The real estate market in Montreal and some other cities in Canada continues to power through the COVID-19 pandemic as sales in all property categories, especially houses, continue to increase. This post summarizes part of the analysis in the Quebec Court of Appeal’s decision on Ly c. Construction Sainte Gabrielle inc., 2018 QCCA 1438. It aims to analyze if or in what situations the buyer who signed a preliminary contract with the developer or builder of a residential property can request the Court to order the developer or builder to transfer the title of the property according to the preliminary contract.
On March 23, 2012, Mr. and Mrs. Ly signed two Preliminary Contracts with Sainte Gabrielle for two houses B and C to be built by Sainte Gabrielle at Brossard so that the other members of their family can live near to them at Brossard, Quebec, Canada.
On June 2012, Mr. and Mrs. Ly moved to a house A built by Sainte Gabrielle situated at Brossard.
In February and March 2013, Sainte Gabrielle failed to execute the Preliminary Contracts for the houses B and C as Sainte Gabrielle found that Mr. and Mrs. Ly stilled owed her certain amount of construction fees for the house A. In fact, Saint Gabrielle had been building a house for a third party at the same lots without notifying Mr. and Mrs. Ly in advance.
In July 2013, Mr. and Mrs. Ly obtained a safeguard order from the Superior Court of Quebec to stop the excavation work of Sainte Gabrielle on the lots. Mr. and Mrs. Ly requested the Court to order immovables to them. Alternatively, Mr. and Mrs. Ly requested the Court to condemn Sainte Gabrielle to reimburse for their pecuniary damages i.e. loss of profit due to rising house value, their non-pecuniary damages i.e. loss of proximity of houses for their family members and the related legal fees, costs and indemnities permitted in law, plus additional interests.
On June 8, 2016, the Superior Court of Quebec condemned Sainte Gabrielle to reimburse $50,000.00 as the non-pecuniary damages to Mr. and Mrs. Ly. Mr. and Mrs. Ly appealed this decision to request the Court of Appeal to order Sainte Gabrielle to build the houses according to the Preliminary Contracts and transfer the title of the properties to them. Alternatively, Mr. and Mrs. Ly requested the Court of Appeal to condemn to reimburse for their pecuniary damages and their non-pecuniary damages and the related legal costs, additional indemnities and interests.
Main Issue to Analyse
In these situations, did the judge in the first instance commit an error of law by refusing to order Sainte Gabrielle to execute the Preliminary Contracts and to transfer the title of the properties to Mr. and Mrs. Ly?
1. The Preliminary Contracts should be considered as a bilateral promise to purchase (for the buyer) and to sell (for the builder or developer) a residential property built or to be built. Art. 1785 C.c.Q. stipulates that when the builder or developer promises to sell a residential immovable built or to be built to a person who acquires it to occupy it by himself shall be preceded by a preliminary contract. Art. 1396 C.c.Q. stipulates that a promise to contract is not equivalent to the proposed contract of sale; however, where the buyer of the promise accepts the promise, both the developer/builder and the buyer are bound to enter into the contract. Art. 1712 C.c.Q. stipulates that if the promisor (builder/developer) fails to execute the contract accordingly, the beneficiary (buyer) is entitled to obtain a judgment in lieu of thereof.
In the present case, the Preliminary Contracts between Ly and Sainte Gabrielle state clearly without any ambiguities that both parties had intention to reach a bilateral promise on the sale of the houses B and C to be built at Brossard.
2. Having determined the nature of the Preliminary Contracts, the Quebec Court of Appeal notes that the preliminary contract, in principle, confers the beneficiary the right to request the Court to order the promisor to execute the contract accordingly and to transfer the title of the properties (Art. 1590 C.c.Q. and Art. 1712 C.c.Q.), while some other promises to contract only confer the beneficiary the right to damages and interests, such as the promise of donation (Art. 1812 C.c.Q.) and the promise to lend (Art. 2316 C.c.Q.). Besides, the Quebec Court of Appeal notes that the beneficiary can invoke his right to request the Court to enforce the execution of the preliminary contract with success if it contains all the essential elements for the proposed contract of sale and the exception stipulated in Art. 1397 C.c.Q. does not apply.
However, the Court notes that to enforce the execution of the preliminary contract is not always the most appropriate remedy (See para. 35 of Ly c. Construction Sainte Gabrielle inc., 2018 QCCA 1438). The Court may not order the promisor (builder or developer) to execute the preliminary contract if it is proven that the promiser has been resistant to execute the contract in certain circumstances (Art. 1601 C.c.Q.).
3. In the present case, as the relationship between Ly and Sainte Gabrielle was broken, it would be very difficult to force Sainte Gabrielle to continue building the houses for Mr. and Mrs. Ly. Besides, the Preliminary Contracts in the present case do not include a final plan for the construction. The Preliminary Contracts do not indicate specifically the construction schedule, the date of delivery, the date when they meet a notary to complete the transaction. Therefore, the Quebec Court of Appeal concludes that Mr. and Mrs. Ly cannot force Sainte Gabrielle to execute the Preliminary Contracts accordingly and to transfer the title of the immovables (See para. 41 of Ly c. Construction Sainte Gabrielle inc., 2018 QCCA 1438).
Conclusion: Main Takeaways
1. Le contrat préliminaire s’agit d’une promesse bilatérale de vente et d’achat d’un immeuble, bâti ou à bâtir (Art. 1785 C.c.Q.).
2. Le contrat préliminaire confère à l’acheteur, en principe, le droit d’intenter une action en passation de titre en cas de défaut du constructeur ou du promoteur de l’immeuble (Art. 1590 et Art. 1712 C.c.Q.).
3. L’exécution en nature du contrat préliminaire n’est pas le remède le plus approprié dans la situation où il présent des difficultés au chapitre des obligations de faire, notamment selon le type de prestation, technique ou artistique, l’implication requise de la part du débiteur qui pourrait rendre difficile une exécution basée sur la confiance entre les parties, ou encore la teneur des prestations qui ne serait pas suffisamment précisée.
4. Par contre, l’exécution en nature du contrat préliminaire peut être un remède approprié pour l’immeuble déjà bâti.
(Reminder: The purpose of this article is to provide general legal information. It does not contain a full analysis of the law nor does it constitute a legal advice on the points of law discussed. To minimize the legal risk for your business, you must take specific legal advice from a lawyer on any particular matter which concerns you. Thanks for your attention.)