Many entrepreneurs have had difficulties getting paid after having completed construction work or renovations. You should be aware that the Law provides many ways to protect you, the entrepreneur, and it even sets out a privileged protection in case of non-payment following construction work.
Draft a contract
The first step to take prior to undertaking construction work with a client is to draft a contract. This contract must contain many details, including the name and address of your client, the scope of the work that you will be doing, the deadlines for achieving the work (including a start date and an end date), the terms for the payments, etc. The more detailed the contract is, the fewer potential problems you will have with your client. For instance, you should specify who is responsible to get rid of the trash and extra materials. If you are about to take major renovations, specify in the contract that additional work may be necessary and that you will be allowed to add modifications to the original contract. Normally, when a contract is well thought out, the parties benefit from a harmonious work relationship. As soon as you sign your contract, you also benefit from a “construction lien”.
The legal hypothec
The legal hypothec is provided for by the Law in article 2726 of the Civil Code of Quebec. It is a very powerful tool offered to contractors to guarantee that they will get paid for their work. On the day of the signing of the contract for construction work, renovations or the enlargement of an immovable (building), the amount equivalent to the work that you will undertake can be guaranteed by the registration of a legal hypothec on the immovable where the work will be performed. The covered amount is limited to the work that was indicated in the contract that will increase the value of the building.
If you deal directly with the owner, the right to a legal hypothec is based on the signed contract. If, however, you are a sub-contactor and do not have a direct contact with the owner, you will have to notify the owner about the contract between you and the general contractor. On this notice, you should write your name and contact information, as well as those of the general contractor and owner. You must also indicate the scope of your work and its cost, as well as a warning that a legal hypothec could eventually be placed on the property.
As a sub-contractor, it is recommended to report the existence of your contract prior to the beginning of the work. In order to conserve the legal hypothec, the person who has not been paid for his construction work/renovations must publish, in the 30 days following the end of the work, a notice of preservation of the legal hypothec at the registry office. At this point, you will need to get it attested by a notary or a lawyer. A copy of the notice should also be sent to the owner, either by registered mail or by bailiff. The end of the work means the complete end of the whole project, rather than the end of the part of what has been sub-contracted.
Once the work has been completed and if the notice of preservation has been sent, the legal hypothec remains for a period of six months. During this period, the contractor can send a notice of exercise to the owner. This notice, or warning, provides the owner 60 days to voluntarily give up the property. Following the expiry of this deadline, the contractor can take one of the four hypothecary recourses to obtain what he is owed.
Prior to sending the notice of preservation of the legal hypothec, it could be useful to send a demand letter by registered mail. Indeed, the notice of preservation requires the involvement of a lawyer or notary, which will result in extra costs. Sending a demand letter could very well be sufficient for you to obtain your payment. If your client is insolvent or broke, this step would be useless. Furthermore, be aware that sending a demand letter will not suspend the 30-day deadline of the notice of preservation. You must send this notice before the deadline if you still haven’t been paid.
Required permits and licences
Before undertaking construction work, make sure that you have all the necessary licences and permits. If you do not have them, you could forfeit your right to a legal hypothec. You will also expose yourself to hefty penalties from the Régie du Bâtiment du Québec (hereinafter the “RBQ”), including a possible suspension of your licence. A surety is also required by the RBQ in order to guarantee the quality and execution of your work. Make sure you have one and that the amount required is respected. Also, double-check that the owner possesses all the required permits to undertake the work that is set out in the contract. Also verify that the owner is indeed the real owner and not a tenant. The legal hypothec is only valid if you sign it with the owner.