A legal hypothec is in place for the benefit of any person having participated in the construction or renovation of an building
You have participated in the construction or renovation of a building and the client refuses to pay? Don’t worry, you are likely to be legally protected!
Article 2427 of the Civil Code of Québec lists all the legal hypothecs provided for by law to date. Point 2 of this article refers to the claims of persons who have participated in the construction or renovation of an immovable, thus opening up for them the possibility of legal recourse in the event of non-payment by the debtor of the claim.
A real right in property assigned to the performance of an obligation
Article 2660 of the same code defines the notion of hypothec as “a real right on property, movable or immovable, assigned to the execution of an obligation”.
The mortgage is therefore a right that encumbers a property and that grants the beneficiary the possibility to follow the property wherever it is located. In other words, your right is attached to the property to which it is assigned and you will be able to enforce it even if your debtor has removed it from his patrimony by selling it, assigning it, giving it away or disposing of it in any other way.
In matters of legal hypothec in the field of construction, the hypothec is attached to the property built or renovated or, should we say more precisely, to the real right held on the building by the person requesting the work.
Legal mortgages are specifically provided for by law and automatically give a mortgage right to the beneficiary without the parties having agreed anything to this effect beforehand. These hypothecs are subject to the general rules for conventional hypothecs set out in articles 2660 to 2802 of the Civil Code of Québec and give access to the same remedies.
An automatic right that does not require the completion of any formalities for its acquisition
Article 2727 of the Civil Code of Québec provides that a legal hypothec in favour of persons who have participated in the construction or renovation of an immovable subsists, even though it has not been published, for 30 days following the completion of the work. As a result, unlike other legal mortgages, the construction and renovation legal mortgage does not require mandatory formalities for its acquisition.
However, if the beneficiary wishes to retain the mortgage, a notice of mortgage must be registered before the end of this period.
This notice should designate:
- the charged property,
- indicate the amount of the receivable due and
- be delivered to the owner of the building.
Finally, it will be essential to publish a legal action against the owner of the building or to register a notice of exercise of a hypothecary right within six months of the date of completion of the work, otherwise the legal hypothecary right will be extinguished.
Finally, it will be essential to publish a legal action against the owner of the building or to register a notice of exercise of a hypothecary right within six months of the date of completion of the work, otherwise the legal hypothecary right will be extinguished.
Article 2726 of the Civil Code of Québec provides an exhaustive list of the beneficiaries of this legal hypothec in the construction field. They are as follows:
– Architects;
– Engineers;
– Material suppliers;
– Workmen;
– Entrepreneurs;
– Subcontractors.
These beneficiaries can be either natural persons or legal entities, with an exception for workers: as they are by definition engaged in manual work, they can only be natural persons.
Claims secured by the legal right of mortgage in the construction sector
The provisions of the Civil Code of Quebec in articles 2726 and 2728 provide certain conditions for the debt to be secured by the right of legal hypothec in the construction field.
In this sense, the law provides that:
– It must be construction or renovation work that has added value to a building: the Court of Appeal has long held (Beylerian c. Constructions et rénovations Willico Inc. 1997. R.J.Q. 1246, REJB 1997-00639), established that the existence of a surplus value is a condition for the existence of the claim secured by legal hypothec;
– This work must have been requested by the owner of the building: it should be noted that the notion of owner here is not strictly understood. It means any person who holds a real right in the immovable that may be mortgaged. In this sense, the work requested by a tenant will not give rise to a legal hypothec in favour of the participants in the construction unless the tenant proves to be a real or apparent agent of the owner;
– In some cases, this work must have been reported to the owner: even though this work must have been requested by the owner, the persons who participated in the construction or renovation of the immovable are not required to contract with the owner in order to benefit from the rights conferred by the legal hypothec. However, under article 2728 of the Civil Code of Quebec, it is imperative that these people have denounced their contract to the owner;
– The fate of materials or services provided or prepared for this work: Article 2726 of the Civil Code of Quebec explicitly states that materials used for the work, not incorporated into the building but used in the construction/renovation process or simply prepared for this purpose, give rise to a claim secured by legal hypothec. It should be noted that the work or materials supplied concern a specific lot: however, if a contractor receives a construction contract concerning several lots, it should be considered that there is a legal hypothec per operating unit. The unit of operation can be defined as the area of land that the owner uses for the same purpose and that forms a complete entity. In this regard, a decision of the Court of Quebec in Canac-Marquis Grenier Ltée v. Gestion immobilière Santi Inc. 2018 QCCQ 7761, EYB 2018-303941 has clarified that there may be an appearance of a single unit of operation when the work has not been completed. The absence of a breakdown will not invalidate a validly registered legal mortgage notice.
Conclusion
In conclusion, a legal hypothec in the field of construction allows people who have participated in the renovation or construction of an immovable to obtain payment from the price of this immovable in the event of non-payment of the work. This legal hypothec has many practical benefits given the abundance of litigation in this area.
However, the beneficiaries of this mortgage will have to be rigorous: if no formality is required for the acquisition of the mortgage, it will nevertheless be necessary to register a notice of legal hypothec within thirty days of the end of the work for its conservation and to publish a legal action against the owner of the building and to register a notice of exercise within six months of the end of the work.
It is here that the legal hypothec in the field of construction takes on its full meaning because a right without the possibility of enforcing it, i.e. legal action, is equivalent to its non-existence.
NOTE: This article does not constitute legal advice or a legal opinion from a real estate lawyer. Rather, it is provided solely to inform readers of certain aspects surrounding the details of the laws surrounding legal construction mortgages in Quebec.
