Many construction companies and professionals risk insolvency just after one bad project where they fail to collect payments. The prevalence of non-payment is why there are laws in Canada that protect construction stakeholders, whether due to delinquent clients or insolvency, on the part of the payer.
Construction liens also called hypothecs, act as security–attached to the immovable (property worked on)–that can be enforced if the person or entity who contributed to the improvement of an immovable property is left unpaid. Enforced hypothecs can result in the sale of the property to pay the creditors, and since liens are the highest priority to be paid out, they act as solid security for those who work on construction projects.
Construction stakeholders in most Canadian provinces and territories are granted the right to lien without needing to file a preliminary notice, a typical requirement in states in the United States. In the US, one could lose the right to file a mechanics lien if the owner doesn’t receive a preliminary notice. In Canada, only the province of Quebec has a hard requirement for certain parties to send a notice to the owner to protect the right to file a hypothec.
If you work on projects in Quebec, you must be mindful of this rule. In this article, we’ll review all the essential information you need to know to ensure you have legal recourse if you go unpaid on a project. We’ll cover the whys and the hows, from sending the notice to the owner to enforcing a hypothec if needed.
This article covers all you need to know about legal construction hypothecs in Quebec.
1. What is the purpose of a legal construction hypothec, mechanics lien, construction lien, or builder’s lien?
Legal construction hypothecs, more commonly called liens in the construction industry, provide payment protection to construction businesses and professionals who have done work that added value to an immovable/property. 1
According to Article 2660 of the Civil Code of Quebec2,
“A hypothec is a real right on movable or immovable property made liable for the performance of an obligation. It confers on the creditor the right to follow the property into whatever hands it may come, to take possession of it, to take it in payment, to sell it or to cause it to be sold and thus to have a preference upon the proceeds of the sale, according to the rank as determined in this Code.”
This protection allows those who have worked on a project to have recourse in case of non-payment. The existence of hypothecary rights also encourages prompt payment across the industry.
A hypothec, when enforced, allows four remedies to recoup unpaid dues:
- Repossession of the project property
- Receiving payment
- Sale of the property by credits
- Sale of the property by the courts
2. Who has the right to file a legal construction hypothec or mechanics lien in Quebec?
Licensed contractors and subcontractors who worked on a project and added value to an immovable may file a hypothec. Architects, engineers, material suppliers, subcontractors, contractors, and workmen all hold the right to file a hypothec in the event of non-payment.
Quebec requires those who have worked on the project but have no direct contract with the owner to send a preliminary notice. The notice must describe the scope of their involvement in the project and the price of their contract. 3
Without a preliminary notice, contractors, subs, suppliers and other creditors lose the right to file a hypothec. Only workers and those with a direct contract with the owner are not required to send a notice. 4
3. What types of projects are protected by the legal hypothec?
Hypothecs or liens protect those who have contributed work, services, and materials furnished to add value to an immovable private property. 5 Like in the US, public projects under the provincial and federal crown are generally not lienable and are protected by bonds.
4. What does the legal construction hypothec cover?
Your hypothecary rights protect all work and materials “requested” by the owner–and this is why it’s necessary and required for those who don’t have a direct contract with the owner to send a notice informing them of the details of your contract before work or delivery starts. 6.
5. What is the purpose of sending a notice to owner or declaration of contract?
A notice to owner, sometimes also called a declaration of contract or preliminary notice of subcontract, is required from everyone working on a project without a direct contract with the owner, except laborers/workmen. The requirement recognizes the right of the property owner/client to know about the individuals and entities working on their project.
The notice to owner or declaration of contract must include details, including a general description of work and materials to be delivered and the contract price. Those who send a notice to the owner are entitled to hypothecary rights.
Only materials, services, and labor outlined in the declaration of contract/preliminary notice shall be lienable/protected by liens.
6. Who needs to file a preliminary notice in Quebec?
Everyone working on the project who doesn’t have a direct contract with the owner–except for workers–must send the owner a preliminary notice. Architects, engineers, material suppliers, contractors, and subcontractors must also send a notice. Sending this notice or a declaration of contract to the owner protects your right to file a legal construction hypothec and grants the owner full knowledge of who’s involved in the project. 7
7. What happens if one fails to send a notice to owner or declaration of contract?
If a party required to send a notice fails to do so, they lose the right to file a mechanics lien or hypothec. 8
8. How do I send a preliminary notice to the owner or a declaration of contract? What is the process of fulfilling this hypothec requirement?
Before commencing any work or materials delivery, you need to send a notice to the owner containing the following information:
- Name of the owner or owners of the immovable property
- Name of the professional, supplier, or subcontractor who will furnish labor, materials, or services to the project
- Declaration of the contract, including the contract price
- Description of the materials, labor, or services to be supplied in relation to the contract
- Name of the contractor or entity the person/subcontractor making the declaration has signed a contract with/has contracted under
There is no statutory form, but the inclusion of the information above is required as outlined in the Quebec Civil Code. You need to send this written notice to the owner and ensure that you have proof of receipt. 9
For those dealing with many projects, using a filing service like Handle is prudent. Here is what the notice looks like when sent through the Handle app. You also secure proof of receipt when the notice is sent.
9. What form is used to send a preliminary notice or declaration of contract in Quebec?
There is no statutory form, but the law requires the following information to be included in the notice for it to be deemed sufficient:
- Name of the owner or owners of the immovable property
- Name of the professional, supplier, or subcontractor who will furnish labor, materials, or services to the project
- Declaration of the contract, including the contract price
- Description of the materials, labor, or services to be supplied in relation to the contract
- Name of the contractor or entity the person/subcontractor making the declaration has signed a contract with/has contracted under
You need to send this written notice to the owner and ensure that you have proof of receipt.
