The number of legal construction mortgages is exploding in Quebec

The number of legal construction mortgages has jumped since 2020, prompting a consumer association to demand that this practice be abolished for debts of less than $25,000.

Before the pandemic, the number of legal construction mortgages (HLC) was around 2,800 per year in Quebec.

But the situation then worsened to 6,500 HLC in 2023 (see table), according to a study by the Association of Consumers for Quality in Construction (ACQC).

There are several types of legal opinions. Construction is the most common in Quebec. It allows a contractor to record a mortgage on a person’s home if it has not been paid off after new construction or renovations.

But under certain conditions, a subcontractor can put a mortgage on a house if it is not paid by the general contractor. And this, even if the contractor has received the amount owed by the owner.

The reasons

Marc-André Harnois, director general of the ACQC and author of the study, believes that the bankruptcy of manufacturers during the pandemic may have played a role, but that it is far from explaining it everything.

“Does the increase in construction costs mean that some contractors have not been able to pay their subcontractors? It’s possible, but I don’t have the data to prove it,” he said.

“But it is also possible that we and others who pushed this topic forward made sure that some entrepreneurs understood how this step could be effective for them,” Mr. Harnois admits to open

Guillaume Houle, head of Public Affairs for the Association de la construction du Québec (ACQ), which brings entrepreneurs together, thinks that the increase in interest rates and construction costs may have created disputes.

“And contracts gathered when the paralysis of the pandemic was lifted,” he said.

Mr Houle believes that the increase in the number of contracts – the renewal of a long period of excitement at the end of restriction – can also explain the increase. A theory that also seems logical to Marc-André Harnois.

A suggestion

For the ACQC, “these mortgages produce an unequal balance of power in favor of the entrepreneur”. It has made HLC of lower values ​​a hobby horse.

“We are not very favorable towards legal mortgages. But when it comes to a dispute of $100,000 or more, it would still end up in Quebec Court. But for a dispute in the Small Claims Court, it makes a difference to the consumer, who could have defended themselves without a lawyer. When you have to hire a lawyer, in many cases, it’s not worth it for the smallest disputes,” said Mr. Harnois.

The ACQC wants the threshold for requesting a legal mortgage for a residential property to be set at $20,000 or $25,000, even though small claims are limited to $15,000.

“It’s a basic right and it’s the only chance a contractor gets paid. We must not deal with it,” says Guillaume Houle.

LEGAL CONSTRUCTION MORTGAGE (HLC) IN QUEBEC

• 2800 HLC/year in the years before the pandemic
• 6500 HLC/year for the period ending May 2023
• The pre-pandemic trend was down (-4% annually)
• 43% of complaints are about individuals
• The amount claimed is less than $25,000 in 43% of cases

Source: Association of Consumers for Quality in Construction (ACQC)

Solutions on the table

Limiting the scope of legal assumptions in construction? Better to let the public know? Various solutions are available to prevent disputes in construction and renovation.

The Consumers’ Association for Quality in Construction (ACQC) is analyzing a proposal that could protect both parties from a certain threshold.

“For large renovation projects (from $50,000), we could put money in trust (through a notary) and release it only when there is a certificate that the work is well done. The fees may be less expensive to avoid a lawsuit. Contractors would be protected because if the work is done well, the client would not be able to pay​​​​​​​​​​​​and the latter would not be afraid that the contractor would run away with the money,” said a director general of the ACQC, Mark Andrew Harnois.

“A federal consumer survey showed that only 1 to 2% of contracts between consumers and entrepreneurs were subject to legal presumption in 2019. It is a solution of last resort that generates administrative costs and legal (notarial act) to the contractor,” affirms Guillaume Houle, of the Association de la construction du Québec (ACQ), which defends legal construction assumptions (HLC).

Even though he recognizes that HLC only applies to a small percentage of construction or renovation contracts, Mr. Harnois believes that in the end, consumers lose out.

“We think people are paying. Otherwise, it would be as if entrepreneurs were bluffing and not following through, which would surprise me,” he thinks.

Communicate better

For Mr Houle, the solution lies elsewhere. Instead, he recommends that the government provide better information to consumers about their rights.

“We also recommend a written contract with a clause for unforeseen circumstances. This is the best way to protect both parties in the event of a dispute,” he said.

Opinion of notaries

In a 50-page report submitted to the Minister of Justice in Quebec in 2021, the Chambre des notaires proposed 15 recommendations “to re-establish a better balance between users and players in the construction and renewal, and registration of construction legal assumptions to avoid. “.

Among them, the ban on the capture of primary accommodation for HLC less than $20,000, more protection for the buyer and the creation of the Administrative Housing Tribunal, a housing icon.

“Every year, approximately 3,000 HLCs are published in the Quebec land registry, 58% concern amounts of $25,000 and less,” the Chamber said.