Ministre des Affaires municipales et de l’Habitation publishes guidance on Bill 16

On Friday February 21, 2020, the Ministre des Affaires municipales et de l’Habitation published its guidance (the “MAMH Guidance”) with regards to the suite of amendments known as Bill 16[1], the provisions of which came into force on January 10, 2020.

Since the entry into force of many of the amendments contemplated by Bill 16, lawyers, notaries and real estate promoters have been scratching their heads as to how to ensure compliance with the provisions regarding the protection of deposits made on condominium sales with a view to conducting “business as usual”. Article 66 (which amends the Civil Code of Québec by introducing new article, 1791.1) introduced a new rule, of public order[2], regarding what means of “protection” are acceptable.[3]

In order to address uncertainty surrounding deposits taken (and additional deposits to be taken) with respect to projects for which the preliminary contracts were signed prior to January 10, 2020, the MAMH Guidance clarifies that the new rule only applies to deposits taken on preliminary contracts signed after January 10, 2020.

The MAMH Guidance also clarifies that until the regulation referred to in Article 66 in relation to the types of trust accounts that would qualify as adequate protection is passed, the only acceptable means of protecting deposits are through a guarantee plan, insurance or suretyship – a position that goes against the position previously taken by the Chambre des Notaires [4] The MAMH Guidance does not, however, address the practical issue facing builders and developers/promoters – including that the guarantee plans that are available on the market do not cover the full amount of deposits, that the guarantee plans that are available on the market do not cover all deposits made on a project, and the fact that there are currently no deposit insurance products available on the market in Québec. While the Association de la construction du Québec and certain insurance companies have gone on the record regarding their development of products to address these new requirements, in the interim, the compliance choices available to builders and developers/promoters, who are accustomed to using the deposits as equity for their projects, are limited.

Much concern was also expressed over the meaning of “the date agreed upon” in relation to the builder/developer/promoter’s obligation to refund deposits for failure to deliver a unit in divided co-ownership. The MAMH Guidance provides that the “date agreed upon” need not be a specific date – and that it could refer to a broad date range (such as “Autumn 2020”) or to a date that is subject to modification by mutual consent, in the case of unexpected delays.

For information on how KRB has been advising its clients with regards to these practical compliance issues, reach out to a member of our real estate team.

[1] An Act mainly to regulate building inspections and divided co-ownership, to replace the name and improve the rules of operation of the Régie du logement and to amend the Act respecting the Société d’habitation du Québec and various legislative provisions concerning municipal affairs

[2] Meaning the parties cannot contract out of the obligations imposed by new art. 1791.1 CCQ.

[3] “(…) any deposit made to a builder or developer toward the purchase of a fraction of an immovable under divided co-ownership must be fully protected by one or more of the following means: a guarantee plan, insurance, a suretyship or a deposit in a trust account of a member of a professional order determined by regulation…”

[4] On January 30, 2020, the Chambre des Notaires (“CDN”) had issued guidance to notaries practising in the Province of Québec regarding the adequacy of a notarial trust account for the purposes of the new rule stipulated in art. 1791.1 of the CCQ. The CDN’s position was that a notarial trust account provided the necessary protection up to the limit of the coverage afforded by the notaries’ indemnity fund (up to $100,000) provided a deposit was not released to the builder/developer/promoter prior to delivery of the unit.