11. Declarations and obligations common to the buyer and the seller
In addition to the respective declarations and undertakings of the buyer and the seller, the mandatory Promise to purchase form contains several other declarations and obligations that are common to both parties. These include certain conditions relating to the deed of sale, occupancy of the premises and tax adjustments, as well as the expenses and revenues of the immovable. The designation of the goods included in and excluded from the sale, as well as the instructions to the notary regarding the real estate broker’s remuneration, when it is to be paid out of the proceeds of the sale, are also part of these other declarations and obligations.
Most of these declarations and obligations are indicated by the seller in his listing documents and will be repeated or amended by the buyer in his proposal, and then accepted, refused or countered by the seller. Ultimately, the broker will clearly explain the obligations that have been discussed and negotiated by the parties.
Signing of the deed of sale
Occupancy of premises
Adjustments
Subsequent occupancy of premises
Agency of broker remuneration – Instructions to the notary
Brokerage contract to purchase
Inclusions
Exclusions
Service and leasing contracts
Instalment sales and other contracts
Signing of the deed of sale
In clause 11.1, the parties undertake to sign a deed of sale before a notary on a given date. The name of the notary and the date must be indicated in this clause. The notary is chosen by the buyer and the buyer assumes the costs of the deed of sale and its publication as well as the costs that may be required for the preparation and registration of the deed of mortgage.
When the buyer is ready to draw up his promise to purchase, it is important that he already know the name of the notary whose services he will use. This should be part of his preparations, as should the search for a lending institution or a building inspector. These parties should be known before the transaction begins.
The inclusion of the notary’s name on the promise to purchase facilitates further communication, since the seller and the brokers will already know with whom they will be dealing. The seller may want to contact the notary, for example, about the release of his own mortgage, and he will not be caught by surprise when the notary calls. Knowing who the notary is in advance can be very helpful in the event of complications, as there is a legal resource already identified that everyone can turn to for advice.
If the buyer does not know the name of the notary, the broker can enter “buyer’s notary.” Do not leave the space blank, as this could leave room for interpretation and the seller may want to impose his own notary.
There are circumstances where the acting notary is the seller’s notary, particularly in the case of undivided co-ownership or when the buyer does not pay the full sale price, the seller having agreed to a balance of the sale price. This is also generally the case in matters of new constructions, where the developer requires that his own notary be used.
A date for the signing of the deed of sale must be specified in order to provide a time marker. This is the end of the transaction process toward which everything converges. If no date is indicated, the objective becomes a kind of wishful thinking and the chances of achieving it without complications are greatly reduced.
The date of signing of the deed of sale must be realistic and take into account the time periods required at each stage of the transaction. The buyer can choose the date that best suits his needs, but he must also take into account the seller’s indications, which usually appear in the description sheet. It is not uncommon for this date to be a matter for negotiation.
The date is provided as an indication with the use of “on or before,” which includes the date stipulated. This is not a strict deadline, as the clause does not provide for any consequences for delay or default. Deviating from this date does not automatically render the transaction null and void. However, it may create a significant dispute between the parties and possibly result in the cancellation of the promise to purchase, depending on circumstances. There may be other consequences such as compensation for damages.
If the buyer and seller want to make this deadline more binding, they can do so by providing, for instance, for financial compensation by the party causing the delay or by agreeing that the promise will become null and void. They may also want to set an exact date, which can also be done. But if the parties are leaning in this direction, the broker should advise them not to go that route, as the steps that follow involve a lot of uncertainty and there could easily be unforeseen circumstances.
Some flexibility is desirable in the choice of date for the signing of the deed of sale, given the convergence of the many interventions by different people that will follow. The broker should make the buyer and seller aware of this fact, especially if they wish to provide for a consequence in case of delay.
In the event that the seller or the buyer does not show up at the notary’s office, the injured party should seek legal advice and possibly initiate an action in title transfer or in damages.
Because the promise to purchase and its annexes are likely to contain personal information, clause 11.1 includes a statement whereby the seller and the buyer consent to the broker forwarding the information contained therein to the notary. The documents pertaining to the transaction will also have to be sent to the notary, within the time frame he indicates, to enable him to respect the date scheduled for the signing of the deed of sale. This includes the promise to purchase and its annexes, the deed of sale and the certificate of location, the various mortgage documents and other ownership titles. It may also include invoices for brokerage fees, proof of insurance and all the documents and information he will need to calculate the adjustments.
