10 January 2020
Significant Amendments to Divided Co-Ownership Regime Now in Force
With only a couple of exceptions, the suite of amendments contemplated by An Act 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 (the “Act“) have now come into force.
Effective today, any deposit paid to a condominium developer with respect to the purchase of a condominium unit must be protected by a guarantee plan, insurance or a guarantee. Once the requisite regulation is passed, the available protection mechanisms will extend to permitting such deposits to be held in the trust account of a member of any of the professional orders determined by such regulation. Neither the developer nor the purchaser will be able to contract out of this new requirement.
The Act also provides that where the developer has not delivered a condominium unit on the agreed delivery date, the purchaser may require that the deposit be reimbursed. This requirement will certainly pose significant challenges for developers and we expect that this will impact operations, planning, budgets and construction financing as well as the way in which some developers raise capital for their residential condominium projects.
In addition, the Act ushers in the following material reforms to the regime of divided co-ownership in the Province of Québec:
- If, when the preliminary contract is signed, a prospective purchaser has not received the memorandum contemplated by arts. 1788ff of the Civil Code of Québec, the prospective purchaser will be entitled to terminate the preliminary contract.
- Where such memorandum contains errors or is incomplete, within 90 days of either the date of the sale or the date the developer ceases to control the syndicate, the purchaser may have the sale nullified and shall be entitled to indemnification for any resulting damages. If the purchaser prefers not to set aside the sale, the purchaser may apply for a reduction of the purchase price.
- If the difference between (a) the amounts forecasted in the developer’s operating budget for the fiscal years during which it controls the syndicate and (b) the amounts actually incurred by the syndicate for the operation of the immovable once the developer loses control of the syndicate, is greater than 10%, the developer will be required to reimburse the syndicate for such difference. This amendment is partly aimed at discouraging the under-budgeting of operating costs in order to keep monthly condo fees low as a way to attract potential buyers.
- Developers will be required to provide a greater number of documents and information (including a maintenance log and a contingency fund study, the details of which are subject to passage of specific regulations) to the syndicate within the 30 days following the loss of control by the developer of the syndicate. Any damages resulting from a failure to do so will be imputable to the developer.
Once the requisite regulations have been drafted and ultimately adopted, the syndicate (both prior to the developer’s loss of control and after) will be obligated to establish and maintain a maintenance log as well as commission a contingency fund study every 5 years to ensure that the costs of major repairs and replacements of the common areas are adequately covered by the contingency fund. Until the contingency fund study has been obtained by the developer, the required contributions to the contingency fund will be calculated based on 0.5% of the replacement cost of the immovable.