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Guarantee Contract (Real Estate: What It Is And How It Works)

What is a Guarantee Contract when purchasing a new residential property?

How does it work?

What are the essential elements you should know!

Keep reading as we have gathered exactly the information that you need!

Let’s dig into our Quebe real estate law knowledge!

Are you ready?

Let’s get started!

What Is A Guarantee Contract

A “guarantee contract” is a legal document a contractor, developer, or real estate promoter must legally provide to a buyer of a new residential property for certain types of properties.

Since 1999, the Quebec government has adopted laws and regulations making it mandatory for real estate contractors to offer a New Residential Building Guarantee Plan.

The objective of the guarantee contract imposed by law is to ensure that contractors execute their obligations under a contract to deliver a new residential property.

Should there be a breach of contract or the real estate developer fails in its obligations, the buyer will have legal and contractual protection.

If the type of property or building you are buying is covered by the legally mandated Guarantee Plan, then the contractor must provide you with a “Guarantee Contract” setting out the terms of the guarantee.

Here are the real estate properties that are covered by the legal guarantee:

  • Detached property
  • Semi-detached property
  • Row-type 
  • Single-family dwellings
  • Multi-family buildings (with no more than four private portions stacked one above the other)
  • Duplex
  • Triplex
  • Quadruplex
  • Quintuplex 
  • Prefabricated home
  • Condo 

Content of Guarantee Contracts

What does a guarantee contract contain?

The Regulation respecting the guarantee plan for new residential buildings specifies the content of what should be included in the guarantee plan.

In substance, the contract must contain:

  • Details about the coverage 
  • Procedures for making a claim 
  • Buyers’ available recourse 

The content of the guarantee contract is designed to ensure that the contractor performs its legal and contractual obligations in favour of the buyer.

In addition to the above, the contract must mandatorily contain the following information:

  • Buyer’s name and address
  • Contractor’s name and address
  • Date and address of the location where the contract was signed
  • The description of the property
  • Name, address, and contact information of the plan manager
  • The contractor’s accreditation information 
  • The contractor’s license number followed by the statement “licensed by the Régie du bâtiment du Québec”
  • A statement about the mandatory nature of the plan
  • A statement indicating “Approved by the Régie du bâtiment du Québec”
  • The date and number of the RBQ approval decision 

Written Contract Requirement 

The Quebec regulation relating to the sale of new residential buildings to Quebec consumers and buyers must be established in writing.

In fact, the regulation requires that the contractor for new residential buildings join a plan guaranteeing the performance of its legal and contractual obligations resulting from the preliminary contract (or promise to purchase) entered with the buyer (beneficiary of the plan).

Not only must the contractor provide the buyer with a written contract but it must also provide the same with a fully signed copy.

When the preliminary contract is signed along with the guarantee contract, both the seller and the buyer must adhere to the terms of their agreements.

Mandatory Guarantee Plan vs Private Guarantee Plans

Is the mandatory Guarantee Plan for new residential buildings the same as a private guarantee plan?

The guarantee imposed by law and private plans are not necessarily the same.

The mandatory Guarantee Plan is a type of plan that is imposed by law.

As a result, a buyer of a new residential property is automatically covered by this plan provided the type of property being purchased is covered.

In addition, the law sets out the terms and conditions that must be set out in the legally imposed plan of guarantee.

Another key difference with regards to the legal guarantee is that it must be stated that it is approved by the Régie du bâtiment (RBQ) and must be clearly distinguishable from any private guarantees offered in the market.

With regards to private plans, they are offered outside of the Quebec regulation by different companies.

Furthermore, the private plans cannot cover the type of properties that are automatically eligible under the Guaranteed Plan.

New Residential Property Guarantee Contract Takeaways 

So, what is a contract of guarantee when buying new residential properties in Quebec?

Let’s look at a summary of our findings.

Guarantee Contract For Residential Buildings

  • In Quebec, contractors, real estate developers and companies selling new residential properties to Quebec residents must observe the requirements of the Regulation respecting the guarantee plan for new residential buildings
  • If the property intended to be purchased is covered by the regulation, the buyer is automatically covered and protected
  • The regulation requires that the seller provide the buyer with a “guarantee contract” setting out the terms and conditions related to the guarantee
  • The regulation also establishes the terms and conditions that must mandatorily be found in the guarantee contract for it to be compliant with the law 
Building Act 
Contract of enterprise
Guarantee coverage 
Guarantee exclusions 
Guarantee plan 
Legal indemnity 
Legal warranty 
Offer to purchase
Pre-acceptance inspection 
Preliminary contract
Real estate lawyer 
Sales contract
Author
Apparent defects
Common areas 
Deed of mortgage
Deed of trust
Job contract 
Latent defect
Private areas
Property inspection 
Real estate agent 
Real estate developer 
Real estate promoter
Author

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