Everything you need to know on Covid-19 and the impact on the real estate landscape

In these trying times of Covid-19, you may ask yourself various questions:

  1. What will happen if I lost my job and have a loss of income?
  2. What impact will the loss have on my business and whether the loss of revenue will be recouped?
  3. What will happen if I cannot pay my rent?
  4. What will happen to my accepted offer to purchase and whether I will be able to cancel the sale?

If you find yourself in any of these scenarios, the following information could be useful during this crisis.

  1. PURCHASE OF A PROPERTY

1.1 Cancellation of the promise of purchase;

1.2 Cancellation of the purchase with the consent of both parties;

1.3 Cancellation and termination pursuant to a court decision;

  1. LANDLORD-TENANT COMMERCIAL RELATIONSHIP

2.1 ‘’Force Majeure’’ clause;

2.2 Deferral of rent;

2.3 Temporary decrease of rent;

2.4 Lease resiliation;

  1. LANDLORD-TENANT RESIDENTIAL RELATIONSHIP

3.1 Deferral of rent;

3.2 Temporary decrease of rent;

3.3 Lease resiliation;

 

  1. PURCHASE OF A PROPERTY

Amid the current Covid-19 pandemic, some people might be in a position where a visit to a notary is scheduled in the upcoming days, weeks or months for a property purchase.

Importantly, a promise of purchase is a binding contract where both parties commit to each other based on the terms and conditions of said contract. A party might withdraw itself from the promise of purchase in isolated circumstances only as may be more fully described below:

1.1 Cancellation of the promise of purchase

When parties consent to a promise of purchase, they are at liberty to include different provisions such as: pre-purchase inspection, buyer’s consultation of documents, confirmation of seller’s mortgage financing or any other provisions they might wish.

Any party could avail itself from the promise of purchase if any of the contracted provisions aren’t respected by the other or if a specific provision allows for such a cancellation.

The promise of purchase would be null and void when the provided dispositions aren’t respected in the stipulated time or if a specific provision allows for such voidance.

It is important to understand that when the conditions are met and that no provision allows for the contract cancellation, the parties must pass title at the notary at the prescribed deadline.

After the financial funding is acquired, a buyer, who loses his employment which leads to a withdrawal by the mortgage lender, cannot legally withdraw from the promise of purchase and cannot default at the signature of the deed of sale at the notary.

According to present case law, it is only in isolated circumstances that the buyer can withdraw his financial commitment and thus cancel the promise to purchase and deed of sale when the contractual condition of the promise to purchase states the following:

a) Undertaking from hypothecary lender to maintain employment;

b) Undertaking from hypothecary lender that there is no loss of revenue and that your financial conditions are maintained;

c) Undertaking from hypothecary lender that the sale is conditional to the sale of another property;

Therefore, if any of these clauses are conditional in your promise to purchase, you may cancel the promise to purchase if:

a) You have lost your job;

b) You have a loss of income and revenue;

c) You have not sold your other property;

 

1.2 Cancellation with the consent of both parties

As for any binding contract between consenting parties, they can mutually agree that each one cancels and withdraws from the promise of purchase.

This can be accomplished via a mutual release and discharge or via a modification of the promise of purchase which has the same resulting effect, that the promise to purchase is cancelled.  The parties may compensate each other for any damages or losses resulting from this cancelation.

This route should be strongly considered by the parties as it deals quickly and efficiently with an objective to avoid any potential dispute.

1.3 Cancellation and termination due to a Court decision

In cases where the promise of purchase does not have any provision related to the cancellation or the parties cannot settle the matter amicably, the judicial option is still available.

A party can start legal proceedings demanding that the Court orders the cancellation of the promise of purchase whereby he/she will not present himself/herself at the notary closing  by justifying that there is a defect in consent (i.e. consent being vitiated) or any other justification allowed by law for the nullity of the contract.

However, this route is expensive and should be considered as a measure of last resort.

Furthermore, the seller could ask the Court to force the passing of title and conclude the transaction being valid by an Action in passing of title, if the standards of section 1712 of the Civil Code of Quebec are met.

For more information, see our section on an Action in passing of title.

 

  1. LANDLORD-TENANT RELATIONSHIP IN A COMMERCIAL SETTING:

Due to the current crisis related to Covid-19, individuals or Small Businesses (SME) could be faced with a real inability to pay their commercial rent.

