The pre-emptive right in favour of public authorities: An urban planning tool that complicates real estate transactions

4 minute read
20 April 2023

This article was originally published in French by JBC Media in Immobilier Commercial magazine.

The pre-emptive right is a right of first refusal allowing its beneficiary to acquire certain immovables located on its territory at the price and conditions of the proposed alienation by substituting itself to the prospective purchaser. While the City of Montreal benefits from the pre-emptive right since September 2017, almost all municipalities, cities and public transit authorities in Québec can now avail themselves of this right since June 10, 2022.

In order to be able to exercise its pre-emptive right, the public authority in question must first (1) determine by by-law the territory in which its pre-emptive right may be exercised and the purposes for which immovables may be acquired, and (2) specifically identify the immovable subject to the pre-emptive right by notifying to the owner of the immovable a notice of pre-emptive right, and registering this notice in the land register against the immovable concerned.

The owner of an immovable in respect of which a notice of pre-emptive right has been issued may not sell or otherwise alienate the immovable without first notifying to the authority a notice to that effect, on pain of nullity of the transaction. Following the notification of this notice to alienate, the authority has 60 days to exercise its pre-emptive right.

The sections of the Act that create this right do not offer any guidance with respect to many situations that frequently arise in the context of real estate transactions. This could complicate such transactions in the following cases, for example:

  • Properties sold as a lot: If a promise to purchase includes immovables subject to the pre-emptive right and others that are not subject to that right, and if an authority purchases only the immovables subject to the pre-emptive right, the prospective purchaser may not want to purchase the remaining immovables. Thus, the owner would lose both the opportunity to sell more immovables and the portion of the sale price allocated to the unsold immovables.
  • Sale of shares: While it seems clear from the terms used in the Act that the pre-emptive right applies only to the alienation of immovables, the parties to a transaction may nevertheless be reluctant to proceed by sale of the share capital of the corporation that owns an immovable in respect of which a notice of pre-emptive right has been issued, for fear that the transaction will be challenged by the authority.
  • Undertakings by the prospective purchaser: The Act does not specifically deal with cases where the authority exercises its pre-emptive right with respect to an immovable whose sale price is reduced because the prospective purchaser undertook to carry out work (such as environmental rehabilitation work) on the immovable within a certain timeframe after the sale, but this undertaking is inconsistent with the projects planned on the immovable by the authority.

In conclusion, for owners whose immovables are subject to the pre-emptive right, and for prospective purchasers, and their respective legal advisors and real estate brokers, the existence of this pre-emptive right can complicate the negotiation process, influence the structure of the deal and increase their risk of losing a good business opportunity.

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