Tony Gioventu
Province
Dear Condo Smarts: Is a pre-sale agreement a finalized agreement for sale and purchase?
A group of investors that I am involved with from Alberta have decided that under the current market conditions we will not proceed with our pre-sale agreement on five units in a new development.
The developer’s lawyer has advised us that we will be in breach of the sales agreement and liable for any of the damages or losses incurred. How can we be held responsible for something that does not yet exist and is over one year behind completion? It seems to me that the purchasers have little or no protection in these purchase agreements.
— D.C.
To DC and everyone who has entered into a pre-sales agreement: The agreement for the most part is a contract between you and the developer.
It is not a sales agreement, but rather an agreement that reserves the right for you, the buyer, under the terms and conditions of the contract, to purchase the unit once the project is complete, at the specified price and cost adjustments set out in the agreement.
There are a number of issues that pre-sales buyers need to be mindful of:
– No two contracts are the same and whether you are entering into a new contract, completing the transaction, buying the transfer of a pre-sales agreement, cancelling the agreement or altering the terms of the agreement, you need legal counsel from an experienced real estate and contract lawyer.
– There is no actual conveyance of real estate until the product is complete, the titles have been created and the transaction documents are finalized.
– As this is a contractual relationship, it is quite possible that you will be responsible for much more than simply the loss of your deposit for cancellation.
– A breach of the contract by the developer might be reasonable grounds to terminate the contract without serious penalties.
There may be other associated damages and penalties in the contract. However, the developer may also wish to alter, postpone or cancel the agreement, so the terms and conditions of the contract are absolutely critical.
The current credit crunch has also placed a number of small investors at serious risk as they might be struggling to qualify for financing to complete their sales agreements.
Consult your financial adviser and your lawyer, and review the contract before you make any hasty decisions.
If you are planning on renting your unit as an investment, confirm that the pre-sales agreement contains a provision for a Form J “owner developer rental disclosure statement” that properly secures the exemption of the first purchaser to rent in exemption of possible future rental bylaws by a strata corporation.
Tony Gioventu is executive director of the Condominium Home Owners Association.
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