| Written by Me Sébastien Fiset , LL.B., B.A.A. |
| Jeudi, 23 Juin 2011 16:30 |
LEGAL HYPOTHEC / LEAN– A RECOURSE OF THE SYNDICATE OF CO-OWNERSHIP
Contact the author : s.fiset@fisetlegal.com
The role of the syndicate is to ensure the interests of the co-owners, and in carrying out this objective, the legal hypothec may be one of the means to ensure the conservation of the immovable and to allow the syndicate to carry out the necessary operations of common concern.
If a co-owner is in default for more than thirty (30) days in the payment of his portion of common expenses or contributions to the reserve fund, he may find himself served with a legal hypothec on his fraction of the co-ownership.
Article 2724 of the Civil Code of Québec states that :
«Only the following claims may give rise to a legal hypothec:
1° claims of the State for sums due under fiscal laws, and certain other claims of the State or of legal persons established in the public interest, under specific provision of law;
2° Claims of persons having taken part in the construction or renovation of an immovable;
3° the claim of a syndicate of co-owners for payment of the common expenses and contributions to the contingency fund;
4° claims under a judgment. »
[Bold added]
This legal hypothec will cover the current financial year (of the syndicate) and in addition the two (2) following years:
« 2729. The legal hypothec of a syndicate of co-owners charges the fraction of the co-owner who has defaulted for more than 30 days on payment of his common expenses or his contribution to the contingency fund, and has effect only upon registration of a notice indicating the nature of the claim, the amount exigible on the day the notice is registered, and the expected amount of charges and claims for the current financial year and the next two years. » – Civil Code of Québec
[Underlined added]
A syndicate must be a divided co-ownership and be rightfully incorporated to make use of this recourse. [1]
Following publication of notice of the legal hypothec, the syndicate has a delay of three (3) years to recuperate the amounts due, by either:
i) Undertaking a hypothecary recourse subsequent to the publication of a prior written notice of a legal hypothec (in payment of their claim, administer the property, sale of the property themselves or sale by judicial authority, sixty (60) days following the publication of the written notice);
ii) Or taking personal legal action, (at the Court of Québec, at small claims court or the Superior Court, depending on the amount of the debt or the type of litigation).
In fact, under the terms of article 2748 of the Civil Code of Québec:
« In addition to their personal right of action and the provisional measures provided in the Code of Civil Procedure (chapter C-25), creditors have only the hypothecary rights provided in this chapter for the enforcement and realization of their security.
Thus, where their debtor is in default and their claim is liquid and exigible, they may exercise the following hypothecary rights: they may take possession of the charged property to administer it, take it in payment of their claim, have it sold by judicial authority or sell it themselves.»
It is very important for the syndicate to ensure that these procedures are taken before the expiration of the three (3) years because article 2800 C.c.Q. actually states that :
« The legal hypothec of a syndicate of co-owners on the fraction of a co-owner is extinguished three years after it is registered, unless the syndicate publishes an action in default against the owner to preserve it or registers a prior notice of the exercise of a hypothecary right. »
[Bold and underlined added]
Article 3061 C.c.Q. repeats this same notion :
« The registration of the legal hypothec of a syndicate of co-owners on a fraction of the co-ownership is cancelled, on the application of any interested person, upon the expiry of three years after its date, unless an action has previously been brought and published. »
[Underlined added]
NOTE :
1) When the co-owner who is in default pays his debts to the syndicate, the legal hypothec is unsubstantiated. It is the responsibility of the co-owner who is in default to then discharge the hypothec, at his expense, in order to end its effects. When this has been done, if there is a recurrence, the syndicate should proceed with the filing of a new legal hypothec (art. 2661 and 2797 C.c.Q.);
2) Each default in payment of the common expenses is prescribed in a delay of three (3) years of its payable date (art. 2925 C.c.Q.).
Priority of Claims
The legal hypothec of a syndicate does not benefit from any special ranking among the creditors of the co-owner. The date of registration of the hypothecs determines the order in which the debts will be acquitted at time of sale. The logical order of things is that a mortgage creditor of first rank would be registered before a legal hypothec.
We see however under the terms of article 1069 of the Civil Code of Québec :
« A person who acquires a fraction of divided co-ownership, by whatever means, including the exercise of a hypothecary right, is bound to pay all common expenses due in respect of that fraction at the time of the acquisition.
A person contemplating the acquisition of such a fraction may request from the syndicate of co-owners a statement of the common expenses due in respect of the fraction and the syndicate is thereupon authorized to provide the statement to him, provided the syndicate gives prior notice to the owner of the fraction or his successors; in such a case, the prospective acquirer is only bound to pay the common expenses if the statement is provided to him by the syndicate within 15 days of the request.
The statement given to the buyer is adjusted to the last annual budget of the co-owners. »
[Underlined added]
Notice of a legal hypothec
The notice of a legal hypothec should, in order to be valid, contain the following information :
- The date and place where this notice was prepared;
- The name of the person (co-owner in default) to whom the notice is addressed;
- The description of the fraction of co-ownership should be well defined;
- The name of the beneficiary (syndicate) and of the person authorised to issue the notice ;
- The nature of the claim (common expenses and/or payments to the contingency fund and/or special assessments not paid)
- The amount owed at the time of registration (up to date statement of account)[2];
- The amount owed to the syndicate for the remainder of the current fiscal year (common expenses, payments to the contingency fund and special assessments, as required;
- The amount anticipated by the syndicate for the two (2) following fiscal years (common expenses, payments to the contingency fund and special assessments, as required;
- Signature of the representative authorized by the syndicate and certification by a lawyer or notary;
A notice of address may be published to keep the syndicate informed of publications which may affect its registered right (art. 3017 C.c.Q.) and to be in a position to take consequential actions, if necessary.
It is not required to notify the debtor of the legal hypothec. However, its notification often results in a positive impact.
In addition to the expenses for publication, it may also be possible to reclaim the legal charges incurred for such a procedure, if this is specified in the declaration of co-ownership. If this is not the case, then a modification to the declaration of co-ownership could well be envisioned. Consult your legal counsel.
Note meanwhile that if a prior notice has been published, under the terms of article 2762 of the Civil Code of Québec:
« A creditor having given prior notice of the exercise of a hypothecary right is not entitled to demand any indemnity from the debtor except interest owing and costs.
Notwithstanding any stipulation to the contrary, costs exclude extra-judicial professional fees payable by the creditor for services required by the creditor in order to recover the capital and interest secured by the hypothec or to conserve the charged property. »
Even though the legal hypothec is a good way to motivate negligent co-owners to pay their common expenses, the fact of exposing them initially, by sending them a notice of default, the intention of the syndicate to publish the debt under their name may have a strong enough persuasive effect to get them to pay their share rather than see their financial reputation affected, to be in default regarding their mortgage (if applicable) and to be obligated to pay the expenses of the registration and the cancellation of the same after paying their debt.
The information provided on this page is general in nature and cannot compensate for the need to obtain legal advice specific to a particular situation.
[1] Vicanek et al. c. Les Services Redpath inc., RDI 858, J.E. 2002-2019
[2] It must be assured that contributions to the common expense have been validly adopted by the board of directors of the syndicate, following consultation of the assembly of co-owners (art. 1072 C.c.Q.).
Mise à jour le Vendredi, 15 Août 2014 16:05