Construction Contractors: Take steps to prove your legal hypothec is valid

By: Gabriel Di Genova

In Quebec civil law, those having taken part in the construction or renovation of a property are protected by the regime of legal hypothecs.[1] However, a legal hypothec—commonly referred to as a contractor lien—must be registered on title within 30 days following completion of the work.[2] Determining when the works were completed is highly factual.

The period following completion of construction work on an immovable is hectic: visits to the building, inspection, delivery, invoicing, and, in the case of new constructions, financing and transferring title. Notwithstanding these challenges, the Court of Quebec recently reiterated that the 30-day delay to publish a legal hypothec remains de rigueur, irrespective of the circumstances.

In larger scale projects, the publication of legal hypothecs can have adverse consequences to the project financing and place the owner of the property in breach of its covenants.

In Dominic Goyette c. 926204931 Québec Inc., 2020 QCCQ 331 (CanLII),  the building owner applied to the Court to cancel a legal hypothec published on title on the basis that the registration was completed more than 30 days following completion of the work. The contractor contested the application, maintaining the registration was done within the required delays.

In this case, the building owner had a family relationship and previous employment relationship with the contractor—this partially explains the delay in publication of the contractor’s rights. Notwithstanding the particular relationship between the parties, the Court found that the rights were published more than 30 days following delivery of the completed project, and that the publication must be struck from the Index of Immovables.

In order to come to this conclusion, Justice Annie Breault, j.c.q., relied on established Court of Appeal precedent that establishing ‘completion of work’ is a factual exercise: [25] La notion de fin des travaux n’est pas définie. Toutefois, l’article 2110 C.c.Q. offre un certain éclairage en précisant que « le client est tenu de recevoir l’ouvrage à la fin des travaux; celle-ci a lieu lorsque l’ouvrage est exécuté et en état de servir conformément à l’usage auquel on le destine ». La détermination de la fin des travaux est ainsi une question factuelle.[3]

In this case, the Court considered, on a balance of probability, the credibility of the witnesses, the photos taken by the contractor when delivering the work, invoices issued, and a completed pre-delivery inspection form.

How to protect your registration?

It is not just a question of publishing legal hypothecs within the required delays. Contractors must ensure that a registered right can survive a Court challenge in the event of the building owner’s contestation. In turn, this becomes an analysis of what the contractor can prove.

In order to limit the risks in having a publication struck by the Courts, construction professionals can resort to various measures to gather evidence that the work was complete at a given date in the event of an eventual contestation. All forms of evidence are permitted. A contractor can, for example:

• Take time-stamped photographs of the completed work at the time of delivery;
• Commission a post-construction inspection report from an impartial and independent third-party (ex. engineer, architect or unrelated contractor);
• Issue invoices no later than time of delivery and indicate the works are completed and services rendered within the invoices;
• Ensure a pre-delivery inspection form is duly completed—this is obligatory for the purposes of guaranties on new residential constructions, but a similar document can be completed even for renovations to existing buildings;
• Exchange time-stamped correspondence (ex. email) with the owner affirming the work has been completed and the property delivered;
• Take note of the people directly or indirectly involved in the project that can attest to the completion of the work at a given time, if necessary.

While no hypothec is immune from challenge, taking targeted steps to compile and preserve evidence of the completion of the work can substantially reduce the risk of a legal hypothec being canceled via judicial intervention.

For additional information on how our lawyers can advise clients regarding legal hypothecs in a transactional context or in litigious circumstances, please contact a member of our team.

[1] Art. 2726 C.C.Q. (architect, engineer, supplier of materials, workman and contractor or subcontractor, or the supplier of materials or services supplied or prepared for the work)

[2] Art. 2727 C.C.Q.

[3] Harding c. 6769845 Canada inc., 2015 QCCA 1971, par. 2 cité dans Constructions Pierre Brochu inc. c. Compagnie d’assurances et d’hypothèques Genworth Financial Canada, 2017 QCCA 1275, par. 14