Can a purchaser force the vendor to respect an accepted offer to purchase and proceed with the sale of the property?
The Quebec Court of Appeal recently confirmed a judgment of the Quebec Superior Court ordering that title to a property be conveyed to the purchaser despite the fact that the latter was one (1) year late in obtaining financing and did not tender the purchase price together with the lawsuit.
On or about August 29, 2002, the vendor agreed to sell a parking lot for $1.2M conditional upon the purchaser obtaining financing in the amount of $500,000 within thirty (30) days and completing the sale by January 2003.
According to the facts that were determined by the court, the parties did not intend for the delays to be mandatory and they implicitly consented from time to time to various extensions.
Finally, on November 18, 2003, the purchaser received a commitment from a financial institution for financing and informed the vendor. However, a few days prior, the vendor had already agreed to sell the same property to a different purchaser for $150,000 more, but did not inform the first purchaser until December 9.
On December 12, the vendor notified the purchaser that the default to obtain financing within the stipulated 30-day period rendered the offer to purchase null and void.
On December 23, the purchaser filed a lawsuit seeking a judgment to be considered as title to the parking lot because of the vendor’s refusal to voluntarily sign the deed of sale.
In order to succeed with such a claim, the courts have identified four (4) conditions that the purchaser must satisfy: (1) the existence of a legally binding offer to purchase; (2) a notice of default; (3) a draft deed of sale consistent with the terms and conditions of the offer to purchase, and (4) a legal tender and deposit of the entire purchase price. Historically, the failure to satisfy all four conditions risked the summary dismissal of the lawsuit.
The first condition regarding a legally binding offer to purchase was satisfied, taking into account the trial judge’s conclusion that the parties implicitly agreed to extend the delay for financing.
The second condition regarding the notice of default was deemed to be non essential because of the vendor’s manifest refusal to sign the draft deed of sale and because the service of the lawsuit itself was considered to be equivalent to a formal notice of default.
The third condition regarding the existence of a draft deed of sale consistent with the terms and conditions of the offer to purchase was initially found to be wanting by the trial judge but the latter agreed to allow the purchaser additional time in order to amend it. Consequently, it is no longer a fatal defect if the draft deed of sale is not filed at the
commencement of the lawsuit. This requirement will be satisfied if at the moment the judgment is rendered, the court is in possession of a draft deed of sale signed by the purchaser which is in conformity in substance with the accepted offer.
Often the most troublesome condition for the purchaser to satisfy is tendering and depositing the purchase price since the purchase of real estate is usually subject to mortgage financing. Purchasers usually need to borrow most of the purchase price and such financing generally requires security in the form of a hypothec which can only be obtained once judgment has been rendered in their favor. Consequently, the right to the judgment may become illusory if the purchaser must tender the full amount of the purchase price at the moment that the lawsuit is filed.
Historically, the courts have been very formalistic, if not impractical, and many purchasers have been deprived of their rights and many vendors have benefited from their abusive failure to respect a legally binding offer to purchase. It was only fairly recently that the Quebec Court of Appeal reversed this trend to alleviate this injustice.
As a result, the court now looks for a commitment and a capacity on the part of a purchaser to discharge its obligation to pay the purchase price. The court has recognized that this condition may be met without the necessity of depositing the entire amount of the purchase price at the commencement of the suit. The court recognized that as a matter of justice, purchasers in good faith should not be prevented by formalistic rules from exercising their valid legal recourses against vendors in bad faith that refuse, without valid grounds, to proceed with the sale. On the other hand, vendors in good faith should not have their property tied up by purchasers in bad faith that file frivolous claims and are in fact unwilling or unable to pay the purchase price.
In such circumstances, the court can draft the conclusions of the judgment to ensure that title to the property does not pass from vendor to purchaser as a result of the judgment until the purchaser has fully paid for it.
One option is for the court to suspend the judgment for a certain period of time, say thirty (30) days, in order to allow the purchaser a reasonable delay to obtain a mortgage loan and tender and deposit the purchase price. Another alternative is for the court to render an interlocutory judgment recognizing the rights of the purchaser and ordering the purchaser to deposit the purchase price at court within a fixed delay and that upon proof of the required deposit, final judgment would convey title to the property to purchaser.