On May 5, 2014 the Québec Court of Appeal upheld a judgment of the Superior Court dismissing a motion for forced surrender and ordering the radiation of several registrations in the Land Register1.
The appeal was essentially aimed at determining whether or not the spreading and grading of fill on a vacant industrial lot could be considered construction work giving rise to a legal hypothec.
The owner of the property, in contracting out this work at a cost of more than $900,000, sought to render the lot in question more attractive for building upon and thus more appealing to potential buyers. The work was done between March 28, 2008 and January 19, 2009. On November 24, 2008, the owner’s plan to sell the property to a third party for the construction thereon of a processing centre was put on hold following the collapse of the market for such projects.
The judgment of the Superior Court
The judge concluded that the Court was not bound by the clause in the contract stipulating that “an immovable lien can secure any balance due” and that the work “was not of the kind giving rise to a legal construction hypothec” as the work “was not part of a specific and planned construction project” but consisted rather of the upgrading of a vacant lot that was to be resold, without any construction thereon, as a speculative venture.
Without rejecting the principle whereby ancillary work that preceded or was essential to construction could give rise to a legal hypothec, the judge made entitlement to a legal hypothec conditional upon there being an actual “construction”.
The Court of Appeal’s decision
Basing itself on various legal writers, the Court confirmed that the work in question could not be considered construction work, as it was not part of the construction of a building. That being the case, the Court stated, the question of whether or not value had been added to the property was moot.
How can it be that a contractor seemingly entitled to a legal hypothec, who does work valued at more than $900,000 on a property at the request of its owner who, moreover, has acknowledged the contractor’s entitlement to a legal hypothec, can be deprived of his security by a normal hypothecary creditor who, when taking the property in payment following the owner’s default, benefits from the value added by the contractor’s work?