Preliminary contract, a must for homes sold by a builder or promoter

When an existing or planned residential immovable is sold by the builder or a developer to a natural person who acquires it to occupy it, the Civil Code of Québec requires that the sale be preceded by a preliminary contract in which the person promises to purchase the immovable. This type of contract must be used regardless of whether a real estate broker is involved in the transaction as intermediary.

The preliminary contract must contain the stipulations required by the Civil Code of Québec, including a 10-day right of cancellation in favour of the buyer, a description of the work to be performed, and the breakdown of the sale price. These elements do not appear anywhere on the mandatory Promise to purchase form used by real estate brokers to sell a residential immovable containing less than five (5) dwellings (including divided or undivided co-ownership). In fact this form specifically states that it does not constitute the preliminary contract required under articles 1785 and following of the Civil Code of Québec.

Consequently, the broker may not use the Promise to purchase form for this type of transaction for a residential immovable, even by making it conditional to its content being transferred onto a preliminary contract. Doing this could result in major legal disputes, including when it comes to interpreting potentially contradictory content on both of these forms.

In order to represent his client properly for the sale of a residential immovable to a natural person by a promoter or builder, the real estate broker must require the use of a preliminary contract.

In this regard, Garantie de construction résidentielle (GCR), an independent non-profit organization, whose mandate is to administer a guarantee plan for new residential buildings for the entire territory of Québec, published the form Contrat préliminaire – Bâtiment non détenu en copropriété divise (Home) and the form Contrat préliminaire – Bâtiment détenu en copropriété divise (Condo) used by real estate promoters and builders licensed by the Régie du bâtiment du Québec and accredited by the GCR. These new forms replace those published by different building contractor associations that formerly administered the warranty plan for new residential buildings, including the Association provinciale des constructeurs d’habitations du Québec (APCHQ) and the Association de la construction du Québec (ACQ).

A broker who has never worked with this preliminary contract in the past should take the time to review it and not hesitate to consult his agency executive officer with any questions. Since this contract does not include any provision regarding payment of remuneration by the acting notary, the real estate broker may reproduce the following clause on the preliminary contract itself or on an annex thereto:

"The BUYER and the SELLER irrevocably instruct the acting notary to pay directly to __________________________, agency or broker of the SELLER, the remuneration amount set out in the brokerage contract to sell awarded by the SELLER from the available sums payable to the SELLER after payment of any prior or hypothecary claim and any disbursements or fees incurred by the notary to cancel these claims. Upon instruction from the agency or broker of the SELLER, the notary shall pay a portion of this remuneration to the agency or broker of the buyer."

This clause will need to be initialled by all parties to the contract.

To conclude, when the broker represents the buyer, he must ensure that a document evidencing that the immovable is registered in the warranty plan (e.g. certificate or letter) and the guarantee contract are remitted to the buyer.

For questions, contact Info OACIQ.