In the construction sector a legal hypothec is a form of security which I will talk about from time to time in this blog. By way of introduction to the topic, here are the answers to five general questions that will allow you to become more familiar with this security tool.
1. What is a legal construction hypothec?
The legal hypothec allows people (who are admissible according to the law) who have participated in the execution of construction work on an immovable property to ensure the payment of sums that are owed to them. Different conditions are established under the provisions of the Civil Code of Québec.
2. Who can benefit from a legal hypothec?
• Contractors (general or specialized)
• Materials suppliers
3. What are the main conditions?
• The beneficiary of a legal hypothec must have participated in the construction work of the immovable property.
• The contractor must hold a valid permit issued by the Régie du bâtiment du Québec.
• Only work requested by the owner is admissible.
• Suppliers or subcontractors, with the exception of workers, who signed a contract with the contractor and not directly with the owners of the immovable property, must terminate their contract with these owners before any construction begins.
• A legal hypothec can only be registered on construction work that increases the value of the immovable property.
4. What does “denouncing a contract” mean?
Denouncing a contract involves the following steps: officially communicating with the owners of the immovable property on which the construction work is being done, informing them that you, as a subcontractor or supplier, have a direct contract with the contractor who is not paying you for your services and finally by registering a legal hypothec on the immovable property so you may obtain payment. It is important to note that this denounciation of contract must be supplied in writing before the start of construction work or before the delivery of materials.
5. What information needs to be provided in the notice of denounciation of contract?
• The construction work of the project targeted by the denounced contract
• The legal identity of the contractor who granted the contract
• The total amount of the contract agreed upon by both parties for the realization of the construction work or the delivery of materials
• A brief description of supplies or services
• Specifications of the nature of the contract
• A detailed explanation in the notice announcing the intention to benefit from a legal hypothec following default on payment.