Executive Summary: Key Legal and Evidentiary Issues

• Existence of a significant title defect due to multiple structures encroaching on a Hydro-Québec/Bell servitude that expressly prohibits construction on its strip.
• Interpretation and application of clauses 9.1 (“Examen des documents par l’acheteur”) and 10.5 (“Vice ou irrégularité”) of the promise of purchase when a title defect is discovered shortly before closing.
• Assessment of the seller’s obligation under the Civil Code of Québec and the contract to deliver a “clear title” and to remedy vices or irregularities affecting title before sale.
• Evaluation of the buyers’ good faith in refusing to complete the sale versus the seller’s allegation that the servitude was a “phantom” or minor irregularity used as a pretext to walk away.
• Determination of whether the seller actually “remedied” the title defect (by obtaining a tolerance or radiation of the servitude) within a reasonable time before closing, or merely tried to reassure the buyers without curing the problem.
• Quantum and nature of damages hypothetically recoverable by the seller (price difference, carrying costs, insurance, taxes, lost shareholder contribution) had liability been established.

Factual background and the parties’ positions
9476-1806 Québec inc. is a company created to carry out real estate “flips”, buying, renovating, and quickly reselling residential properties for profit. It purchased a house on Maricourt Street in October 2022, “with and subject to all servitudes,” and without receiving a certificate of location from its own seller. The goal was to renovate and resell rapidly. After renovations, 9476 put the property on the market through a real estate broker with an asking price of $525,000 and a target closing date no later than 31 March 2023. In February 2023, Léonie and Zayakana Tshimanga signed a promise of purchase to buy the property, initially at $465,000 and ultimately at $485,000 after a counter-proposal was accepted. The promise of purchase contained standard conditions, including: (1) a right to inspect the property; and (2) a condition that the buyers receive and review the certificate of location and a roof receipt (clause 9.1), as well as a detailed “vice ou irrégularité” clause (clause 10.5) dealing with title defects and irregularities discovered after conditions are fulfilled but before signing the deed of sale. The buyers inspected the property; their inspection report identified various deficiencies that worried them, leading to negotiations. On 3 March 2023, they signed a modification under which 9476 agreed to do certain remedial electrical and painting work at its expense, with no reduction of the selling price. From that point onward, the buyers remained committed to proceeding. Parallel to these negotiations, 9476 had ordered a certificate of location in December 2022. The land survey was completed, and the certificate finalized in early February 2023, but was only transmitted to 9476 in early March once the company paid the fees. The broker for 9476 sent the certificate to the buyers’ broker and to their notary on 6 March 2023, but neither broker nor buyers read it immediately; the buyers only received their own copy on 19 March 2023 and still did not review it.

Discovery of the servitude and the encroachment
The buyers’ notary, Me Farokhian, carefully examined the certificate of location and discovered that the property was burdened by two servitudes in favour of Hydro-Québec and Bell Canada. One of them, Servitude 152467 (dating back to 1976), ran across the property from the street to the rear lot line, and it explicitly prohibited any construction “upon, over and under” its strip. The certificate of location showed that roughly half of the house, the cantilever (porte-à-faux), a bay window, the gallery, landing and above-ground pool all encroached on the area covered by this servitude, contrary to its terms. Other minor encroachments were also noted on the same servitude. A second servitude in favour of Hydro-Québec and Bell existed at the back of the lot where a hydro pole and overhead lines were actually located, and that second servitude clearly remained active as a distribution servitude. Me Farokhian informed the buyers of the existence of Servitude 152467 and the significant encroachment during a meeting on Friday, 24 March 2023, when the buyers had come to sign their mortgage deed in preparation for the 31 March closing. The notary explained that this was not a minor irregularity but a serious title problem: a registered servitude banning construction was in direct conflict with the current state of the buildings, and the buyers’ enjoyment and security of title could be affected in the future if the right-holders invoked their rights. She advised that title insurance would not “cure” the defect; the servitude and encroachments would still exist. Even if funds were held back from the sale proceeds to pay for steps to obtain a formal tolerance or radiation from Hydro-Québec and Bell Canada, there was no guarantee those entities would agree. She estimated that regularizing the situation by having the servitude lifted or modified could take several months (four to eight months). From the buyers’ perspective, this went to the core of their consent: had they known about this servitude and the extent of encroachment earlier, they never would have agreed to purchase the property. They wanted a clear title for their first home in Québec, not a property already in non-compliance with a utility servitude that could only be cured with the cooperation of large third-party institutions.

