Important judgement regarding the protection of purchasers of new homes

The Superior Court of Québec rendered an important judgment pertaining to the protection of purchasers of new homes in the case of the Bankruptcy of Bel Habitat inc.

In this proceeding, the plaintiffs respectively engaged in preliminary contracts of sale with Bel Habitat Inc. and Bel Habitat 2 Inc. (collectively “Bel Habitat”) pursuant to which Bel Habitat agreed to build and sell homes to the plaintiffs. In accordance with these preliminary contracts, the plaintiffs made considerable payments as deposits.

However, Bel Habitat assigned its property before the construction work was completed, and in some cases, before the work had even begun, thus putting in jeopardy the homebuyers’ deposits.

As a result, the plaintiffs claimed from Garantie de construction résidentielle (“GCR”) the completion of the construction work, that Bel Habitat failed to execute in accordance with article 9 of the Regulation respecting the guarantee plan for new residential buildings (the “Regulation”). The GCR is the administrator of the guarantee plan to which Bel Habitat had subscribed prior to its bankruptcy in conformity with the requirements of the Building Act. This article indicates that the guarantee plan must, in the eventuality where the entrepreneur fails to meet his legal or contractual obligations prior to delivering the building, cover either: (a) the partial payments paid by the beneficiary (in this case each of the plaintiffs) or (b) the completion of the work if the beneficiary is the title holder of the property.

Due to the dispute regarding the interpretation of article 9 of the Regulation, the parties have asked the court to render a declaratory judgment pertaining to the three following questions:

  1. At what moment must the beneficiary of the guarantee plan hold the title of ownership to be able to request the completion of the work pursuant to the Regulation?
  2. Is there a certain degree of construction that must be completed in order for the beneficiary to claim the completion of the work as a whole?
  3. Does GCR have any discretion in deciding whether or not to complete the work?

With regards to the first question, and after a careful review of the law applicable to contracts of sale, the Court ruled that the beneficiary will be considered to hold the title of ownership of the property under article 9 of the Regulation if such title was held before the bankruptcy of Bel Habitat or if the title was acquired from the trustee after the date of Bel Habitat’s bankruptcy. However, the beneficiary will not be considered to hold the title of ownership of the property if such title was acquired after the date of bankruptcy from a third party

Concerning the second question, the court stated that in order to benefit from the completion of the construction of the building, the property must have been subjected to work, other than the preparation of a land survey, the conception or preparation of plans. Otherwise, in the case of a vacant lot for example, the beneficiary may only be entitled to the reimbursement of the deposits paid.

With respect to the third question, the Court declares without a doubt that if the Regulation allows the completion of the construction and if there is not unjust enrichment, the administrator of the plan of guarantee will have no discretion whatsoever to refuse the completion of the work or impose the reimbursement of the deposits.

To conclude, this judgment offers newly built home consumers an insight into the protection applicable to them in the eventuality of their entrepreneur’s bankruptcy. More particularly, this decision addresses the situations entitling home buyers to claim the completion of their home in accordance with the plan of guarantee. However, this judgement reminds those same home buyers to be cautious when providing the contractor substantial deposits when no work has been realized.

By Mathieu Tremblay