What is a Contract Disclosure by a Subcontractor in the Context of Construction Hypothecs?
A construction hypothec, also known as a construction lien, is a powerful resource available to contractors and subcontractors who have taken part in the construction or renovation of an immovable, in that it guarantees payment of the monies owed to them. This protection mechanism, provided for in the Civil Code of Quebec, is little known and often misused. This article deals in particular with subcontractors and the disclosure notice, a crucial step in implementing this guarantee.
Subcontractors, unlike the contractors they work for, have no direct contractual relationship with the owner of an immovable because they contract directly with the contractor to carry out their services. However, the law gives them the option of registering a construction lien on the immovable where the work is being performed. Because the owner usually doesn’t know the identity of the subcontractors or the value of their work, it makes sense that the former should be informed that this type of lien could be registered on their immovable, by whom and in what amount. Therefore, the subcontract disclosure notice is an essential step, without which a subcontractor would be deprived of this protection.
As soon as the contract is disclosed to the owner via a proper notice, the construction lien enters into play. In the event that the contractor fails to pay the subcontractor the sums due, the latter will then be able to register a construction lien on the immovable in question, provided they comply with the time constraints imposed by law. It is important to note that the construction lien cannot exceed the additional value that the work added to the immovable in question. The construction lien will have priority over a mortgage lender’s traditional mortgage already published in the Quebec Land Register, but for this added value only.
It should be noted that the owner’s mere knowledge that a subcontractor is doing work on their immovable does not constitute disclosure of the subcontract. Indeed, the contract must be disclosed by means of a written notice, which must also meet certain criteria.
Not only must the contract be disclosed by means of a written notice, but it must also be done before work commences. In fact, the construction lien will cover only work carried out after the disclosure notice has been sent to the owner.
Note that there is no formality for sending the notice. However, it is highly recommended that the subcontractor keep proof of the owner’s acknowledgement of receipt. The notice may therefore be served by e-mail or by a bailiff.
If you have questions concerning the content required in a subcontract disclosure notice or concerning the more general context of construction liens, don’t hesitate to contact us.
This note contains general legal information and should not be used as a substitute for legal advice from a lawyer who will consider your specific needs.
