With the adoption of Bill 37 on June 9, 2022, the right of pre-emption, initially held only by the City of Montreal via its own municipal by-law, was extended to all Quebec municipalities. Since then it has been put into practice, slowly but surely. 

Keep in mind that this tool enables a municipality to purchase, on a priority basis, certain land and buildings put up for sale in order to build, among other things, social and affordable housing projects.

In practice, a municipality that wishes to exercise its pre-emptive right must adopt a by-law identifying the buildings subject to the by-law. The owners of the buildings are then notified of that fact, and the notice is also published in the Quebec Land Registry. Owners of a property who are party to an offer to purchase with a potential buyer must, once the buyer has declared himself satisfied with his due diligence, notify the municipality (under penalty of annulment of the sale), of a notice of intent to sell, mentioning the price and conditions of the proposed sale, as well as the name of the buyer. In fact, the municipality must be notified not when the offer is signed, but once due diligence has been completed. The municipality will then have 60 days in which to exercise its right of first refusal.

Should the city decide to exercise that right, it must compensate the buyer for reasonable expenses incurred in negotiating the offer to purchase. Although the by-law does not enumerate those expenses, we would expect them to include costs related to title searches, environmental and geotechnical studies and other elements of standard due diligence. Could it also include reimbursement of legal fees incurred in the negotiation process, as well as banking and other fees associated with obtaining financing? Unfortunately, it's still too soon to say.

In practice, a pre-emptive right implies that the offer to purchase should stipulate that the acquisition remains conditional as long as the time period granted to the city has not elapsed. Furthermore, even if the terms and conditions of the offer to purchase are not binding on the public authority, wording beneficial to the buyer could include a list of reasonable expenses likely to be covered by the compensation, or could specify mechanisms for collaboration between the seller and the buyer, all in order to assist the buyer in obtaining the compensation provided for in the event that the municipality decides to exercise its right of eminent domain.

We understand the need to deal with current social issues, but the existence of a pre-emptive right could discourage many potential buyers, given the longer acquisition times involved, the uncertainty as to the outcome of the purchase, and the fear of undertaking laborious administrative procedures to obtain compensation for reasonable and, ultimately, futile expenditures. It remains to be seen whether that remains the exception, rather than the rule!

We hope this information proves useful to you.

Sincerely,

Elisa Eouzan
Attorney