Guarantee plan : co-owners victimized by a provisional director

October, 8, 2016 - Article 1039 of the Civil Code of Québec stipulates that the syndicate of coowners is responsible for the preservation of the immovable, its maintenance and the administration of the common portions. As a result, the initiative to undertake work in common portions comes from the syndicate, acting through its Board of Directors. This applies both to work intended to correct construction defects and work for the rehabilitation of the immovable, following a loss caused by a co-owner.

For this reason, the Board of Directors of the syndicate must notify the developer and the director of the new residential guarantee plan of defects affecting the common portions of the immovable. The legal interest of the co-owner is limited, in principle, only to defects affecting his private portion.

Potential Conflict of Interest

In the case of a new co-ownership, the developer controls the destiny of the syndicate of co-owners, both at the level of the Board of Directors and at the general meeting. It is therefore up to the provisional director, generally appointed by the developer under the declaration of co-ownership, to verify that common portions are free from any poor workmanship defects or construction defects. However, keep in mind that this type of appointment can be a source of conflict of interest.

As an illustration: What happens if the provisional director fails to require from the developer-contractor corrective work of defects affecting common portions? Are the new co-owners condemned to live in an immovable whose common portions are defective? What can they do if the provisional director and the developer fail to respond to their requests for action? Can they report this omission to the director of the guarantee plan?

An unambiguous decision

According to a decision rendered by Me Jean Philippe Ewart, arbitrator at the Canadian Commercial Arbitration Center (CCAC) [i], the answer is yes. Me Ewart noted earlier decisions that concluded that only the syndicate has the legal interest to sue the builder, in the case of a construction defect affecting common portions. However, he agreed with the arguments of lawyer and author Pierre G. Champagne. The latter drafted a paper for publication in legal journals entitled The Co-Owner's Remedies for Hidden Defects Affecting the Common Portions: France-Quebec, a Comparative Study. [ii]

Essentially, in his writings, Me Champagne considers that this jurisprudence does not represent the state of the law in Quebec. On the contrary, the Court of Appeal has already held that there is nothing in the Law that prevents a co-owner from exercising a recourse dealing with common portions. Thus, a co-owner could require, both from the developer and the administrator of the guarantee plan, that actions be undertaken to correct the situation.

Justice and Equity

Furthermore, one cannot ignore a very interesting decision rendered by the Superior Court in 2007, which is based on the principles of fairness set out in the Regulation respecting the guarantee plan for new residential buildings. This decision recognized that an arbitrator could order partial reimbursement of co-owners for the costs of completing common portions. [iii]

In this case, five co-owners lived in a building comprising 12 units uncompleted by the contractor, who declared bankruptcy. The completion cost of the work of the common portions was estimated at $300,000. The co-owners filed a claim with the APCHQ Guarantee for New Residential Buildings to be compensated. This demand was rejected by the appointed conciliator, so that the co-owners submitted the dispute to arbitration.

In October 2005, the arbitrator ordered the guarantee plan to pay an award totaling $37,500 per unit, as reimbursement, as the co-owners had financed themselves the completion of the work. A judicial review of this decision was requested. The debate then moved to the Superior Court. Judge Michèle Monast upheld the arbitrator's decision, since ''a strict interpretation of the regulation could lead to a denial of justice because it does not allow to reach its intended purpose and the protection of the rights of the parties''. Judge Monast added:

'“The possibility for the arbitrator to call upon the rules of equity is also a recognition by the legislator that he has some leeway to dispose in the best possible manner of disputes that arise between beneficiaries of the guarantee and the administrator of the plan where the strict application of the provisions of the plan does not allow to remedy an injustice.”

The co-owners are thus justified to be optimistic about the above mentioned decisions, because they recognize that the consumer Law is based on notions of equity.

Marc Lanteigne, Avocat
DE GRANDPRÉ JOLI-COEUR
2000, avenue McGill College
Bureau 1600
Montréal (Québec)  H3A 3H3
Tél. : (514) 287-9535
Fax : (514) 499-0469
Courriel : m.lanteigne@djclegal.com

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[i]  Brisson c. 9253-5400 Québec inc. et Garantie Habitation du Québec inc., 2005, CCAC nos : S14-031701-NP et S14-063002-NP