At the time of concluding the offer to purchase, it is customary for the promising buyer to pay a deposit or security deposit of a variable amount. The amount thus paid will be deducted from the amount to be paid if the sale is concluded and will be remitted to the seller. Although a buyer is not legally required to pay a deposit, this practice offers the seller an additional guarantee as to his true intention to buy and his apparent solvency. All in all, this financial effort provided by the buyer is intended to dissuade him from abandoning his project in an irregular manner.
What is a deposit?
The Civil Code of Quebec provides that “any amount paid on the occasion of a promise of sale is presumed to be a deposit on account of the price, unless otherwise stipulated in the contract”. The deposit represents the first amount paid by the purchaser to the vendor, to be ultimately deducted from the sale’s price of the apartment. Therefore, it is portion of the sale’s price and it implies the firm commitment of both parties. For the purchaser, it shows his intent to purchase and for the vendor, the intent to deliver the immovable.
The payment of deposits before the execution of the deed of sale
The deposit must not be paid directly to the seller. It could be difficult to recover it if, for one reason or another, the transaction fails. It is recommended to pay this deposit by electronic transfer, certified check or bank draft made out in the name of the buyer's notary or a real estate agency, in trust. Either will deposit this cheque into their trust account upon acceptance of the offer by the seller and will keep the deposit until the deed of sale is published in such a way as to ensure the protection of the buyer's rights. It is the safest place to deposit the amounts paid out as a deposit. In general, the forms of the Organisme d'autoréglementation du courtage immobilier du Québec (OACIQ) indicate in the fiduciary clause that the deposit is given when the promise to purchase is drafted and that it will be deposited in the trust account upon acceptance. However, it will also be possible to file it as soon as all the conditions of the offer to purchase have been satisfied, provided that the fiduciary clause is drafted as such.
Special regime for new divided co-ownership
In the context of purchasing a fraction of divided co-ownership from a builder or developer, specific rules apply.
According to article 1791.1 of the Civil Code of Québec, any deposit paid under a preliminary contract must be fully protected by one of the following means:
Authorized professional orders
The Regulation respecting various rules relating to divided co-ownership specifies in its article 11 that only members of the following orders may hold in trust a deposit referred to in article 1791.1 C.C.Q.:
Mandate of the Professional
The builder or developer must appoint a member of one of these professional orders to receive the deposit in trust (article 12 of the regulation). The buyer must pay this deposit directly to the designated professional. The developer is prohibited from doing so on behalf of the buyer.
Delivery deadline and reimbursement
In the case of a new co-ownership, article 1791.1 C.C.Q. provides that if the fraction of co-ownership is not delivered on the date agreed upon in the preliminary contract, the buyer is entitled to a full refund of the deposit. This refund must be made in accordance with the conditions and terms set out by government regulation. The purpose of this rule is to protect the buyer in the event of delay or failure to deliver the property by the developer.
However, the delivery date provided for in the preliminary contract may be modified by written agreement between the parties. For this modification to be valid, the new date must be recorded in the contract and signed by both parties (article 13 of the Regulation respecting various rules relating to divided co-ownership).
In the case of an existing co-ownership, that is, a building already constructed, the buyer may, in certain circumstances, withdraw from the offer to purchase without penalty. This right of withdrawal is generally provided as a suspensive condition, such as obtaining mortgage financing or a satisfactory inspection. Thus, if the sale is not concluded because:
the buyer is entitled to a full refund of the deposit paid. This reimbursement, however, assumes that the buyer has complied with the deadlines and conditions set forth in the offer to purchase to validly invoke their withdrawal.
Dispute regarding refund
It sometimes happens that the parties disagree on the reasons that led to the failure of the transaction. The buyer may then claim the reimbursement of the deposit, while the seller argues that the withdrawal is unjustified.
In such a context, neither the notary nor the real estate agency holding the sums in trust has the authority to determine who is entitled to the deposit. They must therefore retain it until a written agreement is reached between the parties or a judgment is rendered by a competent court.
This rule applies both to promises to purchase relating to existing buildings and to preliminary contracts relating to new co-ownerships, unless otherwise expressly provided in the offer to purchase or the contract.
WHAT YOU SHOULD KNOW! If you present an offer to purchase through a real-estate broker, it is preferable to entrust your deposit with him. A section is provided for this purpose in the form entitled Promise to purchase, made available by the “Organisme d’autoréglementation du courtage immobilier du Québec (OACIQ)”, the body responsible to oversee real-estate brokerage in Quebec.
WHAT TO KEEP IN MIND: Upon the signing of the sale, the amounts of the deposits paid out are applied in reduction of the sale’s price. If the offer to purchase is declined or aborts, any deposit should necessarily be refunded.
WARNING! Do not give a single cent of down payment before your final commitment. Some contracts provide that if the purchaser backs out of the sale, the amount of the deposit will be kept by the vendor. Ask for a receipt, more particularly if you have paid in cash.
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