The installments inherent in divided co-ownership fractions: better protected than ever

In the construction industry, it is quite common for builders or developers of a real estate project to require promising buyers, when signing the preliminary contract, to pay a sum of money as a deposit.

Indeed, for many builders and developers, the collection of deposits is an interesting, even advantageous, source of financing.

However, before the adoption of Bill 16 by which the National Assembly of Quebec adopted, in December 2019, the new section 1791.1 of the Civil code of Quebec, few restrictions, besides the willingness — or the ability, of course — of promising buyers to pay builders or developers any amount as an advance payment, governed, in Quebec, the collection of such deposits.

However, since January 10, 2020, the date on which section 1791.1 of the Civil code of Quebec, the legislator has regulated the collection of deposits paid for the purchase of a divided condominium fraction, by indicating that any deposit must, henceforth, be fully protected.

In fact, section 1791.1 of the Civil code of Quebec provides, among other things, for the following:

Despite any contrary agreement, any deposit paid to a builder or a developer for the purchase of a divided condominium fraction must be fully protected by one or more of the following means: a guarantee plan, insurance, a bond or a deposit in a trust account of a member of a professional order under the conditions and procedures determined by government regulation.

This means that since January 10, 2020, in order to be allowed to receive any deposit in connection with the purchase of a divided condominium fraction, the builder or the developer must protect, using one or other of the above means, the entire deposit paid by a promising buyer.

It is useful to recall, at this stage, that the installments received by a builder or a developer in connection with the sale of a fraction of divided co-ownership subject to the Regulation respecting the guarantee plan for new residential buildings are already, up to the sum of $50,000, protected by the mandatory warranty plan administered by the Residential Construction Guarantee (GCR).

However, since the adoption of the new section 1791.1 of the Civil code of Quebec, it appears that the builder or promoter of a real estate project aimed at the construction of a building held in divided co-ownership who wishes to collect deposits and, all the more reason, use them as financing, must, in order to fully protect the installments to be received, require the intervention of an optional guarantee plan, an insurer or a bond, in any of the following situations:

1. In order to collect any deposit in excess of the guarantee limit of $50,000 offered by the Residential Construction Guarantee (GCR), in connection with a divided condominium fraction subject to the Regulation on the guarantee plan for new residential buildings;
2. In order to collect any deposit in connection with a divided co-ownership fraction that is not subject to Regulation on the guarantee plan for new residential buildings.

In view of the above and taking into account their new obligations, builders or developers have every interest in evaluating all the means of protection allowed by law and available to them on the market, and to determine which is the most advantageous to them, in order to allow them, in the situations mentioned above, to continue to receive and use deposits to finance their construction projects, in order to allow them, in the situations mentioned above, to continue to receive and use deposits to finance their construction projects, while complying with the requirements set out above. of the new section 1791.1 of the Civil code of Quebec.

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