Obligations of the Tenant toward the Landlord are covered by the Lease, and if need be by the applicable law. These obligations are NOT reduced, despite the Covid-19 pandemic, neither are the obligations of the Landlords towards their creditors.

However, there are some remedies to alleviate both parties during this hardship period as follows:

2.1 ’Force majeure’’ clause

Most commercial leases include a ‘’force majeure’’ clause which could be applied in the current circumstances. However, each ‘’force majeure’’ is evaluated in its context and could be defined in the Lease:

  • What constitutes a ‘’force majeure’’?
  • What process applies to the parties if the ‘’force majeure’’ is applicable?
  • What reduction is applicable for each party if the ‘’force majeure’’ is applicable?
  • Is there a possibility of a Lease resiliation due to the ‘’force majeure’’?

2.2 Deferral of rent

Due to Covid-19, most financial institutions are now offering a deferral of the mortgage payment of their debt. Consequently, Landlords could offer the same deferral of rent to their Tenant.

If the Landlords are able to postpone their mortgage payment by six (6) months, it might be possible for their Tenants to do the same with their current rent payment.

2.3 Temporary decrease of rent

It is always possible for both parties to come to an agreement of a reduction of rent or temporary decrease of rent until the financial situation stabilizes. This could guarantee the Landlord a minimal sum that the Tenant would be able to afford.

The Landlord could consider the additional costs included generally in the rent for this temporary decrease.

These decreases could be cancelled or postponed until the current situation is dissipated.

2.4 Lease resiliation

If an agreement cannot be negotiated between the parties for a payment plan or that the ‘’force majeure’’ clause is inexistent in the Lease or cannot be applied, the Tenant could consider the resiliation of the Lease.  In this case, the Tenant should examine the Lease itself.

If the Lease does not include such clause, the Tenant could try to come to an amicable settlement with the Landlord or try different private dispute resolution and resolution processes such as commercial mediation or settlement conferences.

In any case, the Tenant should be mindful of not exposing himself to a situation where the Landlord would be entitled to a claim of abandonment of the premises including liquidated damages.

If the Tenant does not abide by the obligations pursuant to the Lease, he/she could face the sanctions as may be more fully described in our section under Abandonment of premises.

  1. LANDLORD-TENANT RESIDENTIAL RELATIONSHIP

In the current situation instituted by the pandemic Covid-19, residential Tenants could be faced with the real possibility of not being able to pay their rent.

Obligations of the Tenant toward the Landlord are covered by the residential Lease and by the Civil Code of Quebec.

These obligations are NOT diminished, despite the Covid-19 pandemic, nor are the obligations of the Landlords towards their creditors.

However, there are some remedies for the Tenant:

3.1 Deferral of rent

Due to Covid-19, most financial institutions offer a leave of the mortgage payment to their debtors. Consequently, Landlords could offer the same leave of rent to their Tenant.

If the Landlords are able to postpone their mortgage payment by six (6) months, it might be possible for their Tenants to do the same with the rent payment.

3.2 Temporary decrease of rent

It is always possible for the Tenant to come to an agreement with his Landlord as to decrease temporarily his rent until the recovery of his/her income or the return to gainful employment.

This could guarantee the Landlord a minimal sum that the Tenant would be able to afford.

These decreases could be cancelled or postponed until the current situation is dissipated.

3.3 Lease resiliation

In cases where an amicable agreement cannot be negotiated for the payment of rent with the Landlord, the Tenant should ensure to find way of paying the rent within three (3) months of the due date of payment.

Otherwise, the Tenant could be exposed to a legal resiliation in conformity with section 1971 of the Civil Code of Quebec.

For more information on your rights in a real estate matter related to the current situation with Covid-19 or to schedule an appointment with one of our lawyers, please consult: https://schneiderlegal.com/meet-one-of-our-lawyers/.

If you are looking for a law firm with reasonable rates, quick and efficient turnaround time for your files and who provides personalized and effective follow-ups, call Schneider Attorneys at (514) 439-1322 ext. 112 or email us at info@schneideravocat.com

The above noted text should not be construed as providing legal advice or a statement of your claim. The process highlighted above are merely parameters and barometers and do not constitute any warranties and guaranties with regards to your file at hand. We strongly recommend that you seek legal advice with a licensed attorney from the Barreau du Quebec or a notary at the Chambre des Notaires. Each case must be seen and analysed on its merits as the legal process may be complex and cumbersome.

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