One not familiar with the special set of rules outlined in the Civil Code of Québec (the “Civil Code”) will likely be in for a big surprise when selling real estate assets in La Belle Province: if the contractual documentation does not expressly exclude the legal warranties provided for in the Civil Code, the vendor will end up granting to the purchaser a “warranty of ownership” and a “warranty of quality” with respect to the immovable assets being transferred.
We cannot stress enough how important this rule is in Québec, especially for commercial real estate transactions, as these transactions are typically made on an “as-is, where is” basis, with the vendor commonly putting on the purchaser the onus of carrying out due diligence verifications with respect to the property, including in connection with title and condition of same.
Essentially, the “warranty of ownership” is the vendor representing to the purchaser that it has good and valid title to the property and that same is free and clear of all rights. However, this representation also extends to any encroachment by a third party which the vendor has knowledge of and any violation of public law restrictions affecting the property (such as non-compliances of municipal regulations for instance).
The “warranty of quality” is the vendor representing to the purchaser that the property is free and clear of latent defects which render it unfit for the use for which it was intended or which affects its usefulness in such a way that the purchaser would not have purchased it or would have paid a lower price if it had knew about them. This goes as far as to represent as to environmental condition of the property.
The Civil Code provides that the legal warranties can be contractually expanded upon, reduced or waived as the parties see fit, save in certain specific circumstances. However, in order to properly waive the legal warranties and provide for a true “as is, where is” transaction, the courts will require for the contractual documentation to include express wording to that effect. The mere indication that the purchaser is to take the property in its current condition, with the purchaser representing that it has examined the property and that same is satisfactory, will not be enough to put aside the application of the legal warranties. The vendor looking to waive the application of the legal warranties will instead want to make sure to use express language, with words such as “the purchaser hereby waives the legal warranties provided for in the Civil Code of Québec” and “at the purchaser’s entire risks and perils”.
Finally, it is important to note that the waiver regarding the legal warranties will need to be provided for at the very beginning of the discussions between the parties and introduced in the legal documentation at the earliest opportunity, whether it is in the letter of intent or agreement of purchase and sale. It will certainly be too late for the vendor to introduce the waiver provision in the final deed of sale to be registered on title if the previous documents were silent on this.