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Basically, denunciation of contract allows a sub-contractor, material supplier, workman, engineer or architect who does not have a direct contractual relationship with an owner of an immovable to avail himself of a legal hypothec of persons who participated in the construction or renovation of an immovable (hereinafter ” legal construction mortgage “). This mortgage is a legal privilege that allows people who have participated in the construction or renovation of a building to take the building as security for payment.
Since this privilege can have serious consequences for the owner of the building (such as having his or her building seized by a person or company unpaid for the construction or renovation work), the law makes reporting mandatory for people involved in the construction or renovation of a building.
However, this disclosure is only mandatory for those who have no direct contractual link (such as a contract or invoice) with an owner. This means that the person or company directly commissioned by the owner does not generally have to terminate the contract within the meaning of the law.
A common example is when an owner awards a contract to a general contractor who, in turn, commissions a sub-contractor (such as a plumber, electrician, carpenter or other skilled tradesperson), material supplier, tradesperson, engineer or architect (collectively referred to hereafter as a “sub-contractor”).subcontractors “).
In this case, the owner pays the general contractor, who in turn pays the subcontractor. In fact, there is no contract between the owner and the subcontractor.
That said, many unforeseen events can occur during the execution of a building construction or renovation contract, and subcontractors often remain unpaid for reasons unrelated to their work.
Here are some examples of subcontractors being unfairly unpaid by an owner or general contractor despite having completed their work:
To protect subcontractors, the law grants them the privilege of the legal construction mortgage. This lien enables subcontractors to take the building on which they have carried out work as a guarantee of payment in the event that they remain unpaid.
While the legal hypothec of construction clearly benefits those involved in the construction or renovation of an immovable, articlearticle 2123 of the Civil Code of Québec provides a protective mechanism to prevent an owner from being harmed by a contractor who refuses to pay a subcontractor:
2123. At the time of payment, the customer may withhold from the contract price a sum sufficient to pay the claims of the workmen, as well as those of other persons who may assert a legal hypothec on the immovable work and who have denounced their contract with the contractor for work done or materials or services supplied after such denunciation.
This withholding is valid as long as the contractor has not provided the customer with a receipt for these claims.
He may not exercise this right if the contractor provides him with sufficient security to guarantee these claims.
Source: Civil Code of Québec, RLRQ c CCQ-1991, art 2123
In concrete terms, the law protects the owner by allowing him to deduct from the contract price any sums due to subcontractors for construction or renovation work carried out on his building.
This is where whistle-blowing becomes necessary, since the owner, who is often unaware of the existence of subcontractors and the value of their subcontracts, must be able to withhold a sum sufficient to pay the claims of anyone who might register a construction mortgage on his building.
It is therefore up to subcontractors to denounce their contracts directly to the owner, so that he can assess the amount to be deducted from the contract price.
Conversely, a subcontractor who fails to disclose his contract to the owner prevents the latter from knowing that he must protect himself against a possible legal construction mortgage by withholding certain sums from the contract price. For this reason, subcontractors who fail or neglect to notify the owner of their contract in good time generally lose their right to a legal hypothec.
As a general rule, anyone who has not entered into a contract with the owner must cancel their contract.
Thus, the qualification of the person (architect, engineer, material supplier, contractor or sub-contractor) is irrelevant. The only question that needs to be answered to determine whether a contract can be terminated is the direct legal relationship with the owner. The only exception to the above isarticle 2728 of the Civil Code of Quebec, which creates an exception to this rule, specifying that “the workman is not bound to denounce his contract”.
Thus, architects, engineers, material suppliers, contractors or subcontractors who have contracted directly with the owner, as well as workmen, are justified in ignoring the stage of contract denunciation and may proceed, without further notice, to register their mortgage.
The denunciation must be made before the work or services are carried out, and before the materials are supplied, if applicable. Indeed, thearticle 2728 of the Civil Code of Québec provides that the legal hypothec of construction is limited to the work, materials or services that follow the written denunciation of the contract to the owner:
2728. The hypothec secures the increase in value given to the building by the work, materials or services supplied or prepared for such work, but when those in whose favor it exists have not themselves contracted with the owner, it is limited to the work, materials or services that follow the written denunciation of the contract to the owner. The worker is not obliged to denounce his contract.
Considering the above, if a contract is terminated late, only the work, materials or services that follow the written termination of the contract to the owner will be subject to a legal hypothec of the construction.
There is no legally prescribed form for terminating a contract. The only obligation found at thearticle 2728 of the Civil Code of Québec is that it must be notified to the owner in writing.
That being said, Quebec courts have frequently interpretedarticle 2728 of the Civil Code of Quebec as well as the essential elements that must be included in a contract termination. In particular, a notice of denunciation must include the following five (5) elements:
It is also the responsibility of the person denouncing the contract to be able to demonstrate that the owner has in fact received the written denunciation.
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