Finally, the promise to purchase clearly states that the buyer will become the owner as of the signing of the deed of sale.
For more information: Chain transactions… allow a time period for the signing of the deed of sale
Occupancy of premises
In clause 11.2, as for the signing of the deed of sale, the buyer may enter the date and time of his choice, with or without taking into account the indications given by the seller in the description sheet. This element is also likely to be subject to negotiation.
The occupancy date is closely related to the date of signing of the deed of sale, which is when the buyer becomes the owner. If one of these two dates is changed during the course of the negotiation, the broker must verify if the other date needs to be modified accordingly.
The date of signing the deed of sale and the date of occupancy of the premises may be the same, but they may also differ by a few days, weeks or months.
Even if it is customary for the keys to be given to the buyer on the day of signing of the deed of sale, it is also possible for the seller to give them to the buyer on the occupancy date. Everything should be made clear before going to the notary’s office so that the details don’t take up too much time and hamper the proceedings.
For more information: What is the time frame to allow between the date of the signing of the notarized deed and the occupancy date?
Adjustments
On the date of signing the deed of sale, the buyer may have to reimburse the seller for expenses already incurred in connection with the immovable. This is the case for general and special property taxes, fuel reserves, and income and expenses relating to the immovable. The notary will have to take these into account when calculating the total sums due by the buyer and to be paid to the seller. These are referred to as “adjustments.”
They include municipal and school taxes and any taxes that may be imposed by the municipality or other public body for specific works, such as sewer repairs. Municipal and school taxes are paid in advance, in instalments or in a lump sum. Municipal taxes cover the period January 1 to December 31, while school taxes cover the period July 1 to June 30. The notary will obtain confirmation of what has been paid and what remains to be paid and will calculate, based on the number of days elapsed or remaining, what the buyer must reimburse to the seller. For example, if the transaction takes place on June 1 and all taxes for the year have been paid by the seller, the buyer will have to reimburse the seller for the equivalent of the municipal taxes for the period from June 1 to December 31, and from June 1 to June 30 for the school taxes.
The fuel can be either oil or propane gas. It is customary for the seller to fill up the tank a few days before the day of the sale, so that the amount owed by the buyer is easier to calculate. It is preferable to use the maximum tank capacity and the current cost of fuel as the calculation values, rather than an estimate of quantity and a price that may be a few weeks or months old.
Income and expenses relating to the immovable include rents, which are payable in advance at the beginning of each month, and expenses such as snow removal or property maintenance costs that would have been paid in advance for a full year, or repair costs incurred by the seller and for which reimbursement by the buyer was provided for in the promise to purchase.
In the previous example concerning taxes, the calculation is made by taking as a reference the day of signing of the deed of sale. This calculation could also be made at the time of occupancy or at any other time agreed to by the parties. The Promise to purchase form allows the buyer to choose between the date of signing of the deed of sale and the date of occupancy. When completing the form, the broker must indicate the date chosen by the buyer and explain the financial consequences of this choice, which can be significant. It is customary for the adjustments to be calculated as of the date of signing of the deed of sale, even if there is a few days’ difference between this date and the date of occupancy. The buyer could choose to have the adjustments calculated as of the date of occupancy, even if the difference is only two or three days. However, when the difference significantly exceeds the few days used to register the transaction, the broker must assess the financial consequences. Making adjustments based on the date of occupancy results in delaying the time when the buyer assumes payment of taxes and other expenses relating to the immovable, which is to his advantage. However, it also delays the collection of rents, if applicable.
Whether the broker represents the seller or the buyer, he should make this calculation. If the time chosen for the calculation of adjustments is not one of the two dates provided, the broker must include a specific clause to that effect in section 12. Other declarations and conditions, strike out the text accompanying the two boxes to be checked in clause 11.3, as well as the reference to the date of signing of the deed of sale in the following paragraph pertaining to adjustments in case of occupancy subsequent to that date.
