Selling a property with a heat pump: Watch out for drafts

(Update of the article published on March 1, 1996 and modified on July 15, 2013)

When a brokerage contract is signed, the broker may note that the property has a heating or air conditioning unit installed, a heat pump for instance. This type of unit has often been purchased by the owner under an instalment sale contract with a merchant. What are the ramifications for the broker when selling an immovable with a heat pump?

Instalment Sales

The instalment sale contract stipulates that the merchant remains the owner of the goods sold until the contract has been paid for in full. The first paragraph of article 1745 of the Québec Civil Code provides the following definition: '' An instalment sale is a term sale by which the seller reserves ownership of the property until full payment of the sale price. '' Since the merchant remains the owner of the goods until all payments have been made, the sale of the immovable to a third party before the contract has been paid in full does not have the effect of automatically making the buyer the owner of the goods. The seller remains responsible for the payments to the merchant.

In addition, it is important to note that only instalment sale contracts signed between a merchant and a consumer come under the provisions of the Consumer Protection Act.¹ In this case, it must contain certain mandatory clauses. In other cases, the contract shall be subjected only to the Civil Code rules relating to this type of contract. If, for instance, the owner of an immovable operates a business there, he is himself deemed to be a merchant and the Consumer Protection Act therefore does not apply to the instalment sale contract signed with another merchant.

Furthermore, chances are the contract will include a clause stipulating that the consumer may not sell, lease, assign or otherwise divest himself of the goods without the written consent of the merchant. Article 1747 of the Québec Civil Code outlines the consequence of violating this clause: ''The balance owing by the buyer becomes due where the property is sold under judicial authority or where the buyer assigns his right in the property to a third person without the consent of the seller.'' Therefore, the seller must obtain the merchant's written consent before assigning the goods in question to the buyer, if applicable.

The consumer should first, with the help of his real estate broker, examine the instalment sale contract or contact the merchant to make sure he can assign his obligations to a third party. Should the consumer assign the goods to a buyer without the merchant's written consent, the merchant could find the consumer in default of his obligations and demand the balance of the sale price.

After making the necessary verifications with the merchant and asking the seller whether or not he intends to assign the heat pump to the buyer, the real estate broker should, as the case may be, either exclude the heat pump from the sale (the seller shall then act in accordance with the provisions of the instalment sale and comply with its terms and conditions), or include it and provide for a commitment by the buyer to assume the seller's obligations.

This assumption of obligations by the buyer should be added under clause 4.7 of the brokerage contract and clause 11.8 of the promise to purchase. The act of sale will also have to include a clause regarding the assumption of the seller's obligations by the buyer to this effect.

Buyer's commitment

Let's take the example of a Superior Court decision to illustrate the consequences of failing to obtain the buyer's commitment to assume the seller's obligations. In the case of Gaz Métropolitain inc. vs. 99861 Canada inc. et al.², Gaz Métropolitain signed a contract with the defendant to install four furnaces and supply gas for a period of five years. In 1991, the defendant sold the immovable to a third party and ceased making payments. The defendant was sued for the balance due on the installation contract and claimed that the buyer had assumed the contract.

The Court concluded that the sales contract for the immovable contained no clause stipulating that the buyer had assumed the installation contract, whereas a similar clause was included in a leasing contract on an appliance. Also, the act of sale made no mention of the installation contract between the claimant and the defendant or the unpaid balance. However, the installation contract stipulated that if the lessee assigned ownership of the premises without written consent by the buyer to assume the contract, he would be in default. Since the defendant had not obtained the buyer's written agreement to assume the contract, the action for recovery of the balance of the contract was allowed.

In the event where the buyer does not wish to take responsibility for the heat pump payments and refuses to assume the consumer's obligations, the device will have to be separated from the immovable and the seller shall remain responsible for the payments to the merchant. Article 1748 of the Québec Civil Code states what happens if the consumer fails to pay the sale price in accordance with the terms and conditions of the contract. The merchant may exact immediate payment of the instalments due or take back the goods sold, or else avail himself of the clause of forfeiture of benefit of the term, if the contract contains one, to exact payment of the balance of the sale price. In order to ensure the protection of both parties to a transaction, brokers are advised to follow these steps:

• Examine the contract binding the consumer to the merchant to determine if the goods can be assigned;
• Suggest to the selling client to get the merchant's written consent as quickly as possible;
• Write down the obligations of each party on the brokerage contract and the promise to purchase;
• Ask the notary to add a clause in the act of sale providing for the assumption of the seller's obligations by the buyer regarding the goods covered by the instalment sale contract (as previously agreed upon in the promise to purchase under clause 11.8).

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¹ R.S.Q., c. P-40.1.
² BDI-95-119 (C.S.).

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