The pre-emptive right of municipal bodies: what you need to know

You have probably heard about the recently enacted pre-emptive right of various public bodies to acquire an immovable and understand its general meaning. In common parlance, it is often referred as the equivalent of a right of first refusal, which is not entirely inaccurate.  However, there is a difference between the two concepts. A right of first refusal is  usually derived from a private real estate agreement, whereas a pre-emptive right is statute-based and requires prior registration of the right against an immovable in the Québec Land Register. In both cases, the holder of the right has an advantage over anyone else in that it is entitled to purchase the property in priority to and on the same conditions as those presented by a third-party offeror.

A statutory pre-emptive right has recently been made available to all Quebec municipalities. The City of Montréal has had this right since 2018 as the result of an amendment to its Charter. Bill 37, An Act to amend various legislative provisions mainly with respect to housing, which came into force on June 10, 2022 (2022, c. 25), has extended eligibility to exercise the right to municipalities, intermunicipal boards and public transit authorities. These bodies now have to power to acquire immovables by exercising the pre-emptive right. Several laws were amended at the same time, including the Cities and Towns Act, the Municipal Code of Québec and the Act respecting public transit authorities.

Now, an eligible municipal body can, on a priority basis, acquire any immovable within its territory provided that it has 1) adopted a by-law identifying the territory in which its pre-emptive right is exercisable and the municipal purposes for which an immovable may be acquired and 2) registered a notice of intention to exercise its pre-emptive right in the Land Register. The notice validity period may not exceed 10 years and only one such notice may be registered in respect of an immovable.

The by-law must specify the municipal purposes for which immovables can be acquired. The purposes must be within the municipality’s areas of competence, such as social or affordable housing, residential housing, parks, public transit and recreation. The notice of intention to exercise the right must also specify the intended purposes.

If a municipal body has registered a notice of intention to exercise its pre-emptive right it may also act as mandatary for another otherwise eligible body by registering a notice on behalf of the other body, specifying the other body’s acquisition purposes. Thus, if the mandatary does not exercise its pre-emptive right, the mandator may do so.

Once an owner of a subject immovable has decided to sell it and has agreed to terms with a buyer, the owner must serve notice of its intention to alienate on the municipal body that registered a notice of intention to exercise its pre-emptive right. The owner’s notice must state the name of the person who intends to acquire the immovable,  the agreed upon conditions of the proposed sale and a reliable and objective estimate of the value of any non-monetary consideration

If the owner of an immovable subject to a notice of intention to exercise a pre-emptive right sells the immovable without sending the requisite notice to the municipal body of his or her intention to alienate, the sale becomes voidable.

The municipal body has 60 days, from the owner’s notice, to notify the owner of its intention to exercise its pre-emptive right at the price and on the conditions stated in the owner’s notice of intention to alienate. During that period, the municipal body may require from the owner information on the immovable, and it may access the immovable and conduct any relevant study or assessment of its condition. If it confirms its intention to exercise its pre-emptive right before or upon expiration of the 60-day period, the municipal body has must then pay the owner within a further 60 days, calculated from the announcement of its decision to acquire the immovable. If the owner’s notice of Intention to alienate includes an estimate of the value a non-monetary consideration, the purchase price must be increased by that amount.

In the absence of a notarial contract, the municipal body becomes the owner of the immovable by registering a notice of transfer. Certain sections of the Expropriation Act will apply with the necessary modifications.

If the municipal body waives its pre-emptive right following the owner’s notice of intention to alienate, the sale with the person that intended to acquire the immovable can proceed, in which case the municipal body must cancel its  notice of intention to exercise its pre-emptive right.

The person who initially intended to acquire the immovable is entitled to be compensated for reasonable expenses. According to the wording of the amended statutes, the municipal body “must compensate the person who intended to acquire the immovable for reasonable expenses incurred during negotiation of the price and conditions of the proposed alienation.” This would cover expenses such the costs of inspection and of a characterisation study.

The right cannot be exercised in respect of immovables owned by a public body within the meaning of the Act respecting access to documents held by public bodies and the protection of personal information. The right may also be subordinate to that of certain other bodies and the right is also not exercisable in respect of an alienation made for the benefit of a person related to the owner within the meaning of the Taxation Act.

What about the owner-vendor? Is he at a disadvantage as a result of the pre-emptive right, despite the fact that the sale to the municipal body is on the same terms and conditions as those agreed to with the person who intended to buy the immovable?

This issue has been the subject of some discussion in the legal literature. Several authors view the pre-emptive right as a restriction on the vendor’s ability to negotiate with more than one buyer and to raise the bids on the table. Given the existence of the pre-emptive right, it reasonable to expect a diminished pool of prospective purchasers.

Like the right of first refusal in private matters, the pre-emptive right is an undeniable advantage for the holder of the right. The municipal body can either complete the transaction before other interested buyers or waive its right to do so within the prescribed time limit. It is reasonable to assume that a party that has a priority over other potential purchasers would tend to result in a good deal for that party, especially if the notice of intention to exercise its pre-emptive right has had the effect of limiting the number of prospective buyers.

A municipal body with expropriation powers could also be at an advantage. If the property it is interested in comes on the market and an offer to purchase has been made, it will find out quickly and will be able to acquire it by paying a sale price that reflects market value instead of being required to pay an expropriation indemnity.