Subsequent occupancy of premises
If the seller continues to occupy the immovable after the signing of the deed of sale, the Promise to purchase form provides an adjustment relating to this occupancy. In this case, it is the seller who must pay the buyer a sum equivalent to a monthly amount calculated from the date of signing of the deed of sale until the date of occupancy. The broker must enter a specific “monthly” amount. Do not write “to be negotiated.” Put a line through the space provided if there is no compensation. In calculating the adjustments, the notary will take into account the total number of months and days elapsed.
This is not rent, but rather compensation, which the buyer is not required to add to his income when filing his tax return. This avoids creating a lessor/lessee situation, which is subject to housing regulations. The clause also provides that the seller will continue to pay for the energy and maintenance relating to the premises during this period and will supply the buyer with proof of liability insurance, at his expense.
Normally, the notary prepares separate worksheets for the buyer and the seller. These show the amounts allocated between them and the amounts that may be owed to third parties. For example, in the case of the buyer, they include the fees owed to the notary for the preparation of the deed of sale, and in the case of the seller, the amount to repay his mortgage, the remuneration owed to the broker or the amount owed to the land surveyor for the preparation of the certificate of location.
Agency of broker remuneration – Instructions to the notary
The right to remuneration of the seller’s broker arises from the brokerage contract between the seller and the broker. The right to remuneration of the buyer’s broker normally stems from a second agreement relating to the sharing of remuneration between the seller’s broker and himself. The terms of this sharing are set out in the brokerage contract to sell, so that the seller is aware of them, and they are mentioned in the information on the immovable registered with the information listing service used by the seller’s broker. The buyer’s broker’s right to remuneration may also come from the brokerage contract to purchase that he has entered into with his client.
Although the brokerage contract to sell or purchase signed with the client establishes the broker’s right to remuneration, these contracts do not assure that the buyer’s broker will be paid from the proceeds of the sale. Clause 11.4 of the Promise to purchase ensures that the seller’s broker will be paid from the proceeds of the sale. It states that this remuneration may be paid to him by the notary and that the notary, upon instruction from the seller’s broker, may pay a portion of it directly to the buyer’s broker. The seller and the buyer agree to facilitate the collection of the remuneration by instructing the notary. The notary must follow up on these instructions, as he is responsible for the remittance under the terms of the promise to purchase.
The broker must therefore enter in clause 11.4 the name of the seller’s agency or broker and not that of the buyer’s agency or broker. The seller’s agency or broker has discretion to receive the full amount of its remuneration and pay the buyer’s agency or broker directly, or it may instruct the notary to do so. The buyer’s agency or broker, in the context of a collaboration, cannot demand to be paid directly. The invoice must be forwarded to the seller’s agency or broker, who will instruct to the notary. The latter may charge a fee for making these payments. If this is the case, the broker must verify the amounts.
Finally, in the event that there are prior claims or hypothecary claims (which are not assumed by the buyer), clause 11.4 states, in accordance with the provisions of the Civil Code of Québec relating to hypothecs and priorities, that the broker’s remuneration will be paid 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, notably for cancelling these claims and other costs. Consequently, it is always advisable to make sure that the seller has enough equity in his property for the broker’s remuneration to be paid in full.
Brokerage contract to purchase
In the case where the agency or the broker collaborating in the transaction is bound by a brokerage contract to purchase, clause 11.4 may be supplemented by clause R2.5 of Annex R – Residential immovable, so that the seller and the buyer instruct the notary to pay directly to the buyer’s broker the remuneration due under the contract, less the remuneration to be paid by the seller’s broker in accordance with the sharing terms that have been established.
In addition, the use of this clause requires consideration of the Canada Mortgage and Housing Corporation (CMHC) policy on the inclusion of real estate brokerage fees in the purchase price. CMHC will consider a purchase price that includes a real estate broker’s remuneration, provided that the amount is included in the sales contract and that the total purchase price, including the fees, does not exceed the market value of the property.
Whether or not it includes remuneration for the seller’s broker or the buyer’s broker, the purchase price indicated in the promise to purchase is the purchase price that the CMHC-approved lender must submit to the agency for analysis. A real estate brokerage fee negotiated outside of the promise to purchase is not eligible for CMHC-insured financing.
