Substitution of a construction lien filed

The construction lien has always provided priority rights to individuals involved in the construction or renovation of a property over mortgage creditors.

The legal construction mortgage has always provided priority rights to those involved in the construction or renovation of a building, rights that may seem excessive.

For example, a landscaper, in order to guarantee payment of invoices totaling just over $10,500, publishes a legal mortgage for the same amount on a property worth over $1,000,000. Subsequently, the landscaper gives notice of exercising the remedy for payment of the said property.

Unlike the Superior Court, the Court of Appeal * concludes that the landscaper's recourse is not abusive. The legislator leaves the creditor "completely free to choose one or the other of the available remedies (...) and, in principle, the courts should not interfere with this choice."

In addition, the Court states that instead of the initially published legal construction mortgage, the owner can offer "a guarantee of the nature of a bond, such as a bank letter of guarantee." Does the deposit, ordered by the Superior Court, of an amount of $12,000 with the registry constitute such a guarantee? The Court answers:

• that subject to certain rules, an amount deposited with the registry of the court as a substitute for a legal mortgage "constitutes a movable hypothec with dispossession in favor of the landscaper";
• that even in the event of the owner's bankruptcy, the landscaper will hold a first-ranking movable hypothec;
• that the government has never exercised its right to set-off "against amounts deposited with the registry with amounts owed to the State."

The court therefore orders the owner to deposit with the registry an amount of $15,000, which is equivalent to 145% of the capital claimed, in order to guarantee the interests, additional indemnity, and legal costs. The application of the law often shows that the severity of the headaches has nothing to do with the size of the problems or amounts involved.

* C.A. Montréal 500-09-019330-091