Effects of the COVID-19 Pandemic on the Legal Construction Mortgage

More than two weeks ago, the Québec Government announced the closure of construction sites due to the COVID-19 pandemic. Some believe that the closure of construction sites might have negative effects on the volume of work for workers, as some developers may cancel construction projects. The following summarizes the conditions surrounding legal construction hypothecs concerning the current COVID-19 pandemic.

The legal construction mortgage allows participants in the construction or renovation of an immovable to register a hypothec to guarantee the increase in value realized as a result of the work they have performed [1]. This mortgage subsists for the first 30 days following completion of the work and can be maintained only if a notice is registered at the land registry office within the 30 days.

Completion of Work

The completion of work is defined as the moment when the immovable (or building) is ready, with all that validates the full execution of the contract, for the use for which it is intended [2]. Thus, there is only one instance of completion of the work for the entire construction or renovation project.

However, it is still possible to register a notice of legal mortgage before the completion of the work. For example, a formwork subcontractor may register a notice of legal mortgage after the execution of his foundation work, while there are several works to be carried out on the building (plumbing, electricity, framing, roof, etc.) before to see the end of the work.

Suspension or Abandonment of Work

Due to the COVID-19 pandemic, the Québec Government ordered the closure of construction sites deemed non-essential on March 23rd. Determining the end of work is of great importance for the conservation of rights related to the legal construction mortgage.

The difference between a suspension of work and an abandonment of work lies in the owner’s intent. A suspension of the construction site causes the completion of work to be postponed [3]. On the other hand, a suspension which is followed by an abandonment of the site may be considered as the completion of the work. Indeed, it will be a question of determining when the resumption of work ceased to be foreseeable [4]. If the resumption of work remains foreseeable, this assumes that the work has simply been suspended [5]. The determination of a suspension of work or an abandonment of work is a question of fact that results from the assessment of the evidence and the credibility of the witnesses [6].

Despite the registration of the legal construction mortgage within 30 days, the latter automatically expires 6 months after the work is completed, unless (1) the creditor publishes an action against the owner of the immovable, or (2) the creditor registers a notice of exercise of a mortgage right.

Developers may deem it appropriate to maintain good communication with their general contractor and possibly their subcontractor, to reassure them that the construction site is merely suspended and that work will resume as soon as the situation caused by COVID-19 allows.

For contractors and subcontractors who are uncertain as to when work will resume, they can consult a lawyer to determine their rights and remedies.

By Catherine Demers

[1] Civil Code of Québec, sections 2726, 2727, 2728.

[2] Placements Maléjo Inc. c. Constructions Richard Lavoie et Associés Inc., J.E. 2012-276 (C.S.)

[3] Placements SCP inc. (Séquestre de) et Lemieux Nolet inc., 2015 QCCS 6021.

[4] Groupe Drumco Construction inc. c. Revis Immobilier 2018 QCCS 378

[5] Nova Construction plus (JPR) inc. c. Hypothèque CIBC inc., 2006 QCCA 1017.

[6] Placements SCP inc. (Séquestre de) et Lemieux Nolet inc., 2015 QCCS 6021.