As is the case with clause 11.4, clause R2.5 of Annex R provides that the sums shall be paid to the agency or the broker working on his own account from the available sums payable to the SELLER after payment of any prior and hypothecary claims and any disbursements or fees incurred by the notary for cancelling these claims. Also, the use of clause R2.5 will be facilitated if the amount of the remuneration stipulated in the brokerage contract to purchase is a lump sum rather than a percentage. With the client’s agreement, the broker could modify the brokerage contract to purchase, using an Amendments form, to stipulate a lump sum if a remuneration percentage was used in the contract.
For more information: Guideline – Collaboration and remuneration sharing: 9. Remuneration and Remuneration payable by the seller: Exclusive brokerage contract – Sale
Inclusions
When a residential immovable is offered for sale, it usually includes certain items. These are listed in the description sheet. The buyer may or may not want these items. He may also have identified other items during his visits that he would like to include even if they have not been offered. The buyer’s broker must record this in clause 11.5 of the Promise to purchase, including the statement that the goods “are sold without any legal warranty of quality, at the buyer’s own risk, but must be in working order at the time of delivery of the immovable.” The buyer’s broker must use accurate descriptions including the type of appliance, make, model, colour, serial number and any other relevant information. Inclusions are not limited to electrical appliances and may include any other item (e.g. curtain rods, blinds, gardening equipment, furniture, etc.). The broker does not have to list permanently installed equipment such as heating, electricity and lighting systems, since they form an integral part of the immovable. In case of doubt, it is preferable to list them on the promise to purchase.
Given the exclusion of the legal warranty of quality, the broker must inform the buyer that he will have no recourse against the seller even if he discovers some time after taking possession of the immovable that an item is defective.
Once the promise to purchase has been accepted but before the delivery of the immovable, if an item included in the sale is no longer in working order, the seller will have no choice but to have it repaired or replaced, or to agree with the buyer to modify their agreement in this regard using the mandatory Amendments form.
The buyer may wish to have some or all of the included items sold with the legal warranty of quality. If this is the case, his broker will have to modify the clause in the promise to purchase. If the buyer wants all the items mentioned to be covered by the warranty, the clause must be crossed out. This deletion must be initialed by the buyer. It is also good practice to add that all items included are covered by the legal warranty of quality, in section 12. Other declarations and conditions or, if space is insufficient, on a recommended form Annex G – General. If the buyer is requesting the warranty on only certain items, the broker should not cross out the provision about the warranty, but should specify the items for which the warranty is included by referencing it in Section 12. Other declarations and conditions.
If the seller accepts that the items be sold with the warranty, he must initial the deletion before signing the promise to purchase.
Exclusions
As with the inclusions, the broker must enter a detailed description of the items that are excluded from the sale in clause 11.6. All equipment normally included because of its permanence, such as a light fixture, sauna, built-in furniture, blinds, etc., must be listed in this section.
Service and leasing contracts
The broker must enter in clause 11.7 the service and leasing contracts that are to be taken over by the buyer. The equipment covered by these contracts will be left in place and the costs will be assumed by the buyer. The most common examples are the water heater and the alarm system.
As part of its due diligence, the broker should review these contracts to ensure that they are transferable to the buyer (a step that will have already been taken if the broker represents the seller). If the seller is unrepresented, the buyer’s broker should request a copy of the documents and make this a review and verification condition in clause 9.1 Review of documents by the buyer.
Items that are covered by a leasing contract and are not assumed by the buyer must be mentioned in clause 11.6 as being excluded from the sale.
Instalment sales and other contracts
The seller of the immovable property may have purchased certain items and equipment under a “special” sales contract, the terms of which are spread out over time. These may include trial sales contracts, instalment sales contracts, sales contract with a right of redemption, sales contracts with a resolutory clause, or leasing contracts.1
The items which are subject to a sales contract and for which the seller’s obligations can be assumed by the buyer should be described in clause 11.8. This is often the case for the heat pump or heating system. The broker should verify the transferability by reviewing the documents and contacting the merchants. Provision should also be made for the review of these documents in clause 9.1 of the promise to purchase.
Items that are covered by an instalment sales contract and are not assumed by the buyer should instead be entered as exclusions in clause 11.6.
1 Articles 1745, 1744, 1750 and 1842 of the Civil Code of Québec.
