Key stakeholders in a real estate transaction

The success of a real estate transaction depends on the cooperation of various stakeholders, each contributing their own expertise. Among them, the real estate lawyer plays a key role in drafting legal documents and conducting due diligence.

However, problematic situations may require the intervention of legal specialists from other related fields, such as when financial, environmental, municipal, fiscal or construction-related considerations arise in the context of a real estate transaction.

The key legal documents

Three documents play a central role in most commercial real estate transactions in Quebec: the letter of intent, the offer to purchase, and the deed of sale.

The letter of intent

The letter of intent is a non-binding document. Its purpose is not to legally bind the parties but to outline the general framework of a transaction they are considering, without committing them to finalize the deal. It helps avoid wasting time and energy on detailed legal documentation when the parties might have differing views on the transaction..

Though non-binding, certain obligations — such as confidentiality and exclusivity during the negotiation period — may be enforceable without requiring the parties to conclude the transaction.. Vigilance is key here because a document labeled as a “letter of intent” might exceed its intended scope and be treated as an offer, making it legally binding..

The 2020 Wykanda case is a prime example of this. The sellers argued that the signed document was a non-binding letter of intent. However, given the nine months of intense negotiations and numerous amendments, the Superior Court of Québec ruled that the document was a legally binding offer to purchase, imposing good faith, loyalty, and cooperation obligations on the sellers.

The offer to purchase

Once the letter of intent is signed, the real negotiations begin with the drafting of the offer to purchase, based on the general terms outlined in the letter of intent. While the offer to purchase can deviate from the letter of intent since the latter is non-binding, such deviations are uncommon unless new circumstances arise..

The offer to purchase is a critical document because it constitutes the definitive agreement between the parties. Unlike the letter of intent, it is legally binding, even if subject to a number of conditions. Once these conditions are fulfilled — or deemed fulfilled (pay attention to the wording) — the parties are obligated to proceed with the transaction. Failure to do so may result in legal action for the transfer of title.

The deed of sale

The deed of sale reiterates the key terms outlined in the offer to purchase. It often refers backs to elements of the offer to purchase that are not explicitly reproduced in the deed, as the two documents typically exist in parallel.

The primary purpose of the deed of sale is to “publicize” the transaction in the land register. This ensures that the transfer of title is enforceable against third parties. A deed of sale that is not registered in the land register is valid between the parties, but cannot be enforced against third parties.

This article was published in Les Affaires on October 3, 2024.

Coming soon

In our next article, we will explore in greater depth the essential elements to include in transactional documents, particularly the letter of intent and the offer to purchase. Stay tuned to gain a better understanding of the legal underpinnings of your transactions.

Investissements So-Bel inc. c. Kutschera 2024 QCCA 1089 (26.08.2024) 

Facts: The signing of the deed of sale, initially scheduled for February 20, 2016, was postponed to March 20, then August 15 due to a lack of funds on the part of the Buyer. On August 15, with financing still not secured, the Seller deemed the offer null and void. The Buyer filed an action to enforce the transfer of title.[j1] 

Ruling: On appeal, the court held that the Seller acted appropriately in demanding the signature on the appointed date and that its refusal to grant an extension was not deemed an act of bad faith.

Conclusion: Refusing to grant the Buyer additional time and enforcing the agreed-upon dates does not, in itself, constitute an expression of bad faith.

 [j1]https://carolinesimard.ca/en/forcing-the-sale-action-in-passing-of-title/