Key contractual clauses: examination of documents and vice or irregularity
Clause 9.1 of the promise of purchase made the transaction conditional on the buyers examining and verifying the certificate of location and the roof receipt. The seller was to provide these documents within three days of acceptance, and the buyers had seven days after that deadline to render the promise null and void if they were not satisfied with their review or if they had not received the documents on time. In practice, neither side treated these strict delays as “of the essence”: 9476 delivered the certificate late, the buyers did not insist on timely delivery, and no written confirmation of satisfaction under clause 9.1 was ever sought or given. The more central provision was clause 10.5, “Vice ou irrégularité”. It applied where, after conditions were fulfilled but before signing the deed of sale, some vice or irregularity affecting title or the seller’s contractual declarations or obligations was denounced in writing to either party. The clause gave the seller twenty-one days from receipt of the denunciation to notify the buyer in writing that it had remedied the vice or irregularity at its expense, or that it would not do so. If the seller did not undertake to remedy, the buyer then had five days either to accept the property with the defect (with a corresponding reduction of the seller’s obligations) or to declare the promise null and void. If the buyer did nothing within that period, the promise of purchase itself became null and void, with each party bearing its own expenses and fees. The court interpreted “remédier” as going beyond reassurance: it required the seller actually to make the defect disappear or correct it, at its cost, thereby ending the contractual non-conformity. The mechanism in clause 10.5 is meant to balance the parties’ interests. It protects a seller who discovers a vice mid-transaction and promptly discloses and cures it, and it protects a buyer who denounces a defect by forcing the seller to either fix the issue at its cost or accept that the buyer may walk away. Importantly, the judge emphasized that clause 10.5, like other contractual provisions, cannot be used in bad faith as a mere pretext by a buyer who has simply changed their mind; the underlying civil law duty of good faith applies throughout the negotiations and performance of the contract.

The seller’s reaction to the encroachment and the alleged “phantom” servitude
Once the servitude problem surfaced on 24 March 2023, the brokers and the seller’s representative were genuinely surprised; none appeared to have realised earlier that half the house and other structures lay within a servitude that prohibited any construction. The court found that 9476 quickly became aware that the buyers viewed the encroachment on Servitude 152467 as a serious problem and that they did not want to proceed unless the issue was resolved. Over the following days, 9476’s representative contacted Hydro-Québec and the land surveyor, and then reached out to 9476’s own notary to see what could be done. The seller’s notary believed the servitude was “désuète” and unused, and therefore in practice not problematic. She offered to handle the steps to obtain a radiation (extinction) of the servitude at the seller’s expense. The seller and its brokers also floated solutions such as purchasing title insurance for the buyers and holding back a modest amount (first $5,000–6,000 via the buyers’ notary, then $2,500 in the seller’s later proposal) from the sale proceeds to cover the legal and notarial fees of any application for tolerance or abandonment of the servitude. What the seller did not offer was to postpone the 31 March closing date while it itself formally applied to Hydro-Québec and Bell Canada for a tolerance letter or an act of abandonment and waited for the outcome before requiring the buyers to complete the sale. Instead, the proposals required the buyers to sign the deed on schedule and take ownership with the defect still in place, based on assurances that the servitude was “phantom” and could be dealt with later. For the court, this distinction was crucial: 9476 was trying to reassure the buyers about the practical risk, but it was not actually “remedying” the irregularity in the sense of making it disappear before closing. It never undertook the curing steps in advance of the sale, nor did it suggest pushing back the completion date to give time to secure a formal resolution from the utilities. The evidence also showed that 9476 had its own financial constraint: it needed to close by 19 April 2023 to avoid renewing a high-interest (12%) private loan. This undisclosed pressure contributed to the seller’s insistence that the transaction proceed quickly rather than be delayed to fix the title.

The buyers’ decision not to proceed and the court’s view of good faith
The buyers, having been told by their notary that the servitude and encroachment were a major title issue and that the resolution would be uncertain and potentially lengthy, were deeply uncomfortable with closing under those conditions. On 26 March 2023, they told their notary and broker that they were no longer interested in buying the property while this vice remained uncorrected. However, they did not immediately send a formal written notice invoking clause 10.5 or unilaterally terminate the promise of purchase. Over the following days, their broker continued to exchange emails with the seller’s broker, and they remained open to hearing proposals, although they did not want to accept the property with the defect intact. By 28 March, after receiving clear indications that 9476 would not cure the problem before the deed of sale, the buyers’ broker definitively informed the seller’s broker that the transaction was “dead.” The court considered whether the buyers had prematurely terminated the contract without allowing the seller the benefit of the 21-day period in clause 10.5, or whether, in context, the clause’s mechanism had effectively run its course through the parties’ conduct and communications. While the buyers did not send a formal notice citing clause 10.5 and its timelines, the judge held that this was not fatal in the very specific circumstances. The court found that: the seller knew the buyers would not accept the property with the vice; the buyers knew, from 9476’s proposals and refusal to delay closing, that the seller would not itself remedy the vice before the sale; and by 28 March, this mutual understanding was clearly reflected in writing. Under the last paragraph of clause 10.5, if the buyer does not choose to proceed with or without the defect within the stipulated time, the promise becomes null and void, with each party bearing its own costs. The court concluded that, in substance, the parties’ exchanges led to that outcome: the promise of purchase was null and void, and the buyers’ refusal to complete the sale on 31 March 2023 was justified. On the question of good faith, the seller alleged that the buyers were using the servitude as a pretext to escape a transaction they no longer wanted for other reasons (for example, earlier worries from the inspection report). The judge rejected this thesis. Evidence showed that once the inspection issues were addressed by the seller’s undertaking to do repair work, the buyers remained enthusiastic and did not revisit those concerns. They did not shop for other properties between the inspection and the 24 March meeting; they were in the process of signing mortgage documents and fully preparing to close. Only after learning of the serious title defect did they look at other houses. The court accepted the buyers’ testimony that they wanted a first home with a clear title and peace of mind, and that they would never have signed a promise to purchase had they known how much of the house encroached on a prohibited servitude. They had nothing to gain and much to lose by walking away (given their financing deadlines), which supported their credibility and good faith.

