Promise to Purchase | Free Template + Guide

What is a promise to purchase?

A promise to purchase is a preliminary contract in which a potential buyer informs a seller of their intention to purchase the seller’s property under certain terms and conditions. It becomes a formal, binding commitment once it’s accepted by the seller. Though “promise to purchase” is the technically correct term, you may also hear this document called an offer to purchase or an intent to purchase.

The promise to purchase precedes the deed of sale. The seller must accept the promise to purchase before there can be any transfer of ownership. Since it is a legal document, the buyer or seller could be open to legal recourse if either party does not fulfil the contract.

What information should be included in a promise to purchase?

A promise to purchase should include the following information:

parties involved
description of the property
sale price
deposit amount
deadlines related to the sale
payment method
terms (subjects) and conditions
declarations and obligations of the buyer
declarations and obligations of the seller
declarations and obligations common to the buyer and seller
terms of acceptance
signatures

Things to check before signing a promise to purchase

Before you sign the promise to purchase, there are a few things you need to verify:

Does the seller actually own the property? It is important to make sure the seller is the true owner of the property. You can ask for identification or search the land register.
Does the seller need permission from their spouse to sell the property? If the seller is married, they may need permission from their spouse to sell the property. In certain cases, the sale can be cancelled if the other spouse does not agree to it.
Is the property named in the promise to purchase the one you intend to buy? You can check this by using the lot number. This can usually be found on government websites.
What are the payment terms? The promise to purchase must indicate whether you need financing, what happens to your deposit if your offer is cancelled, and whether the sale price includes taxes.
Are the terms clear? Make sure the terms (also called subjects) are clear and acceptable for you before signing the agreement. For example, the offer can be cancelled by either party if certain terms are not met, like a successful home inspection or financing.
Are the deadlines acceptable? You should provide the seller with a firm deadline to respond to your offer, after which the promise to purchase expires. The promise to purchase should also indicate when you intend to take possession of the property. This date should take into account how much time you will need to arrange financing and a building inspection, for example.

Acceptance, refusal and counteroffer

Once you sign the promise to purchase, the seller can either accept it, refuse it, or make a counteroffer. If the offer is accepted, you must fulfil the terms set out in the promise to purchase. If the offer is refused, you can always present a new promise to purchase.

The seller may also refuse your offer but respond with a counteroffer. This means that the seller would accept your offer if you met certain terms, such as an enhanced price or the exclusion of certain subjects. As the buyer, you may accept, refuse, or counter the seller’s counteroffer with your own.

A counteroffer cancels all previous offers.

Cancelling a promise to purchase

Usually, it is not easy to back out of a promise to purchase. Remember, this is a contract the buyer and seller are compelled to fulfil. However, there are some exceptions:

The buyer

A promise to purchase usually includes a deadline for the seller to accept or refuse the buyer’s offer. The buyer cannot withdraw their offer during this period, unless they inform the seller before they receive the offer. If the promise to purchase does not have a deadline, the buyer can withdraw the offer if the seller has not yet accepted it.

The buyer can also cancel a promise to purchase in the event a home inspection reveals any major problems with the property which would significantly increase the buyer’s costs.

The buyer and seller can also mutually agree to cancel the promise to purchase. However, the buyer or seller may have to compensate the involved real estate brokers for their commissions.

The buyer can also invoke the impossibility of securing financing. In this scenario, the buyer must prove that they cannot obtain the required financing despite their best efforts.

Finally, in Quebec, a buyer has ten days to cancel a promise to purchase for a new property or a property under construction. However, the builder or developer may claim up to 0.5% of the agreed selling price.

The seller

The seller can back out of a promise to purchase if the buyer does not accept it within the prescribed time frame. In this case, the promise lapses and the seller can argue that there never was an agreement, even if the buyer accepts it after the specified date.

The seller can also get out of the promise to purchase if it can be shown the buyer lied to or deceived the seller.

Finally, the seller can withdraw from the promise to purchase if the buyer does not meet any terms of the agreement, such as financing.

Remember, these terms and conditions can only be invoked if they were part of the promise to purchase in the first place.

What happens if either party refuses to sign the deed of sale?

If the buyer or seller refuses to sign the deed of sale after accepting the promise to purchase, it is possible to force the sale through what is called the action in passing of the title. Either party may initiate this legal action.

There are a number of documents and criteria required to initiate an action in passing of the title:

A valid and binding promise to purchase
A demand letter
A deed of sale substantially in compliance with the agreed upon promise to purchase
An offer and record of the sale price
Filing the action within a reasonable timeframe

However, an action in passing of the title becomes moot if the house is sold to a third party in the meantime. For example, a seller may be tempted by a better offer from a third party. According to the law, a deed of sale in violation of a valid promise to purchase cannot be annulled by the aggrieved buyer. But, the buyer in question is eligible to receive compensatory damages from the seller and even the third-party buyer, if it can be proven that the latter did not purchase the property in good faith (if they colluded with the seller, for example).

In the event the seller intends to sell the home to a third party in violation of the promise to purchase, but has not yet done so, the buyer can obtain a provisional injunction ordering the seller to not sell the property to another buyer.

Commonly asked questions

Can a promise to purchase be made verbally?

Yes. However, in case of a dispute, the aggrieved party must be able to prove the existence of the promise to purchase, which could be problematic if the promise was made verbally. It is recommended to make a promise to purchase in writing and to keep a copy of the document.

Do I need the services of professionals for a promise to purchase?

A promise to purchase is a legal document that contains a lot of important information. It is recommended that you use the services of a realtor/real estate broker, a lawyer, or a notary. These professionals will be able to spot any irregularities with the document and point out anything that’s missing.

Is a promise to purchase the same as a deed of sale?

No. The promise or offer to purchase is a preliminary contract that is signed before the deed of sale. The promise to purchase binds the buyer and the seller to the terms of the sale. The deed of sale is the conclusion of the transaction before a notary or lawyer. This is when the ownership of the property is formally transferred.

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Promise to purchase template

Downloadable promise to purchase template