The spectrum of legal mortgages and unprotected deposits

November 22, 2019 - A major real estate developer is experiencing financial difficulties these days, therefore many of his co-ownership projects may remain unfinished, and also be burdened by legal hypothecs of construction. In addition, deposits paid by buyers may be lost if they have not yet been paid to the notary.


This is what we learned this morning from the Regroupement des gestionnaires et copropriétaires du Québec. Currently, any buyer of a new condo could receive a notice of legal hypothec on the construction, sometime after acquiring its unit, particularly because the developer's subcontractors (e. g. mason, electrician and plasterer) claim not to have been paid.

In such a situation, the bill can be very high, especially since it is in addition to other financial burdens on the buyer, such as a mortgage. Article 2726 of the Civil Code of Québec provides that a legal hypothec is acquired in favour of persons who have participated in the construction or renovation of a building.

Title insurance

"Some title insurance products provide protection against a legal hypothec. A buyer will therefore be able to indicate in the preliminary contract that his purchase is conditional on him being able to subscribe to it," says Yves Joli-Coeur, lawyer emeritus and Secretary General of the RGCQ.

The problem is that many consumers do not understand the value of it, and they do not want to spend a few hundred dollars (for life) to use it. However, not all of them can subscribe to it, because insurance companies refuse to take on the excessive risk that some builders represent.

Notaries cannot do everything

Another unknown dimension of a real estate transaction by most consumers: even if a notary has done the due diligence, he will not be able to guarantee, to the buyer, that no legal hypothec of construction will be published on his unit.

With respect to deposits made on a sale on plan, those whose building is not covered by a warranty plan expose buyers to loss of their deposit. However, Bill 16, which aims to radically reform the law on divided co-ownership in Québec, has made provisions to protect these deposits.

"We welcome this bill, which provides greater protection for deposits paid to buy a condo, thereby protecting consumers in the face of a project in financial difficulty," said Yves Joli-Coeur.

Legislate on legal hypothecs

However, the legislator has not provided anything with regard to legal hypothecs of construction, so that consumers do not have to bear the cost. "In the end, we must seek to maintain the relationship of trust between consumers, developers and co-ownership builders, so that co-ownerships can continue their tremendous growth," concludes the RGCQ.

Montreal, November 22, 2019