What is a Preliminary Contract in Quebec?
How does it work when you are buying a new home?
What are the essential elements you should know!
In this article, we will break down the notion of Preliminary Contract so you know all there is to know about it!
Keep reading as we have gathered exactly the information that you need!
Let’s dig into our Quebec real estate contract basics!
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Let’s get started!
What Is A Preliminary Contract
In Quebec, a Preliminary Contract is the name of a contract signed by a buyer for the purchase of a new property with a builder.
Just like a “Promise To Purchase” that is signed to purchase an already existing real estate property, a “Preliminary Contract” is the first legal step for a prospective buyer to acquire a real estate property, but a newly built one.
However, unlike the Promise To Purchase, the Preliminary Contract must observe key characteristics.
When a preliminary agreement is signed, the builder will typically request that the buyer provide an initial deposit so it can start the work.
Then, once the property is built, the buyer and seller will inspect the property and proceed to the formal transfer of the title (or “closing”) before a notary.
In this article, we’ll break down the important aspects you should know about preliminary contracts.
Preliminary Contract Legal Definition
A Preliminary Contract is a legal agreement entered into between a promisor-buyer and a vendor.
The promisor-buyer promises to purchase a real estate property as defined in the Preliminary Contract and to pay the agreed upon purchase price.
The vendor (or builder), promises to build a new property in accordance with the specifications of the Preliminary Contract, deliver the property to the promisor-buyer, and transfer the title to the property.
As such, the primary obligation of the promisor-buyer is to pay the purchase price and the vendor’s obligation is to deliver the property according to the specifications.
Preliminary Contract Content
Further to the requirements of the Civil Code of Quebec, the builder of a new home has an obligation to provide a promisor-buyer with a preliminary contract.
Article 1785 of the Civil Code of Quebec states that:
The sale of an existing or planned residential immovable by the builder or a developer to a natural person who acquires it to occupy it shall be preceded by a preliminary contract by which a person promises to buy the immovable, whether or not the sale includes the transfer to him of the seller’s rights over the land.
As a result, the builder has a legal obligation to provide the promisor-buyer with a preliminary contract under Quebec laws.
All preliminary contracts must provide for certain key information and elements, namely:
- The name and address of the promisor-buyer
- The name and address of the vendor
- The address and lot number of the property
- The dimensions of the building and the lot
- The delivery date of the property
- The sales price
- The payment schedule
- The description of the work performed by the vendor
- The parties’ obligations
- The closing date
- The date and signature
Special Rules Under The Civil Code of Quebec
The sale of residential immovables by builders, promotors, and developers must follow the special rules outlined under the Civil Code of Quebec.
In fact, articles 1785 CCQ to 1794 CCQ establish various legal obligations imposed on the parties and provide certain legal protections to promisor-buyers.
- A builder or developer transacting with an individual (a “natural person”), provide the same with a preliminary contract
- The preliminary contract must contain certain information such as name of the parties, work to be performed, sale price, delivery date, and real rights charging the property
- Various stipulations when an immovable property is under divided co-ownership or an undivided share of a residential immovable is sold
- A promisor-buyer’s deposit must be fully protected either by a guarantee plan (like GCR), insurance, suretyship, or a deposit in a trust account of a member of a professional order (lawyer or notary)
- The sale by a contractor of land along with existing or planned residential property along with the sale of property by a developer is subject to the same rules to warranties in contracts of enterprise or for service
Cancellation of Preliminary Contract
Many wonder if a preliminary contract can be cancelled, or in legal terms “rescinded”.
Under standard contract laws, the parties who enter into a contract are legally bound to the terms of the contract.
As a result, the contract is enforceable and the parties are bound to perform their obligations as stated in the agreement.
However, with preliminary contracts, there are exceptions.
In fact, the Civil Code of Quebec allows a buyer up to 10 days to cancel the agreement and “back out” of the deal.
This is a statutory right imposed to protect promisor-buyers when overzealous builders and promoters extract signatures by creating a false sense of urgency to sign immediately before losing the property and to allow buyers take the necessary time to think about the important transaction they are getting into.
If a buyer exercises his or her right to rescind the contract, then the vendor may keep an indemnity (or penalty) of 0.5% of the purchase price.
If the buyer was purchasing a home valued at $300,000, the builder may keep $1,500 as indemnity.
Preliminary Contracts Takeaways
So what is the legal definition of Preliminary Contract?
Let’s look at a summary of our findings.
Preliminary Contract Defined
If you enjoyed this article on Preliminary Contract, we recommend you look into the following legal terms and concepts. Enjoy!
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