The legal construction hypothec guarantees the claims of the persons having taken part in the construction or renovation of a building. It is a real right on the building where the work was done.
The debts are guaranteed by the hypothec. It allows the judicial sale of the building on which it is applied. Income from the sale is allocated in whole or in part to the payment of the claims by the builder, the renovator or the materials supplier.
The beneficiaries of a legal hypothec
Article 2726 of the Quebec civil code states that the beneficiaries of the legal construction hypothec are the following:
- General contractor;
- Specialised contractor;
- Supplier of materials.
The legal hypothec starts immediately with the signature of a contract. Sub-contractors with no direct link with the building owner will have to submit to the additional process of sending notice. Such notice constitutes a denunciation to the owner that a contract for the supply of materials or sub-contracting work was entered with the contractor hired by the owner. The notice must be in writing, present a summary of the contract, its price and the intent of the individual giving notice that he will take advantage of the legal hypothec.
The denunciation of the contract allows the building owner to hold back the required amount of money to cover the value of the legal hypothecs registered on his building. Also, the notice allows the owner to identify from whom he must obtain a release before paying the general contractor. To be valid, the notice must be served to the building owner before the sub-contractor starts to work.
Deferment period for the posting of a legal hypothec
The beneficiaries are subject to a mandatory deferment period for the posting of their hypothec with the Bureau de la publicité des droits. The deferment is for 30 days from the end of all the work on the construction project. The last steps of the project may be work other than that completed by the holder of the hypothec. For example, a bricklayer involved in the early stages of a construction project can only post his hypothec 30 days after the last contractor on the project, such as a painter, has completed his work.
Let us point out that the occupation of the premises does not constitute proof that the project is completed.
Prior notice of the exercise of hypothecary rights
Unless the holder of a registered legal hypothec exercises his rights, it will extinguish six (6) months after work is completed. After this date, in the absence of prior notice, there can be no recourse and the registered hypothec can be written off by simple demand. To preserve the hypothec, the creditor must register a prior notice of the exercise of a hypothecary right and advise the building owner. The prior notice is a document served to the owner and registered with the Bureau de la publicité des droits. It informs the owner that the holder of the hypothec intends to take advantage of the guarantee.
The legal construction hypothec is a precious tool that seeks to guarantee the payment for work done. Any individual that enters a construction work contract should look into putting this legal mechanism to good use.