Subsequent sale and later radiation of the servitude
After the transaction with the Tshimanga buyers collapsed, 9476 relisted the property and sold it in June 2023 to third parties for $10,000 less than the price agreed with the original buyers. In the new sale, the question of the servitude and encroachment was explicitly treated: it was acknowledged that a tolerance letter concerning the encroachment on Servitude 152467 was being obtained. Hydro-Québec later agreed, in exchange for a modest payment, to abandon its rights under Servitude 152467 by notarial deed, and a formal act of extinction of servitude in favour of Hydro-Québec and Bell was eventually published in January 2024. The seller argued that these subsequent developments showed the vice was minor and easily curable, and that the buyers had overreacted or acted in bad faith. The court warned against judging the buyers’ March 2023 decisions with hindsight: at the time, no abandonment had yet been agreed, and the utilities’ future stance was uncertain. Moreover, the later sale itself recognized the need to address the encroachment in the contractual documents, underscoring that the issue was not trivial. The fact that the defect was ultimately cured for different buyers did not retroactively transform the original buyers’ refusal into a breach.

Damages claimed and hypothetical quantum analysis
9476 brought an action in damages against the buyers, seeking $35,954.33. The claim included three broad categories: (1) various carrying costs (interest on the private mortgage, renewal fees and related costs, insurance premiums, electricity and heating, hot-water tank rental, municipal and school taxes) incurred between the scheduled closing and the eventual resale; (2) the $10,000 shortfall between the price agreed with the Tshimanga buyers and the lower resale price; and (3) an alleged loss of “apport” (contribution) from its shareholder, linked to the disruption of its flipping business. Because the court held that the buyers were justified in refusing to buy, it dismissed the entire action and did not award any of the amounts claimed. However, the judge went on, in obiter, to explain how damages would have been assessed had the seller succeeded. On that hypothetical basis, the court would have allowed the $10,000 difference in sale price as a direct and foreseeable loss, as well as certain operating costs such as electricity, heating, hot water rental, and municipal and school taxes. A limited insurance amount, covering 21 days of April 2023 plus the renewal fee, would also have been allowed. By contrast, interest and renewal charges on the private mortgage were seen as indirect or partly unavoidable even if the original sale had closed, and no amounts would have been awarded for the alleged loss of shareholder contribution, because no reliable financial evidence supported that head of damage. On that purely hypothetical scenario, total recoverable damages would have been $12,720.92. These figures, however, never became operative because liability was not established.

Final ruling and outcome of the case
In the end, the Court of Québec held that the encroachment of significant portions of the dwelling and related structures on Servitude 152467, which expressly banned construction on its strip, constituted a serious title vice. Under the Civil Code of Québec and the contractual framework of clauses 9.1 and 10.5, 9476 had a duty to deliver a clear title and to actually remedy the defect, not just to minimize it or push the risk onto the buyers. Given that the seller refused to delay closing to cure the problem, and instead sought to have the buyers complete the sale with an unresolved irregularity and uncertain third-party consents, the court found that the buyers were legally and contractually entitled to refuse to sign the deed of sale. The judge also found no evidence of bad faith or abuse by the buyers in invoking the servitude; rather, their conduct was consistent with first-time purchasers seeking a clean and secure title. The action by 9476-1806 Québec inc. was therefore dismissed with costs, meaning the successful parties were the buyers, Léonie and Zayakana Tshimanga. No damages or monetary compensation of any kind were awarded to the seller, and while court costs were ordered in the buyers’ favour, the exact amount of those costs cannot be determined from the decision text.