Municipalities’ pre-emptive rights

January 19th, 2023

Did you know that the city or municipality in which your property is located could have what the law calls a “pre-emptive right” on your immovable property, i.e. a right to purchase it in priority to any other person?

The adoption on June 9, 2022 of the Act to amend various legislative provisions mainly with respect to housing (the “Act”) gave the cities and municipalities as well as the public transit corporations and intermunicipal authorities (which we will refer to as “municipal entities”) of the province of Québec the power to grant a pre-emptive right in their favour to certain immovable properties within their territory; the Act amends the Charter of Ville de Montréal, metropolis of Québec, the Cities and Towns Act, the Municipal Code of Québec and the Act respecting public transit authorities, among others, accordingly. It should be noted that, until the adoption of this Act, the City of Montréal was the only city in Québec to have such a power.

The municipal entities concerned can now decide to impose a pre-emptive right on an immovable property if it is located in one of the territories previously determined by their by-laws. In such cases, any owner who enters into an offer or a promise to purchase with a third party must notify the municipal entity in question of the terms and conditions of the offer or promise; which municipal entity may then opt, within a period of sixty days, to purchase the property on a priority basis, in accordance with the same terms and conditions.

To do so, the municipal entity must first adopt the necessary by-laws, which must determine not only the territory or territories in which such pre-emptive rights may be exercised, but also the purposes for which the property may be acquired. Thereafter, if a municipal entity decides to exercise its power with respect to a property situated in a territory provided for in the by-laws, the property owner must be notified of the pre-emptive right, and the notice will have to be published in the land register. Such notice should specify the period for which the pre-emptive right is valid, the Act limiting the validity period to ten years or less.

Thus, even if an owner failed or neglected to disclose such a pre-emptive right to an interested buyer prior to the conclusion of an offer or promise to purchase, the right of pre-emption should be discovered during usual title searches in the land register.

Anyone drafting an offer or promise to purchase relating to any property subject to a pre-emptive right should consider the sixty-day pre-emption period granted to the municipal entity (beginning when it receives notice of the owner’s intention to alienate the property) during which it can indicate to the owner that it has decided to purchase the property in question on the same terms and conditions as those in the offer or promise to purchase. During said sixty-day period, the municipal entity may require the owner to provide certain information relating to the property, as well as access to the property (upon 48 hours notice) for the purpose of conducting surveys or analyses.

If the municipal entity waives its pre-emptive right and the property is sold or disposed of to the original third-party purchaser, the municipal entity must strike the notice of its pre-emptive right from the land register.

If the municipal entity decides to exercise its pre-emptive right, it will have to compensate the third party who intended to acquire the property for reasonable expenses incurred by it in negotiating the price and terms of the proposed transfer.

Finally, it should be noted that the sale of an immovable property subject to such a pre-emptive right may be rendered null if the owner did not previously notify the municipal entity concerned of his or her intention to dispose of the property.

However, a municipal entity cannot use this pre-emptive right to force an owner to dispose of his or her immovable property, as such a pre-emptive right, by definition, only applies if the owner of the properties subject to it already intends to dispose of or sell their properties. Similarly, since municipal entities must exercise their pre-emptive rights on the same terms as those set out in the offer or promise to purchase concluded between the owner and third-party purchaser, the owner will have the opportunity to determine the sale price of the property himself or herself.


Things to think about

One of the practical consequences that we foresee with respect to properties subject to pre-emptive rights is a dampened interest of potential buyers who may not wish to invest time and resources in negotiating an offer or promise to purchase without knowing whether the municipal entity will exercise its pre-emptive right or whether they will be fully compensated for the costs and expenses incurred in the process, particularly with respect to due diligence. In this context, the parties could agree that the costs of certain surveys or verifications will be borne by the seller in exchange for a corresponding increase in the purchase price of the property, should the transaction be completed. Following the adoption of the Act, it is likely that case law will clarify the nature of the amounts paid by the third-party bidder that will have to be reimbursed by the municipal entity exercising a right of pre-emption.

Moreover, it should be noted that such pre-emptive rights shall not apply when an owner disposes of an immovable property for the benefit of a person related to him or her under the Taxation Act (pursuant to the third paragraphs of sections 572.0.4. of the Cities and Towns Act, 1104.1.4. of the Municipal Code of Québec and 92.0.4. of the Act respecting public transit authorities). However, could it be possible to avoid the application of such a right of pre-emption by proceeding not through the disposal of the immovable, but rather through the sale of shares of a corporation that owns the immovable property?

It will indeed be interesting to see whether the concept of disposal of an immovable property under the laws mentioned above will be broadened, or, on the contrary, interpreted restrictively in the next few years by the different actors and the courts.