification of the form
The form in relation to which notices are being given must be identified by entering the form reference number (Promise to purchase, Annex R, Counter-proposal or name and reference number of any other annex or document containing a condition to be acted upon).
AV4. Follow-up on fulfilment of conditions
To make the promise to purchase null and void
Because several forms contain clauses that provide for the possibility of rendering a promise to purchase null and void by sending a notice, the first notice allows the seller or the buyer to advise the other party that he is rendering the promise to purchase null and void. This notice is general in nature, in that it refers to one or the other of the forms previously identified. The broker must simply enter the clause number of the form or document whose terms provide for cancellation, and sometimes attach documents, such as an inspection report, that would support the cancellation of the promise to purchase.
For more information: The importance of confirming the cancellation of a promise to purchase
New hypothecary loan – Application by the buyer with a new lender designated by the seller
Clause 6.3 of the promise to purchase provides that where the seller does not receive from the buyer a copy of a mortgage lender’s undertaking to grant a loan in accordance with the terms of clause 6.1 within the period specified in clause 6.2, or if the seller receives a notice of refusal from the lender, the seller may require the buyer to apply to a new lender designated by the seller. Clause AV4.2 allows the seller to notify the buyer of this requirement within five days following expiration of the first deadline. After checking the box, the broker must indicate the name of the designated lender and the time frame for the buyer to apply and provide the seller with the lender’s undertaking to grant the loan.
For more information: The financing clause
Building inspection
Once the inspection of the immovable has been carried out under the terms of clause 8.1 of the promise to purchase, the buyer may declare himself satisfied with the results – which means that the condition has been fulfilled – or declare himself not satisfied, in which case he must notify the seller that he is rendering his promise null and void by attaching a copy of the report to his notice. If the buyer is declaring himself satisfied, he may do so after receiving and reading the report or without waiting for the report, in which case it is recommended that he specify that he has not received it. Clause AV4.3 sets out these three options.
Remember that the best practice is to allow the buyer the full period provided for in the inspection clause to have the inspection carried out, to obtain and read the report, and to decide whether to render the promise null and void.
The notice by which the buyer informs the seller that he waives the reading of the inspection report should be used with caution. Brokers should not systematically advise a buyer to waive the reading of the inspection report, as this could, in some cases, become a source of dispute (e.g.: the written report subsequently reveals an element that was not previously disclosed verbally by an inspector during the inspection). This notice could, however, be checked off in the event that a second buyer insists on quickly fulfilling the inspection condition provided for in his promise because of another promise to purchase already accepted by the seller with a condition of sale of the buyer’s property. Thus, the use of this notice would have the effect of accelerating the seller’s efforts to have the first accepted promise to purchase cancelled.
Finally, where the buyer has the inspection report in hand, it is never appropriate for the broker to advise the buyer to forego reading it. It is only when the buyer is waiting for the inspection report and wants to speed things up that this notice could be checked off.
For more information: Cancelling a promise to purchase following an inspection
Review of documents
The provision of the promise to purchase regarding the review of documents is about the buyer’s full satisfaction. He can declare himself satisfied – in which case the condition is fulfilled – or not satisfied, which allows him to render the promise null and void. He can also declare himself not satisfied if he has not received all the documents within the time period indicated, and render his promise null and void. The notices in clause AV4.4 cover these three situations. It should be noted that this follow-up on conditions does not allow for the missing documents to be requested, even if the deadline is extended, since this option would constitute an amendment to the promise to purchase.
The best practice is to allow the buyer the full period provided for in the document review clause so that he has all the time he needs to examine the documents and seek advice if necessary before declaring himself satisfied.
Notice of defects or irregularities
Clause 10.5 of the promise to purchase provides a mechanism in the event that a defect or irregularity is disclosed to the buyer in relation to the seller’s obligations or declarations. For example, the review of the certificate of location by a notary may reveal discrepancies in the ownership title that need to be remedied. The buyer can ask the seller to remedy the situation, choose to purchase despite the irregularity, or simply render the promise null and void. For his part, the seller may be required to notify the buyer that he has or that he will not remedy the problem. AV4.5 provides for these five possibilities, which means that this annex will be used by the buyer and the seller at different stages, depending on the flow of events.
Sale of the buyer’s immovable
It may happen in a transaction that the purchase is conditional upon the sale of the buyer’s property; the seller thus grants the buyer a sort of right of first refusal for a certain period. Under clause R2.1 of Annex R – Residential immovable, the buyer is required to notify the seller within the specified time period that the property has been sold and that the buyer has obtained his financing. If the property has not sold, the buyer must notify the seller that he is waiving the benefit of the condition by providing one or more documents showing that he has the necessary funds. Clause AV4.6 provides for both possibilities, with the buyer choosing which of the two notices to send. In the case of the second notice, the broker must describe the accompanying documents.
72-hour notice to the buyer
When clause R2.1 of Annex R – Residential immovable is used, it is usually accompanied by clause R2.2, which allows the seller to continue to sell his property. Under this clause, the seller must notify the buyer in the event that he accepts another promise to purchase in which all the conditions are fulfilled. Once informed, the buyer must in turn notify the seller that he waives the benefits of the various conditions of the promise to purchase, including that of selling his own property, and must accompany his notice, if applicable, with documents showing that he has the necessary funds. The buyer’s failure to respond to the seller within the 72-hour time period will render the promise null and void, allowing the seller to finalize the transaction with the second buyer. Clause AV4.7 provides for the two notices that may be required by this condition.
Cancellation of an already accepted promise to purchase
A seller who accepts a promise to purchase after having already accepted another promise to purchase must include a provision in the second promise to purchase that makes it conditional upon the seller being able to cancel the first promise. Clause R2.3 of Annex R – Residential immovable should normally be used in such a case. It provides that the seller must notify the second buyer, within a certain period of time, that the first promise to purchase has been rendered null and void. If he does not do so, the second promise to purchase becomes null and void. Clause AV4.8 may serve as such a notice.
Cancellation of any other promise to purchase
A seller could also accept a promise to purchase by making it conditional upon the cancellation of any other promise to purchase. This can act as a fallback position in the event that a promise by which he is already bound becomes null and void. This promise to purchase must then include a provision whereby he must notify the buyer, within a certain period of time, of the fact that such a promise to purchase has been cancelled. Clauses R2.4 of Annex R – Residential immovable and P2.4 of the Counter-proposal form are to this effect.
The notice to be sent by the seller to notify the buyer that the seller has rendered another promise to purchase null and void may be sent using clause AV4.9. The broker must indicate under which clause the notice is sent.
AV5. Others
The form Notice and follow-up on fulfilment of conditions can be used even if the notice to be sent by the seller or the buyer is not mentioned in clause AV4. In this case the broker must enter it in clause AV5, which can also be used to complete one of the existing clauses when the space provided is insufficient.
It is important to remember that clause AV5 should never be used to make amendments to a promise to purchase; the form to use for this purpose is the Amendments form.
AV6. Signatures
As sender or recipient, as appropriate, each signatory to the promise to purchase must sign the Notice and follow-up on fulfilment of conditions form, indicating date, time and place of signing. The broker must specify whether the signatories are acting as buyer or seller by checking the appropriate box.
