You move into your new condo. A few weeks later, a bailiff knocks on your door and serves upon you a notice of preservation of a legal hypothec of construction. He also served all your neighbors. Reading this document, you learn that a dispute remains unresolved between the contractor and a supplier (or subcontractor), concerning work performed or materials furnished that have not been paid by the contractor. Often, these problems are resolved through the developer. But sometimes, a co-owners must institute legal proceedings for the cancelation of a legal hypothec from his title.
What is a legal construction hypothec?
Article 2726 of the Civil Code of Quebec provides that a legal hypothec is acquired " in favour of the persons having taken part in the construction or renovation of an immovable ". This right is thus granted to contractors, subcontractors (e.g. plumber, electrician and plasterer), supplier of materials, workman, engineers and architects. It is born at the time of the formation of the contract. The legal hypothec secures the increase in value given to the immovable by the work, materials or services supplied or prepared for the work. They remain by publication on the building that has undergone work (at the Land Registry Office) and the service by bailiff of a notice, within 30 days after all the construction work of an entire project has been substantially carried out, that is to say within 30 days after the work has been completed. This right may be exercised after the date on which you have become the owner of your apartment if, for example, work remains to be completed in common portions.
Title insurance to the rescue
Fortunately, for many years, owner’s title insurance is available in Quebec. It protects the buyer of a condo against any loss or damage caused by the registration of a legal hypothec resulting from work planned before the purchase of an apartment in co-ownership. If you asked your notary to obtain title insurance before purchasing your new condo, and you learn (some weeks later) that a legal hypothec affects your unit, a simple written declaration to the title insurer should suffice. If your claim is covered, the latter will be required to hold you harmless and defend your title. Title insurance coverage provides, in addition to the acquisition cost of the condo, protection against legal fees and other expenses covered under the policy.
Insurance for specific risks
Notwithstanding the broad wording of the coverage, title insurance cannot be regarded as all-risk insurance. The” Owner’s” title insurance policy includes more than thirty items covered. These cover most problems that can affect a property title, as well as those defects that can be disclosed in a certificate of location. Should a title defect affect your property, the protection offered is generally limited to the claim of a third party, such as if the buyer of your condo, refuses to purchase because of the defect in title affecting it . Remember that your title insurance company will intervene only if a title defect causes a prejudice.
Title insurance protects the insured as long as he remains the owner. The latter continues to benefit from the protection (after the sale of the building) against any law suit by a subsequent purchaser, related to a risk in title for which he was protected before the sale.
How much is this coverage?
Title insurance is very affordable. It is payable in a single instalment and remains valid as long as you own the condo so covered and this insurance product is transferable to your heirs. In addition to the protection against the risk of legal hypothecs of construction, Owner’s title insurance covers, among others losses, the loss and damage caused by defects in title or irregularities identified in the certificate of location.
WHAT YOU SHOULD KNOW ! Title insurance is a financial product different from home insurance. Its purpose is the protection of a buyer against problems that may affect the title and the irregularities that may be disclosed in a certificate of location, even if these problems are discovered only several years after a purchase.
WHAT TO KEEP IN MIND : Title insurance costs a few hundred dollars for a condo valued at less than $500,000. Being a financial product, title insurance is subject to the rules prescribed by the Autorité des marchés financiers (Financial Markets Authority). For more information: consult the website of the Mortgage and title insurance Industry Association.
WARNING ! As with any insurance product, it is important to understand the scope and limits of the coverage. The best way to obtain information is to contact an insurance agent of a title insurance company.
