COMING IN FORCE OF PROVISIONS ON THE ESTABLISHMENT OF SELF-INSURANCE FUND REGARDING DIVIDED CO-OWNERSHIP REAL ESTATE LAW, CO-OWNERSHIP, INSURANCE
On April 15, 2022, modifications to the Civil code of Quebec (“C.c.Q.”)[1] have come in force regarding divided co-ownership insurance and most particularly regarding the constitution of self-insurance fund.
Definition
In accordance with new article 1071.1 C.c.Q., the self-insurance fund must be established by the syndicate and be affected to following uses:
- To pay the deductibles provided for by the insurance taken out by the syndicate
- To make reparation for injury caused to property in which the syndicate has an insurance interest[2], where the contingency fund or an insurance indemnity cannot provide for such reparation
The self-insurance fund is owned by the syndicate and must be kept by it. The fund must be liquid and available on short notice, meaning that the syndicate must be able to dispose of it quickly in the event of a loss.
The amounts constituting the self-insurance fund can not be seized by the syndicate creditors but should be held in a distinct bank account, in which case the self-insurance fund will be able to benefit from the protection of the modified paragraph 2 of article 1078 C.c.Q[3].
Also, the self-insurance fund, like the contingency fund, is part of the common expenses of the co-ownership.[4]
Amount
Following the third paragraph of article 1071.1 C.c.Q., the amount of the self-insurance fund must be established in function of the amount of the deductibles and a reasonable additional amount for the other payments for which the fund is to be used.
Article 2 of the Regulation to establish various measures in matters of divided co-ownership insurance[5], which will also come into force on April 15, 2022, provide the modalities of the establishment of the minimal amount of the fund as follow:
2.The minimum contribution of the co-owners of an immovable held in divided co-ownership to the self-insurance fund established under article 1071.1 of the Civil Code is determined on a yearly basis when the sums to be paid into the contingency fund are determined, in the following manner:
(1) where the capitalization of the self-insurance fund is less than or equal to half of the highest deductible amount of the insurance taken out by the syndicate of co-owners, the contribution is equal to half of that deductible;
(2) where the capitalization of the fund is greater than half of the highest deductible amount of the insurance taken out by the syndicate, the contribution is equal to the amount resulting from the difference between that deductible and the capitalization of the fund; and
(3) where the capitalization of the fund is greater than or equal to the highest deductible amount of the insurance taken out by the syndicate, no contribution is required.
For the purposes of the first paragraph, the deductible applicable to damage caused by an earthquake or by flooding, if that protection is provided for on the insurance contract, is not taken into account.
O.C. 442-2020, s. 2.
This means that the fund must be establish or re-establish (if funds were withdrawn) on a two-year period and that the contributions must be establish in regard of the amount of the deductibles.
However, this is only a minimal amount and additional amount could be established for the reparation of injury, as mentioned in previous section.
Responsibility of the Board of Directors
The Board of Directors must establish the contribution of each co-owners in the self-insurance fund (as part of the common expenses), after consultation of the co-owners and in respect of the modalities of the minimal contributions established by the government, as mentioned above.
Syndicates of co-ownership will obligatorily have to establish the contribution to the fund when settling their next budget, meaning that the first contribution to the fund should occurs concurrently with the next contribution of the co-owners in the contingency fund following the coming in force of those new dispositions.
Future Purchasers Due Diligence
In conclusion, the present article is a good opportunity to reiterate the importance of the due diligence by any future purchaser of a condominium unit, which due diligence should be specifically indicated in the offer to purchase.
Any future purchaser of a condo unit should obtain and verified any relevant information and documents regarding to the immovable and the syndicate[6], including in particular the syndicate’s budget for the current year, the declaration of co-ownership and all of its by-laws (including all modifications), the Syndicate’s insurance policy, the certificate of location, a statement regarding common expenses due regarding the purchase condo unit as well as confirmation of the existence and of the current amount of the contingency fund and self-insurance fund.
[1] CQLR, c. CCQ-1991.
[2] For greater clarity, the properties in which the syndicate has an insurance interest are defined in article 1073 C.c.Q. and includes the entire immovable.
[3] Starting April 15, 2022, that disposition will provide that a judgement condemning the syndicate to pay a sum of money may not be executed against the self-insurance fund, unless the judgement is in respect of the recovery of an amount for the payment of which the fund is to be used.
[4] 1072 C.c.Q.
[5] CQLR, c. CCQ, r. 4.1.
[6] Articles 1068.2 and 1069 C.c.Q.