Did you sign a promise to purchase before the COVID-19 epidemic? More particularly prior to March 15 2020 ? If so, you may be wondering if you can opt out of your promise due to the circumstances.
It is important to understand that an accepted promise to purchase becomes a bilateral purchase-sale promise, meaning a first contract obliging each of the parties to conclude the final contract of sale.
Therefore, COVID-19 does not in itself constitute an element that can automatically exonerate the buyer (as well as the seller) from its commitments. Indeed, in addition to the mutual consent of the parties, this bilateral promise can only be canceled if a party cannot fulfill the conditions provided for in the promise, or if another clause allows its withdrawal. Apart from these situations, the buyer who no longer wishes to conclude the sale is liable to legal recourse. We will analyze these three situations in this text.
1. Withdrawal resulting from non-compliance with the conditions of the promise to purchase
The promise to purchase is often subject to various conditions such as, for example, obtaining financing or to the sale of your own property. So, if you lost your job due to the crisis and the bank now refuses to finance you, or if the bank withdraws its funding following the loss of your job, you could withdraw from your obligation to execute title (purchase the property). However, this will only be possible if, despite having taken all reasonable efforts and steps, you are unable to find another mortgage lender.
In addition, it is possible that the deadlines for the execution of those conditions, such as that of the pre-purchase inspection, may not be respected due to the circumstances. In principle, failure to meet deadlines cannot free you from your commitments. However, if you have qualified this deadline as a “strict time limit” in your promise, and this deadline has not been respected, you may be able to exonerate yourself from concluding the sale. Apart from this case, you can of course agree with the seller to extend the deadlines.
2. Withdrawal resulting from a specific clause in the promise to purchase
Your promise to purchase may include a “deposit agreement”. This clause consists in the payment of a sum of money, to the seller, chargeable to the sale price. However, it also allows you to withdraw from your promise to purchase upon payment of this penalty.
In addition, if your promise relates to the purchase of a new house from a contractor or builder and you intend to live in it, the promise to purchase form is obligatory replaced by a preliminary contract. This contract automatically grants a “right of withdrawal” clause to the buyer. Indeed, it gives you the right to withdraw from the sale contract within a determined delay of signing it for a sum not exceeding 0.5% of the agreed sale price.
3. The various recourses in case of refusal to execute title
If the buyer refuses to sign the deed of sale, he may, under article 1712 of the Civil Code of Quebec, ask the court to conclude the transaction by an action to execute title. This application must however be preceded by a formal notice ordering the buyer to fulfill his obligations within a given period. This request will usually be accompanied by a request seeking damages in order to be compensated for the damage resulting from the delay.
Finally, the seller can also sell his property to another buyer and, if he gets a lower price, sue the first buyer for the shortfall.
