The members of DS Lawyers have set a precedent over the past year in the Syndic de Bel Habitat inc., 2022 QCCS 111, judgment.
In this case, the firm’s clients had all entered into preliminary sales contracts under which Bel Habitat Inc. and Bel Habitat 2 Inc. (collectively “Bel Habitat“) undertook to sell them houses once they were built. Many of the firm’s clients made substantial partial payments to Bel Habitat in preparation for the construction of their real estate projects.
During the course of the project, Bel Habitat declared bankruptcy, taking with it the deposits made by our clients. Some of them had acquired the land before the bankruptcy, while others had made agreements with the trustee to have the land on which their homes were to be built transferred to them.
It is important to note that in Quebec, all new residential building contractors must adhere to a plan that guarantees the performance of their legal and contractual obligations pursuant to the Regulation respecting the guarantee plan for new residential buildings (the “Regulation“). The Garantie de construction résidentielle (“GCR“), administers such a plan to which Bel Habitat subscribed before its bankruptcy.
The partial payments by the beneficiary or the completion of the work?
In the event of a contractor’s bankruptcy, the warranty covers either the partial payments paid by the beneficiary up to $ 50,000.00 or the completion of the work, up to $ 300,000.00, if the beneficiary holds title to the property.
Prior to this judgment, GCR had always taken the position that one had to own the land on which the future residence was to be built prior to the contractor’s bankruptcy in order to be entitled to the completion of the work, regardless of the circumstances.
Furthermore, GCR claimed that it had the option, according to the Regulation, in all cases, to decide whether it wished to limit itself to reimbursing the partial payments or to carry out the work. This interpretation was even confirmed by the Quebec Court of Appeal in 2004 in the decision Garantie des bâtiments résidentiels neufs de l’APCHQ inc. v. Desindes.
However, amendments were made to the Regulation in 2013, rendering this interpretation obsolete, according to Mtre. Michèle Frenière and Mtre. Alain Paquet, lawyers specialized in construction law at DS Lawyers. They successfully argued that this discretion of GCR to refuse the completion of the work and to impose instead the reimbursement of partial payments had been excluded by these regulatory amendments.
Ultimately, the Superior Court of Quebec determined that :
- In a situation where the contractor goes bankrupt, a beneficiary will be considered to have title to the property if it was held prior to the bankruptcy or if it is acquired from the trustee after the date of bankruptcy, but not if it is acquired from a third party after the bankruptcy.
- In order for a beneficiary to claim the completion of the work, the performance of the secured contract must have reached a certain stage of completion. In cases where some work has been completed, it will be up to GCR to determine the appropriate remedy. However, in cases where no work has been done, or where only site preparation work has been done, but no construction of a building has started, the partial payments will be refunded up to $50,000.00.
- Finally, in cases where the settlement provides for completion, the administrator may not, in the exercise of his or her sole discretion, elect to refund the partial payments if this option would be disadvantageous to the beneficiary.
This judgment better protects all buyers of new homes in Quebec in the event of their contractor’s bankruptcy or non-performance of their contractor’s obligations. This decision also clarifies the stage of completion of the work required in order to benefit from the completion of the work. Finally, this decision is also important in that it eliminates the discretion that GCR claimed to have in choosing between the reimbursement of partial payments or the completion of the work, since it can no longer choose against the beneficiary.
Do not hesitate to contact the authors of this article for more information or a consultation regarding your rights and recourses in connection with breaches of contractual obligations by your contractor or for any other questions pertaining the guarantee plan for new residential buildings.