10. Who do I send the preliminary notice or notice to owner in Quebec to protect my hypothecary rights?
You must send the notice to the owner. Ensure that you have proof of receipt. You may create two copies and have the other signed as proof of receipt. You may also use services like Handle to ensure that you have trackable evidence of receipt from the owner. 10
11. Do I need to send a new notice to the owner if there are additional requested work and materials after work has started?
Quebec Civil Code doesn’t require you to send additional notices in case of change orders, but it’s in your best interest to do so just so all bases are covered.
Also, ensure that your notice includes a statement noting that the costs or contract price could increase pending change orders and other charges. A notice to owner or declaration sent via Handle already includes this for your protection. 11
12. Can I file a mechanics lien if I didn’t send a preliminary notice in Quebec?
Those who do not have direct contracts with the owner are required to send a preliminary notice to preserve their right to file a hypothec/lien. The hypothec will cover only work, materials, and services furnished after the notice. If your notice was sent after work had commenced, only work performed after the receipt of the notice would be deemed lienable.
Those with direct contracts with the owner are not required to send a notice to the owner. Those who were required yet didn’t send a notice may still attempt to file a hypothec. Still, the chances of winning the suit in case the hypothec needs to be enforced are meager because the notice or declaration of contract is the proof and basis of the value added to the immovable property. Without that, there’s no value to be secured.
It’s worth noting that Quebec grants a legal hypothec automatically in the first 30 days after work completion but failure to file a notice of intent to exercise hypothecary rights or registering a legal hypothec with the land register within the 30 day period after project completion results in automatic cancellation of the hypothec. 12
13. My work on the project has ended, and I didn’t get paid. How do I use my right to file a mechanics lien or legal hypothec in Quebec?
If, after following up on your invoices, you still haven’t been paid, you have two options. First is you send a document expressing your intent to register a hypothec on the property. This preserves your right to file a legal hypothec. Sending one to the owner also reminds them that the deadline for hypothec filing is fast approaching and that you’ll be recording one if you don’t get paid. Sometimes, invoices can get lost, and non-payment is unintentional. This letter allows the owner to settle their payables before a hypothec is attached to the property.
According to article 2758 of the Quebec Civil Code 13,
“A prior notice of the exercise of a hypothecary right must disclose any failure by the debtor to perform his obligations, and contain a reminder, where applicable, that the debtor or a third person has the right to remedy the default. It must also disclose the amount of the claim in capital, and in interest, if any, and the nature of the hypothecary right which the creditor intends to exercise, furnish a description of the charged property, and demand from the person against whom the hypothecary right is to be exercised that he surrender the property before the expiry of the period specified in the notice.”
If you still didn’t get paid after expressing your intent to file a hypothec, you can now proceed to file the hypothec. You can also proceed to filing a legal construction hypothec without going through this step. The hypothec automatically given by the Quebec Civil Code expires after the 30-day period post-project completion so make sure you register a hypothec or send a notice of intent to file hypothec within the 30 day period.
Note that the completion date isn’t when you stopped working on the project or the last day you delivered materials. According to Quebec Civil Law, the 30-day count begins after the entire project, as contractually outlined, has been completed. Make sure you regularly check the project status so you won’t miss the deadline. A service like Handle can ensure this for you.
14. The general contractor of a project I worked on as a subcontractor hasn’t paid me. Can I file a legal hypothec or builder’s lien?
Yes. Ultimately, the owner is responsible for paying everyone that’s worked on their property. This is also why sending a notice to the owner is required–so they have full knowledge of who’s working on the project. Letting the owner know you haven’t been paid in the form of a letter of intent to file a hypothec after project completion also allows them to withhold payment from the general contractor and use those funds to pay subcontractors with pending invoices.
If the owner fails to pay, you have 30 days after the project has been completed to register a legal construction hypothec with the Land Registry. This secures your right to enact the hypothec legally. However, there is another step required to ensure the hypothec’s validity.
If you remain unpaid, you must either enact legal action or send a notice of intent to exercise your hypothecary rights to the owner within the six months following project completion. The latter is a requirement should you need to enforce the hypothec, so make sure you send this notice if it looks like you’ll need to execute the hypothec. 14
15. What is the deadline for filing a legal construction hypothec or lien in Quebec?
The deadline for filing or recording a legal construction hypothec or lien with the Land Registry Office where your project is located in Quebec is within the 30 days after project completion. 15 Quebec grants a hypothec for parties that worked on the immovable project for 30 days following project completion, but it’s extinguished at the end of this period unless the party or parties file a construction hypothec with the Land Register.
Note that project completion isn’t the date you stopped working on the project or the last day you delivered materials. According to Quebec Civil Law, the 30 day count begins after the whole project as it’s contractually outlined have been completed. Make sure you regularly check the project status so you won’t miss the deadline. A lien management software like Handle can ensure this for you.
Recording the hypothec with the Land Register is the first step after project completion. In case payment issues persist, make sure you send a notice of intent to exercise hypothecary rights and register it with the Land Register–this starts the legal action on your construction hypothec.
16. I recorded a legal construction hypothec within the first 30 days after project completion, but I still didn’t get paid. What is the next step? How do I enforce the legal hypothec? Is there a lawsuit involved?
The next step is to notify the owner of your intention to exercise your hypothecary rights. Article 2654 of the Quebec Civil Code 16 states that the entity/person owed must register a prior notice of the intention to enforce the hypothec/lien. The parties wishing to make a claim must do this within the next six months after project completion. Afterwhich, hypothecary rights are extinguished if no legal action was exercised. 17