Contractors: Why Is It Important for You to Be Directly Involved in the Work?

Legal hypothecs in favour of persons taking part in building construction or renovation are an excellent way for contractors to protect their claims. In addition to being subject to strict procedural requirements, legal hypothecs may benefit only a limited number of parties. Moreover, a recent court decision serves as a reminder that contractors are not shielded from a challenge in this regard.

Strict Procedural Requirements

The general principles governing legal hypothecs are well known. They exist by virtue of the law alone and, save for contract termination in certain circumstances, do not depend on any other formalities to come into effect. To extend the validity of a legal hypothec, however, a notice must be registered by the holder within 30 days of completion of the work; furthermore, the owner of the immovable must be notified.

If a contractor remains unpaid following registration of the aforementioned notice, it must also publish a notice of exercise of a hypothecary right within six months of completion of the work if it wishes to retain its rights.

These intrinsically short time frames call for heightened vigilance, especially as they are associated with the completion date, which is itself a matter of fact and hence a central issue in many construction disputes.

Contractors as Beneficiaries of Legal Hypothecs

These formal requirements are not the only ones over which contractors must exercise greater caution. Contractors must be entitled to the benefits of legal hypothecs. Case law requires direct participation by contractors in construction or renovation work. In other words, contractors must imperatively carry out the work themselves or at least supervise its implementation, to claim a construction legal hypothec.

While this may seem a simple requirement, it is a central one, since a disagreement or dispute on this issue entails significant costs.

On a related note, in June 2022, the Court stated that a simple site manager does not qualify as a stakeholder who can benefit from a construction legal hypothec. In this particular case, the plaintiff, a company that sold and promoted mini-homes, filed an application to cancel a legal hypothec following publication of a notice by the contractor, Construction Lalonde. At the crux of the dispute was the type of verbal contract between the parties. The plaintiff claimed that the contract was solely a worksite management agreement, whereas Construction Lalonde argued that it was a standard business contract. According to this claim, the plaintiff had itself fulfilled the role of contractor, whereas Construction Lalonde simply had to coordinate the worksites and disbursements.

In its response, the Court noted first that the plaintiff had no experience in construction or even an employee who could perform any kind of construction work. Indeed, the plaintiff had no employee at all for most of the period in question, which inevitably undermined its claims. The Court also noted certain factors unrelated to typical contracts for work and services.

For example:

• The contractor had neither requested an advance or deposit for the work nor progressively invoiced for the work.
• The parties had also agreed to share the net profit arising from construction.
• Moreover, unlike a “pure” business contract, under which the contractor pays the amounts claimed by the subcontractors, the parties had initially agreed that the plaintiff itself would pay these amounts.

Ultimately, the Court concluded that the fact that certain aspects contravened the “pure and simple” general-contractor qualification did not preclude such a qualification – particularly since certain contracts may have a hybrid structure. The evidence showed convincingly that Construction Lalonde’s foreman was on the site every day and that the contractor had carried out structural work, excavation operations, and a series of interior finishing tasks.

Furthermore, the evidence showed that Construction Lalonde had awarded the majority of the contracts and managed unforeseen circumstances throughout the project, along with supervising all of the subcontractors’ work, whereas the plaintiff was not even present at the site most of the time.

As a result, the Court decided that Construction Lalonde was entitled to the legal hypothec.

While the outcome was favourable to the contractor, this case serves as a reminder of the importance for contractors of having a clear written business contract if they wish to benefit from a construction legal hypothec, a tool that can be very useful in many instances.

If you have any questions, please feel free to contact our Construction Litigation team, who will be happy to provide you with answers.