Our real estate lawyers in Québec City and Lévis offer you a case study to test your knowledge of promises to purchase that are conditional on the sale of the buyer’s property.
Case study
On October 25, 2016, Aline Pellerin signs a promise to purchase Jacques Lambert’s house. Ms. Pellerin asks that the contract be conditional on the sale of her own house.
No deadline is set for the sale of her property, and the promise to purchase has no expiry date.
On May 21, 2017, Ms. Pellerin realizes that the real estate market is not favourable to sellers. She will have trouble finding a buyer and getting her price, which she does not intend to lower.
Disillusioned, she becomes discouraged and is not very proactive in the sale process. She does not renew the ads she posted on various websites.
Meanwhile, Mr. Lambert is growing impatient and hopes to close the sale quickly.
On September 25, 2017, Ms. Pellerin informs Mr. Lambert that she is taking her house off the market because selling it at the price she wants seems difficult and the process is taking a lot of her energy.
Ms. Pellerin claims that since no deadline was agreed for the sale of her house, the promise to purchase automatically lapses, in her view, if the property is not sold within 90 days.
She therefore tells Mr. Lambert that she is no longer bound by the promise to purchase. Unfortunately, the seller has waited 11 months for nothing.
Mr. Lambert asks one of our lawyers the following questions:
Is Ms. Pellerin entitled to take her house off the market?
Can a buyer refuse to go ahead with a promise to purchase on the ground that the condition was not met within 90 days of signing?
Can Ms. Pellerin be required to buy Mr. Lambert’s house and carry the cost of two homes?
What do you think? Here are the relevant explanations.
A promise to purchase is a contract
The promise to purchase is a conditional contract that binds Ms. Pellerin and Mr. Lambert. Once Ms. Pellerin’s property is sold, the parties must complete the sale.
The contract is subject to a suspensive condition
The condition relating to the sale of Ms. Pellerin’s property is called a “ suspensive ” condition.
Her obligation to sign the deed of sale is conditional because it depends on an event that is future and uncertain, namely the sale of her own home. This condition has the effect of suspending her obligation to buy Mr. Lambert’s house until that event occurs.
Preventing the condition from being fulfilled
When a suspensive condition has no deadline, the seller often has to be patient before selling their property.
On the other hand, the buyer has no right to deliberately prevent the condition from being fulfilled.
Even if they are not acting in bad faith, a person who prevents the condition from being fulfilled can no longer rely on it, and the contract has full effect as if the condition had been duly fulfilled.
Taking the house off the market
Ms. Pellerin deliberately took her house off the market. Through her own fault, it cannot be sold. The condition in the promise to purchase therefore becomes impossible to fulfil.
Ms. Pellerin justifies herself to Mr. Lambert by saying that the real estate market is not favourable to sellers. She is not prepared to negotiate or lower her price, and after 11 months her house still has not sold.
An unfavourable real estate market may make the house harder to sell, of course, but it does not make an eventual sale impossible.
The law therefore gives full effect to the promise to purchase, as if Ms. Pellerin’s house had been sold.
Lack of proactivity in the sale
By including a suspensive condition in the promise to purchase, Ms. Pellerin must not only keep her house on the market, she also has an obligation to be proactive in her efforts to sell her property.
Well before taking her house off the market, Ms. Pellerin behaves in a blameworthy way. As of May 25, 2017, she stops taking concrete steps to promote the sale of her property. She refuses to reconsider her asking price and deliberately fails to renew her ads on the various websites.
Through her actions, Ms. Pellerin has dragged out the process and leaves Mr. Lambert in uncertainty. Mr. Lambert could be justified in claiming compensation.
The 90-day deadline
To avoid any liability, Ms. Pellerin adds that since no deadline was agreed for fulfilling the condition of selling her house, the promise to purchase automatically lapses 90 days after it was signed.
This claim is incorrect. Under article 1501 of the Civil Code of Québec, a condition with no deadline for its fulfilment can still be fulfilled at any time, unless it becomes certain that the condition will not be fulfilled.
In fact, nothing allows us to conclude that Ms. Pellerin’s house would not have sold in the days or months after it was taken off the market. As long as a sale remains a possibility, Ms. Pellerin remains bound by the promise to purchase.
What is Ms. Pellerin exposed to?
Under the law, the promise to purchase has full effect as if her house had been sold. Ms. Pellerin is therefore obliged to buy Mr. Lambert’s house and will have to carry two mortgages. If she refuses to buy the property, Mr. Lambert can bring an action to compel the passing of title to have the sale confirmed.
Mr. Lambert could also obtain damages if he proves that Ms. Pellerin’s lack of proactivity caused unnecessary delays and that these delays caused him harm.
Key takeaways
Is Ms. Pellerin entitled to take her house off the market?
No. A promise to purchase is a contract. When it includes a condition, the person who requires that condition must be proactive so that it is fulfilled. Above all, they must not prevent it from being fulfilled; otherwise, the condition will be deemed fulfilled.
Can a buyer refuse to go ahead with a promise to purchase on the ground that the condition was not met within 90 days of signing the contract?
No. When the condition has no deadline for its fulfilment, the parties remain bound by the promise to purchase until it becomes certain that the condition will not be fulfilled. It is incorrect to claim that such a promise to purchase lapses if the condition is not fulfilled within 90 days of signing.
Can Ms. Pellerin be required to buy Mr. Lambert’s house and carry the cost of two homes?
Yes. Mr. Lambert could bring an action to compel the passing of title to force Ms. Pellerin to buy his house. He could also claim damages.
Conclusion
In conclusion, it is advisable to set a deadline for suspensive conditions to avoid situations like the one in this case study.
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Note: The information above is general in nature and does not constitute legal advice. For advice on your particular legal situation, feel free to contact one of our lawyers in Québec City or Lévis.
