What is the legal hypothec of co-ownership?
First, the legal hypothec of the syndicate of co-ownership (hereinafter ” legal hypothec of co-ownership “) is a privilege that allows the syndicate of co-owners to guarantee the payment of common expenses by using a co-owner’s share of property as security for the payment of common expenses. Underarticle 2724 of the Civil Code of Québec (hereinafter C.C.Q.), “claims of the syndicate of co-owners for the payment of common expenses” may give rise to a legal hypothec of co-ownership.
According toarticle 2729 C.c.Q., “the legal hypothec of the syndicate of co-owners charges the fraction of the co-owner who fails, for more than 30 days, to pay his share of the common expenses; it is acquired only upon registration of a notice indicating the nature of the claim”.
This definition leads us to ask what common expenses are and what they may include.
What are common expenses?
Article 1064 C.c.Q. stipulates that each co-owner must contribute in proportion to the relative value of his share to the expenses related to co-ownership and the operation of the immovable, as well as to the contingency fund established in accordance witharticle 1071 of the same code. This article specifies that the syndicate of co-ownership must create a contingency fund based on cost estimates for major repairs and replacement of common areas.
Article 1072 C.c.Q. stipulates that the Board of Directors, after consultation with the general meeting of co-owners, must determine each year the co-owners’ contribution to common expenses. This decision must be taken after determining the amounts required to cover the expenses arising from the co-ownership and operation of the building, as well as the sums to be paid into the contingency fund.
These articles explain the purpose of common expenses, but it is important to analyze how the courts will interpret this expression in order to determine whether the interest charged can be included in the common expenses and therefore calculated in the legal hypothec of co-ownership.
**** INTERESTS
Prohibition of penalties in the legal hypothec of a syndicate of co-ownership.
First, in Desjardins v. Jardins du Parc Jarry – phase 1-B(hereinafter Desjardins),[2] the court affirmed that common expenses must be interpreted restrictively. According to this ruling, penalties do not constitute “common expenses or a contribution to the contingency fund”. Nor are legal fees or financial expenses.
Moreover, according to this decision, “the fact that a syndicate has written into the by-laws of its declaration of co-ownership that a penalty constitutes a common expense does not confer upon it the attributes thereof.”
It is clear, according to the Court, that if the legislator wished to allow such an inclusion, clearly restrictive terms such as those found in article 2729 C.C.Q. would not have been used.
Prohibition of lawyers’ fees in the legal hypothec of a syndicate of co-ownership.
Then, in Castilloux v. Syndicat des copropriétaires du 537, Jacques-Cartier Est, Longueuil (hereinafter Castilloux),[3 ] the syndicate had registered a notice of legal hypothec of the Syndicat des copropriétaires against a co-owner in default. In this notice, the syndicat de copropriété explained the nature of the claim and the amount to be paid as follows:
“Payment of common expenses and contingency fund and other expenses for the period to February 5, 2012 in the amount of $4,396.07.”
Castilloux v. Syndicat des copropriétaires du 537, Jacques-Cartier Est, Longueuil, 2013 QCCQ 1352 (CanLII), at para 5, https://canlii.ca/t/fwcgd#par5.
However, Castilloux demanded that the legal hypothec be cancelled, since some of the amounts claimed by the Syndicat and constituting the object of the legal hypothec “are not common expenses or related to the contingency fund.”
The court, agreeing with Castilloux, recalled that legal fees incurred by a Syndicat de copropriété as a result of a co-owner’s failure to comply with the co-ownership by-laws cannot be considered as claims that can give rise to a legal hypothec, in accordance with article 2724 C.c.Q.
*****EXCEPTION ACCORDING TO SECTION OF THE C.C.Q. (PREAVISION)??****
By observing the court’s restrictive analysis of common charges, it is possible to conclude by analogy that charged interest cannot be calculated in the mortgage.
Conclusion:
According to article 2729 C.c.Q., only claims for common expenses may give rise to a legal hypothec of the co-ownership.
What’s more, an analysis of two decisions shows that the Court has adopted a restrictive interpretation of this expression.
In the Castilloux case, the syndicate had included “financial expenses for outstanding balances” and legal fees incurred by the syndicate. The Court concluded that these costs “are not among the claims that can give rise to a legal hypothec under article 2724 C.c.Q.”.
Moreover, in the Desjardins caseThe declaration of co-ownership stipulates that the penalties provided for therein “shall be considered as a common charge owed by the offending co-owner, such that failure to pay the sums due shall give rise to a legal hypothec for the benefit of the syndicate”. The Court refused to consider these costs as common charges.
Thus, by examining the court’s restrictive interpretations of common charges, we can deduce by analogy that the interest applied cannot be taken into account when calculating the mortgage.
[1] Civil Code of Québec, RLRQ, c. CCQ-1991, (hereinafter “C.c.Q.”).
[2] Desjardins v. Jardins du Parc Jarry – phase 1-B, 2017 QCCS 3417.
[3] Castilloux v. Syndicat des copropriétaires du 537, Jacques-Cartier Est, Longueuil, 2013 QCCQ 1352.
