Construction Contract Notice and Legal Hypothec

By definition, a construction contract notice and legal hypothec, also known as a construction lien or construction mortgage, are legal actions taken by individuals contributing in different capacities to the construction of a building to secure amounts owed for work completed, materials supplied, or services rendered during the course of said construction project. 

As such, a legal construction hypothec covers all those involved in the construction industry. It’s a sort of formidable weapon and valuable tool bestowed upon us by the Civil Code of Quebec. Clients requesting construction or renovation work have a vested interest in being knowledgeable about this legal mechanism to protect themselves if need be. 

To help make sense of this whole process, here’s a summary of the formalities to follow when giving notice of a contract termination. 

Everything to Know About Giving Notice of a Contract

Source: Canva

1. Legal construction hypothec: Who benefits from it?

The truth of the matter is, that the beneficiaries of a construction mortgage are professionals who have worked on the construction project in question or have supplied the necessary materials to that effect. Here’s a list of concerned individuals:

• Contractors

• Labourers

• Architects

• Engineers

• Subcontractors

• Material suppliers

Note that the Building Act allows for cancelling a legal hypothec taken out by a contractor should they not hold a valid, RBQ-issued licence. 

2. Projects eligible for a legal construction hypothec

Construction, renovation, and home addition/extension projects are deemed eligible for construction mortgages, as well as diverse work aimed at adding value to a property. Moreover, materials, such as those used to carry out said work, give the right to take out a construction hypothec. However, minor maintenance work doesn’t qualify nor grant rights to a legal construction hypothec.

Important: A legal hypothec can only be obtained for work commissioned by the property owner, who alone has the authority to initiate the process. In such a case, construction or renovation projects that were commissioned by a tenant typically aren’t cause for obtaining a legal builders’ or suppliers’ hypothec. 

3. Protection afforded by a legal construction hypothec

Note that you can register for a legal construction hypothec up to 30 days following the project’s completion if you have dealt with the owner directly. As detailed in Section 2727 of the Civil Code of Quebec: “A legal hypothec in favour of persons having taken part in the construction or renovation of an immovable subsists, even if it has not been published, for 30 days after the work has been completed.”

The legal construction hypothec obtained will be retained beyond said period if a notice of cancellation is filed with a land registration service (click here for Ontario) before the expiration date. The notice detailing the amount claimed must automatically be sent to the owner.

The aforementioned Section 2727 also stipulates that a legal hypothec will automatically end six months after the work is completed, “unless, to preserve the hypothec, the creditor publishes an action against the owner of the immovable or registers a prior notice of the exercise of a hypothecary right.”

From then on, the owner has 60 days to pay the amount claimed, otherwise, the owner of the construction mortgage will have the right to file a petition with the Court to legally sell the property in question and, in return, obtain the amount claimed after the 60-day period. 

4. How does one give notice of a building contract?

In the event that the inherent legal construction hypothec is deemed effective upon the signature of the contract between the owner and the party involved, all legal hypothec requests from an individual indirectly linked to the project (subcontractor, for example) will be strictly considered a matter of formality. 

As mentioned by the Quebec Legal Network, “The requisite notice is a formal disclosure to the owner regarding the existence of a contract for the supply of materials or subcontracting in the context of a project during which the owner may have entered into a contract solely with the general contractor.” (Quote translated by RenoQuotes into English)

If you haven’t dealt with the property owner directly, you first have to give notice of your contract with the owner prior to the work start date to officially proceed with filing a legal construction hypothec. The latter is further detailed in Section 2728 of the Civil Code of Quebec. Understanding the different timeframes by which you can register a legal hypothec, depending on whether or not you dealt directly with the property owner, is also paramount.

5. Written notice: How to write a notice letter

Several rules and guidelines apply and must be thoroughly respected when writing and sending a contract cancellation notice to ensure its validity and conformity with the process to guarantee payment of amounts owed. In this regard, the document must: 

• Be addressed to all property owners

• Be sent in written form

• Accurately detail the terms and conditions of the contract established between the building owner and the depositary of the notice

• Clearly state the cost of the work or services rendered

• Include a clear statement mentioning the fact that the notice was sent with the intent of filing a legal construction hypothec

• Include a statement highlighting the fact that additional work is also covered by the construction mortgage

The document must be sent via Registered Mail to confirm the document was truly received by the owner(s). Consequently, note that proof of delivery always lies with the sender, not the recipient. 

Important Details 

Suppose the contractor responsible for the project is found to not have the appropriate licences during the course of the renovation project and the plaintiff wasn’t advised. In that case, the legal construction hypothec can literally be written off, as per Section 50 (paragraph three) of the Building Act. If the renovation project has yet to be carried out, it can be annulled. 

However, note that in the event of a claim, a builder’s legal hypothec will take precedence over a traditional mortgage granted by a financial institution. 

CESGM’s Legal Department

To obtain more detailed information about registering a legal construction hypothec as well as a notice of contract termination, head to the Corporation des Entrepreneurs Spécialisés du Grand Montréal (CESGM) website or contact their team directly for information specific to your situation. 

Indeed, the CESGM has a legal department, offering professional, legal advice. As such, you can be connected with construction law specialists. Said service can be used to file a notice of cancellation and register a legal construction hypothec, as well as other procedures regarding the recovery of unpaid accounts, legal warranties, construction defects, negotiations, contract drafting, and others.