The Offer to Purchase a Condominium: Some Important Aspects
This article first appeared in French in the Spring 2019 edition of the magazine Copropriété Plus.
The high season for real estate transactions has begun. Are you thinking of selling your condo in order to pursue another project? Or are you looking for the condo of your dreams? The initial contractual link that will be established between the owner (seller) and the purchaser will be an “offer to purchase”, or “promise to purchase”. If a real estate broker acts as intermediary, he or she will use a standard form that will almost inevitably have to be modified and adapted. It is important to ensure that the offer to purchase you sign accurately reflects your requirements and expectations. Even if an experienced real estate broker is generally able to adequately answer your questions, you should not hesitate to seek out the services of a legal advisor to guide you. In addition, even if the offer to purchase stipulates certain conditions that must be met (such as obtaining sufficient financing, a satisfactory inspection report, the sale of a property by the purchaser beforehand) it remains that once concluded, the offer to purchase constitutes an actual contract, and not a mere preliminary agreement that can be set aside at will. Plus, the deed of sale that will ultimately be signed must contain the relevant terms and conditions of the offer to purchase.
It is not the intent of this article to provide an exhaustive analysis of all the aspects and variations of the offer to purchase, but to make readers aware of its importance and highlight certain major aspects.
Factors to consider if you are the seller
You should be aware that the purchaser has the right to inspect the condo, including the common and private areas. Generally the purchaser will retain a professional to perform the inspection within a limited period. The inspection report is addressed to the purchaser alone, who is responsible for paying for the inspector’s services. However, it is often the case that the report is provided to the owner as well, if the purchaser wishes to rely on the substandard condition of some of the components of the property in order to negotiate a reduction in price or to have remediation work done by the seller prior to the sale. You will see that the offer to purchase generally contains a clause to the effect that the purchaser can cancel the offer if the inspection reveals major defects or other problems. Often however the inspection will reveal only minor problems that can be resolved through a reduction in price or the performance of remedial work prior to the closing of the sale. Once that step has been completed, the purchaser can no longer raise arguments about the condition or appearance of the condo, provided of course that the latter remain substantially unchanged at the time of closing.
But what about potential defects the seller is unaware of, i.e. those not readily visible or even detectable? The two main warranties that the seller must give the purchaser are that he has good and valid title to the property and the property is free from hidden defects. Thus, even if the inspection is satisfactory and the sale is completed, the subsequent discovery of a hidden defect that existed at the time of the sale may give rise to a judicial claim for damages by the purchaser against the seller. While it is possible to reduce the scope of the warranty against hidden defects or even eliminate it altogether in certain isolated cases (where it is agreed that the sale is made without any warranty and at the purchaser’s sole risk) generally the seller should anticipate being required to fully warrant the property against hidden defects.
If the seller wants to exclude certain equipment or accessories from the sale, he must clearly specify this in the offer to purchase. For example, the seller cannot replace high-end lighting fixtures or bathroom or kitchen faucets with lower quality ones unless this right is clearly specified in the offer to purchase.
The seller must also provide the purchaser with the title deed(s) to the condo and the certificate of location in his possession. Standard-form offers to purchase systematically specify the seller’s obligation to provide the purchaser with a certificate of location accurately describing the state of the property at the time of the sale. Most syndicates of co-owners of a condominium building possess a certificate of location for the common areas only. A certificate of location is considered up-to-date if it covers all constructions that have been erected, the municipal regulations in force, the current zoning bylaw, etc. Thus, once an owner has decided to sell his condo, we recommend that he check in his files, or with the syndicate of co-owners, to ensure that the existing certificate of location is valid. If it is not, the prospective purchaser will likely insist on obtaining a new one.
In addition, the declaration of co-ownership, including any amendments to it, the bylaws of the building, the minutes of the annual and special meetings of co-owners, and the syndicate’s financial statements for the last few years are to be provided to the purchaser for review. It should also be noted that a prudent seller will have taken care to keep all invoices for work done on the condo, as the purchaser may request them if the seller mentions such work in the course of negotiations or in the offer to purchase.
If the seller fails to disclose relevant information to the purchaser and it appears that the latter would not have completed the transaction or would have insisted on a lower price had she been aware of that information, the seller has essentially committed fraud (in the form of a misrepresentation) which can be the basis for legal action. In such cases, the purchaser has two judicial options: claiming damages in order to be indemnified for the harm suffered, or applying for the annulment of the sale, if she can prove that she would not have purchased the condo had she known the facts that were kept from her.
