When we talk about hypothecs, we often think of its French counterpart hypothèque, or mortgages, which are bank loans used to finance the purchase of a home. However, Québec law also provides for legal hypothecs, which arise automatically in certain situations in real estate law. These include legal construction hypothecs, which apply directly to work carried out on a building.
In this article, we explain in simple terms:
- What types of legal hypothecs are provided for by law.
- How the legal construction hypothec works.
- Who can benefit from it.
- What formalities must be followed to maintain it.
- What its priority is in relation to other claims.
- And finally, its cancellation.
The different types of legal hypothecs
The Civil Code of Québec recognizes four main categories of legal hypothecs.
1. Claims by the government and public bodies
This includes, for example, tax debts or amounts owed under specific laws.
2. Claims related to the construction or renovation of a building
This is where the legal construction hypothec comes into play, which aims to protect architects, engineers, material suppliers, workers, and contractors or subcontractors.
3. Claims of the condominium association
When a co-owner does not pay their common expenses, the association has a legal hypothec to guarantee this payment.
4. Claims resulting from a judgment
A creditor who obtains a judgment can benefit from a legal hypothec to ensure that the decision is enforced.
Here, we will focus more on the legal construction hypothec.
What is a legal construction hypothec?
A legal construction hypothec is a mechanism provided for by law to protect people who contribute to the construction or renovation of a building.
In concrete terms, if an owner has work done but is late to pay for it, the people who participated in the project have a special right. They can register a legal hypothec on the building in question, which then becomes a guarantee of payment.
Who can benefit from it?
Several players in the construction industry can take advantage of this protection:
- Architects who design the plans.
- Engineers who supervise the structure or mechanics of the building.
- General contractors and their subcontractors.
- Suppliers of materials.
- Workers who carry out the work.
In short, anyone who adds value to the building, whether through their expertise or the materials they supply, can invoke this right.
A hypothec that exists automatically
One of the key points to understand is that the legal construction hypothec arises automatically. In other words, as soon as the work is completed or the materials are supplied, this right exists without the need for any specific action.
However, it should be noted that, in order to be valid against third parties, the legal construction hypothec must be registered in the land registry with the amount of the claim within 30 days of the completion of the work. In addition, a notice of this registration must be sent to the owner of the building to officially inform them.
These two steps are essential: if the registration is not made or if the notice is not sent to the owner, the legal hypothec may disappear and become ineffective.
Steps to maintain the legal construction hypothec
In order for the legal construction hypothec to remain valid and effective, the law provides for several strict deadlines:
1. Registration within 30 days of the completion of the work
- A notice must be published in the land registry.
- This notice must indicate the property concerned, specify the amount of the claim, and be sent to the owner.
2. Legal action or notice within 6 months
- After registration, the creditor has 6 months to take legal action against the owner or publish a notice of exercise of a hypothec right.
- If nothing is done within this period, the hypothec automatically expires.
These steps are crucial, as many creditors lose their rights simply because they have not complied with the deadlines set out in the Civil Code.
Direct or indirect contract with the owner
There is an important distinction depending on whether the contract was concluded directly with the owner or not.
If the contract is directly with the owner:
The hypothec guarantees the total added value to the property resulting from the work, materials, or services.
If the contract is not direct (e.g., subcontractors)
The hypothec only covers work, materials, or services that follow the written termination of the contract with the owner.
Exception: workers are not required to terminate their contract to be protected.
The question of priority
In construction, legal hypothecs have priority over other published hypothecs, such as those held by banks.
However, this privilege is not unlimited:
- The legal hypothec only covers the added value created by the work.
- If several creditors hold a legal construction hypothec and simultaneously claim their dues, the distribution is made in proportion to the value of their respective claims.
In practice, this means that a bank creditor could see its guarantee reduced in favour of a contractor or supplier who has not been paid.
Extinction of the legal construction hypothec
If, within six months of registration or completion of the work (whichever is later), no action has been taken and no notice has been published, any interested party may request cancellation, provided that they notify the creditors and provide proof of this at least ten days before submitting the request to the Land Registry Officer.
This prevents these legal hypothecs from remaining registered indefinitely in the registry when no proceedings have been taken to enforce them.
Why is it important to know about this mechanism?
For contractors and suppliers: it is an essential protection tool to secure payment for their work or supplies.
For owners: it forces them to verify that their contractors are paying their subcontractors and suppliers.
Conclusion
The legal construction hypothec is a powerful tool in the Civil Code of Québec. It protects those involved in the construction industry and ensures that those participating in a real estate project are compensated for their work and materials.
However, this right cannot be exercised without strict compliance. A notice must be published within 30 days, and action must be taken within six months to retain it. Otherwise, inactive registrations will be struck off.
In short, whether you are a contractor, supplier, or even a property owner, it is essential to understand how the legal construction hypothec works to avoid unpleasant surprises and protect your rights.
If you need help with real estate law or a legal construction hypothec, contact us now.
NOTE: This article does not constitute legal advice. It is provided for informational purposes only to help readers better understand certain aspects of legal hypothecs of construction in Quebec. As each situation is unique, we recommend that you consult a real estate lawyer or legal professional for a personalized assessment of your case.