8 things to know before signing an offer to purchase

02 April 2017 by National Bank
signing an offer to purchase

Purchasing real estate is one of the biggest investments one can make in their lifetime, which is why it is so important to fully understand the associated legal implications. Can an offer to purchase be cancelled? What is a latent defect? A defect of consent? Interview with Martin Janson, real estate lawyer at Janson, Larente, Roy in Montreal.

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1. Is there a difference between an offer to purchase and a promise to purchase?

The term “offer to purchase” is often used, but the correct term is actually “promise to purchase”. In this document, the buyer proposes an amount to the seller to acquire the property and sets a deadline for a response. Once the promise is signed, there is to a certain extent a contract. One party is obligated to purchase, while the other is obligated to sell. However, the buyer can stipulate conditions to the promise to purchase. The most common are obtaining the necessary financing, the sale of their current property, and a satisfactory inspection report.

2. Is it possible to cancel a promise to purchase?

Usually, no. There is no clause for changing one’s mind! If the buyer refuses to honour their commitment, the seller can sue for breach of contract. This is why it is imperative to be absolutely certain before signing a promise to purchase. One exception does exist: purchasing a new construction from a developer or a builder. In this case, the buyer has ten days to withdraw the promise. However, the developer can request a compensation that must not exceed 0.5% of the selling price.

3. What is an easement?

This is a right granted by the owner of one property to the owner of a neighbouring property. For example, an individual who owns a lakeside home allows their neighbour to access their property to put their rowboat in the water. However, for the easement to be binding, a contract or agreement must be drawn up and published on the Quebec Land Register. So if a property affected by an easement is sold, the easement will continue to exist. The owner of the lakeside home will be obligated to let their neighbour circulate on their property, even if they do not want to. However, there will be no obligation toward the neighbour if the agreement with the previous owner is not listed on the Quebec Land Register. The concept of vested rights does not apply to easements (except if a change made to municipal regulations affects a property’s compliance).

4. If there is a problem with the home purchased, is this a hidden defect?

Not necessarily. The problem must be serious enough to decrease the value of the house or prevent the buyer from fully enjoying it. A power outlet with reversed polarity is not serious, so does not constitute a latent defect. However, water infiltrations, the absence of a French drain, or foundations that are in poor condition are examples of potential latent defects.

Another criteria: the hidden defect is… hidden. It is not apparent during a routine visit of the house. However, if stains on the ceiling, the smell of humidity, or other indicators give a reason to suspect a problem, the buyer must be cautious and investigate further. If not, it will be difficult to convince a court that the problem is a latent defect. Finally, for the defect to be latent, it must have existed at the time the new owner purchased the house, and the previous owner must have been unaware of its existence.

5. What are an owner’s rights when a latent defect is discovered?

You must notify the seller in writing as quickly as possible, ideally within six months. There is no specific deadline, but the Civil Code indicates that notice must be given within a reasonable period of time. The notice should mention that the previous owner has approximately ten days to assess the problem and take the necessary measures to remedy it. Most importantly, do not carry out repairs during this period. Since the seller is responsible for the quality of the building sold, they have the right to take care of it. Doing the work without giving the seller time to address the problem can be fatal if the issue of the latent defect is brought to court.

Is the problem urgent? If there is water infiltration, you can fix the problem before there is a new pool in your basement! But to preserve the right to sue, only do what is necessary to avoid further damage.

If the seller does not respond to the notice or refuses to make the necessary repairs, formal notice is sent to ensure repairs are made, failing which a lawsuit will be brought. If the previous owner does not comply, you can begin the repairs and sue. You have a delay of three years from the time the latent defect is discovered to bring a lawsuit. To increase your chances of winning, an expert should assess the latent defect. The expert must be impartial, meaning that they should not be hired to carry out the repairs.

6. How can latent defects be avoided?

There is no foolproof method. But to minimize the risk, it is important to get the house inspected before purchase. A true hidden defect is not visible, but an inspector can often find many indicators that the average buyer can miss. An inspection allows for a more comprehensive verification and can lead to the discovery of the problem before purchase. Legal proceedings for latent defects can take over two years and incur high legal fees. It is important to do everything possible to avoid this.

7. What does purchasing a building without legal warranty mean?

Under the Civil Code of Quebec, houses are sold with the warranty of quality. The seller of a property is thus required to guarantee the property is free from defects, except for those disclosed. To be released from this obligation, they can however sell without a legal warranty. In this case, the buyer will have no legal recourse against the seller if they discover a latent defect. Consequently, the buyer must be ready to assume this risk.

8. What is a defect of consent?

When the seller fails to disclose information or deliberately misleads the buyer to persuade them to purchase the building, they commit what is known as dolus (fraud) in legalese. This fraud nullifies the buyer’s consent since if they had known the truth, they would not have completed the transaction or would have negotiated a lower price. If the buyer can prove the seller withheld certain facts, they can be compensated.

Ed: There are major and complex differencies from a province to another in terms of real estate laws. It would be basically impossible to be exhaustive and relevant on this topic on a pan-Canadian scale. That’s why we made the choice to focus this interview uniquely on the Quebec’s context.

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Where do I start if I want to buy a home?

We're here to answer your questions.
Even from a distance.

Learn more