Canada: The ABCs Of Legal Construction Hypothecs In Quebec

Article 2726 of the Civil Code of Québec (the "CCQ") creates a legal construction hypothec in the following terms: 

2726. A legal hypothec in favour of the persons having taken part in the construction or renovation of an immovable may not charge any other immovable. It exists only in favour of the architect, engineer, supplier of materials, workman and contractor or subcontractor for the work requested by the owner of the immovable, or for the materials or services supplied or prepared by them for the work. It is not necessary to publish a legal hypothec for it to exist. 

This regime, which is to be narrowly construed1, provides construction industry stakeholders with a particularly effective form of security, as it ranks in priority before any other hypothec, regardless of the date of the latter's publication, for an amount equal to the increase in value given to the immovable by performance of the work2

Who are the beneficiaries of this type of hypothec, what kinds of work are covered by it, what is its monetary value and the time limits and conditions associated with it, and can it be validly waived? 

Who are the beneficiaries? 

The persons entitled to a legal construction hypothec are those specified in Article 2726 CCQ, namely architects, engineers, suppliers of materials, workmen and contractors or subcontractors3

Except for workmen, persons who did not contract directly with the owner must give a written declaration of their contract to the owner4

The purpose of the declaration is to secure the value of the work performed or materials supplied subsequently. 

The written declaration must specify the nature of the person's contract, the name of their co-contracting party, the initial price, the project concerned and the intention of the person giving the notice to exercise their right to eventually register a legal hypothec. Except in certain circumstances, changes in the work do not have to be disclosed in a subsequent notice.

What kinds of work are covered?

To the extent they are requested by the owner of the immovable, construction, renovation and expansion work is covered, as are materials or services prepared or provided in connection with the work5

As for preparatory work done to facilitate the sale of a parcel of land, it must have been done in connection with a construction project clearly and precisely planned by the owner6.

What is the monetary value of the construction hypothec? 

The hypothec secures the increase in value given to the immovable or, in the exceptional case of a development unit, such as a shopping centre, to the various lots included in the project. 

The increase in value will generally include the outstanding contractual balance and the withholding, as well as costs inherent in the construction project that are necessary for its performance (e.g. compensable extension and delay costs, insurance costs, interest, taxes, etc.). 

However, costs associated with lost productivity due to winter conditions do not qualify7, nor does the cost of merely aesthetic work or minor maintenance, as these generally do not, in absence of proof to the contrary, add value to the immovable. 

What are the applicable time limits and conditions?

A) Registering a notice of legal hypothec 

To preserve the right to a legal hypothec in Quebec, the beneficiary must register a notice in the land register within 30 days following completion of the work, and serve it on the owner of the immovable8. In this regard, the date on which the work is completed is generally that on which the work called for in the plans and specifications has been completed, rather than that on which all minor deficiencies have been corrected. It should be noted that the date of issuance of a certificate of completion by a professional does not necessarily correspond to the date on which the work has actually been completed: in each case this will be a question of fact. 

B) Registering a prior notice of the exercise of a hypothecary right 

Again in order to preserve the right to enforce this type of security, a prior notice of intention to exercise a hypothecary right must be registered in the land register within six months following completion of the work9. Various realization options are available to the beneficiary: sale under judicial authority, taking in payment, sale by the creditor, or taking possession for purposes of administration. 

Can the right to a legal hypothec be validly waived?

It is possible to waive one's right to a legal construction hypothec, as opposed to the right to register or publish a legal hypothec10. Special attention must therefore be paid to the wording of the waiver clause, and care must be taken in choosing the terms used. 

In closing, you should be aware that a simple procedural defect can prove fatal to a legal hypothec, whence the importance of respecting each of the conditions for its validity. To learn more about the legal construction hypothec and how it is applied under Quebec law, don't hesitate to contact one of our professionals.

Footnotes

Urbacon Architecture inc. v. Urbacon Buildings Group Corp., 2016 QCCA 620

2 Article 2952 CCQ

3 All levels of sub-contractors are eligible.

4 Article 2728 CCQ

5 Article 2726 CCQ

9072-7892 Québec inc. (Pro-Co Beauce) v. Raymond Leblanc inc., 2014 QCCA 909; RPiché Dynamitage inc. v. 9180-6646 Québec inc., 2017 QCCA 1635

Société de cogénération de St-Félicien v. Industries Falmec inc., 2005 QCCA 441

8 Article 2727 CCQ

9 Article 2727 CCQ

10 Article 2936 CCQ

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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