The preliminary contract

Preliminary, but nonetheless a contract

This is it! You found it! Your dream house will be built in the most beautiful neighbourhood by a contractor who has the necessary skills to ensure that your new home will meet all your expectations. Nevertheless, prior to signing your preliminary contract, make sure you understand all the legal steps involved as well as everything that this contract should encompass.

The Québec Civil Code requires, for the sale by a contractor of an existing or planned residential building to a person who is acquiring it as a personal residence, that the sale be preceded by a preliminary contract which will bind both parties. This type of contract is used when the sale includes the house and the land. It is important to note the difference between a preliminary contract and a contract for services, where the contractor builds a house on a lot already owned by the client.

The preliminary contract is the first step toward the purchase of the property. It defines both the contractor’s and the buyer’s obligations and confirms the buyer’s commitment to purchase the house. However, the contract must include a clause allowing the buyer to withdraw from the agreement within ten days of signing. In return, the contractor may require an indemnity of 0.5% if the buyer decides to exercise the right to break the contract, provided that this indemnity is specified in the preliminary contract.

Get it in writing

Before finalizing the contract, the parties must agree on all relevant information on the building’s characteristics. To ensure an unequivocal contract, take care to include all verbal agreements before signing.

Everything must be written down, including the names and addresses of the seller and the promising-buyer, a detailed description of the work to be done, the delivery date, all real rights encumbering the property, the client’s requests and the contractor’s agreement to fulfill them, the sale price, etc. The GST and PST must be added to the agreed-upon sale price of the home and the land, as well as the subsequent tax reimbursements in relation to newly-built homes. All other adjustments must be included in an appendix to the preliminary contract.

Financial conditions must be included

Certain financial conditions must also be included in the contract, among which a payment schedule that includes progressive disbursements as well as the balance of the sale price payable upon the signature of the deed of sale. Your financial institution will give you a letter of commitment in which the details of these conditions will be outlined. A mortgage loan officer will most certainly be able to answer any questions you may have.

Carefully read and sign all documents related to the contract

While the contractor is obligated to provide all necessary information, the client must, in return, make sure that he or she fully understands this information. You must carefully read and sign all documents related to the preliminary contract: the guarantee contract, which details the coverage provided; the limits and conditions of the guarantee plan; the appendix in which the parties note any exclusions or modifications to the preliminary contract; and an estimate containing a detailed description of all work to be done (the type of flooring, roof, exterior facing such as brick siding or clapboard siding, the type of wood to be used, insulation, asphalt shingles, ceramic tiles, etc.).

Once the contract is signed, you are bound to purchase the designated home, to take possession upon completion of work and to pay the specified price according to the payment schedule in the contract. Your contractor is bound to build the house in accordance with the contractual specifications, allow you to take possession of the property and transfer the property titles to you.

Source: Association provinciale des constructeurs d’habitation du Québec (APCHQ)