The choice of the notary who will prepare the deed of sale and the related documents is the purchaser’s prerogative. Exceptionally, if a balance of sale remains payable by the purchaser, the seller may choose the notary. It is important to note that while the fees and costs associated with the deed of sale are the responsibility of the purchaser, those associated with cancelling the registration of any hypothec, prior claim or other real right charging the condo are the responsibility of the seller.
While not standard practice, the seller may ask the purchaser to pay a security deposit that will be kept in the trust account of the officiating notary, or of a lawyer who will then act as trustee. This amount may serve as liquidated damages that the seller may keep if, despite all the conditions provided for in the offer to purchase having been met, the purchaser decides, for no valid reason, not to complete the sale. If the sale goes through, this amount will be deducted from the purchase price at the time of the sale. It is highly recommended that all provisions regarding the security deposit be drafted by an experienced notary or lawyer, in order to minimize the risks of litigation.
A seller who is married and whose condo serves as the family residence must have his spouse consent in writing to the sale, in accordance with Article 404 of the Civil Code of Québec.
Finally, if the condo belongs to someone who is legally incapable of giving consent or whose mental state is unstable, only a mandatary named in a protection mandate homologated by the Superior Court, or named in a judgment instituting protective supervision of a person of full age, is legally authorized to represent the seller in negotiating with the purchaser and signing any documents pertaining to the sale of the condo. As these legal and judicial steps can take several months, it is better to prepare for them well in advance so as not to delay the sale.
Factors to consider if you are the purchaser
Certain obligations are incumbent on the purchaser in a real estate transaction, not the least of which is the obligation to be prudent and diligent.
First of all, the purchaser should be careful to condition the offer to purchase on the fulfilment of various preconditions, and stipulate a time limit for meeting each of them. These deadlines will be deemed “strict” or “of the essence” if they are clearly referred to as such. A deadline that is not strict is merely indicative and can be exceeded without fatal consequences. However, out of caution, the purchaser should communicate with the seller before a deadline expires in order to either waive the condition to which it applies, or inform the seller that if the condition is not timely met she will withdraw her offer to purchase.
If the offer to purchase specifies obtaining financing as a precondition, a prudent and diligent purchaser must take reasonable steps to do so. Some standard-form offers to purchase have a clause specifying that if the purchaser is unable to obtain financing, the seller may attempt to do so. In practice however this is rarely achievable.
As for the pre-purchase inspection, it is generally a stipulated condition, and should be considered indispensable by a prudent purchaser. In practice, it is the norm. A prudent and diligent purchaser must take reasonable steps to ascertain the true state of the condo and the building housing it. In addition, she must not hesitate to ask questions and inform herself regarding the various notations in this regard made in the offer to purchase or in the seller’s declaration that is included in the related documents. This declaration allows the purchaser to better inform herself on the condition of the condo and provides an answer to several commonly asked questions. It is also recommended that the purchaser verify the title deed(s), the building’s bylaws, the declaration of co-ownership and any amendments to it, in order to ascertain her rights and obligations regarding, for example, pets, access to the swimming pool, use of a barbecue, short-term rentals of the condo, the installation of a particular floor-covering in her unit or of a recharging station for an electric vehicle.
As mentioned above, the purchaser may insist on a certificate of location, as well as copy of the deed whereby the seller acquired the condo. In addition, the purchaser’s financial institution may require a copy of the certificate of location for the private area of the condo and the common areas of the condominium building. The purchaser is well advised to inform herself of her lender’s requirements so they can be accurately referenced in the offer to purchase.
Within the time period stipulated in the offer to purchase, the seller may accept the offer, reject it, or make a counteroffer which the purchaser may in turn accept or reject. When all the conditions stipulated in the offer to purchase are met, the undertakings of each of the parties become irrevocable as a matter of law. If one of the parties fails to honour his or her obligations, the other party may go to court to force it to sell or buy, as the case may be, and to claim any damages sustained due to the other party’s conduct.
In conclusion, it should be noted that the offer to purchase is not an inconsequential document, and it is often poorly understood and even very poorly drafted. While standard forms are useful, major modifications to them may be necessary to properly reflect all of the parties’ expectations. The watchwords are prevention and precision. For both the seller and the purchaser, the transfer of ownership of a condominium is an important legal act that must be properly consummated through intelligible and accurate documentation that faithfully reflects the parties’ intentions.