The financing clause

Financing questions

Mrs. Jai-Trouvé visits a pretty waterfront property with her broker, Mr. Bellemaison. She falls in love with this property and decides to present a Promise to purchase.

Mr. Bellemaison completes the mandatory form Promise to purchase – Chiefly residential immovable containing less than 5 dwellings excluding co-ownership and presents it to the seller’s broker. After negotiations, the Promise to purchase is accepted. The periods allocated for the fulfilment of conditions are 10 days for obtaining a financing (clause 6.2) and 7 days for the building inspection (clause 8.1) following acceptance of the Promise.

On the 11th day of the period specified to obtain financing, the seller, Mr. Se-Demande, still has not received a copy of the undertaking by Mrs. Jai-Trouvé’s hypothecary lender. This raises several questions:

• Is there something the seller can do?
• Is the Promise of purchase automatically cancelled if the financing is obtained after the period specified in clause 6.2?
• What happens if the amount of the buyer’s hypothecary undertaking is higher than what is specified in clause 6.1?

The seller’s broker contacted the OACIQ Info Center. Here are the answers he received to his questions.

The period in clause 6.2 begins on the day after the Promise to purchase is accepted, but this is not a strict deadline since the Promise is not automatically rendered null if the clause is not respected. However, it can be risky for a buyer to continue to look for financing following the expiration of the time period in clause 6.2, because the seller can then exercise the mechanism stipulated in clause 6.3 of the Promise to purchase. This mechanism begins as soon as the time period in 6.2 expires and gives the seller 5 days to exercise one of these two options:

1- Notify the buyer in writing that the seller requires him to file a new application for a hypothecary loan at his own expense with the financial institution designated by the seller and within the time period specified by the seller (note that clause AV4.2 of the form Notice and follow-up on fulfilment of conditions can be used for this purpose). If the buyer does not obtain a hypothecary undertaking in accordance with the terms set out in 6.1 within the time period specified, the Promise to purchase becomes null and void. However, an undertaking provided to the seller within that period has the effect of fully satisfying the condition.

OR

2- Render the Promise to purchase null and void. If the seller fails to exercise one of the options in clause 6.3 within the 5-day period, the Promise to purchase becomes null and void on the 6th day.

If a Promise to purchase is presented by another buyer within the period specified in clause 6.3, can the seller accept it?

Yes, by ranking it second and making it conditional upon the cancellation of the first Promise to purchase (using clauses R2.3 or R2.4 of the form Annex R – Residential immovable). If the seller’s intention is to make this first Promise to purchase null and void as soon as the time period in clause 6.2 expires, he should notify the first buyer of this cancellation in writing in order, among other things, to avoid selling the immovable twice! (Note that clause AV4.1 of the form Notice and follow-up on fulfilment of conditions can be used for this purpose even after the expiry of the time period indicated in clause 6.3).

If, after the financing deadline expires and before the seller exercises the mechanism in 6.3, the buyer provides a hypothecary undertaking with a loan amount higher than what is specified in 6.1, can the seller refuse it?

No. Clause 6.2 states that the undertaking by a hypothecary lender must be for a loan in the amount set out in clause 6.1 or higher. Thus receipt of such an undertaking would have the effect of fully satisfying the conditions in 6.1. In addition, remember that the time period indicated in clause 6.2 is not a risk period and that non-compliance with it does not make the Promise automatically null.