What is a notice to owner?
Did you hire a general contractor and you just received a notice to owner or contract disclosure notice?
What was a notice to owner sent to you and how significant is it?
In this article, we will look at everything there is to know about a notice to owner and how it relates to a construction lien.
We’ll look at what it means, who it protects and what protections it offers.
Are you ready?
Let’s get started!
Table of Contents
What is a Construction lien or legal hypothec
A construction lien or a legal hypothec in Quebec is a right for a contractor or a person having taken part in the construction or renovation of a property to publish a lien against the property in case of non-payment for their services.
We refer can refer to a construction lien as legal hypothec, lien on property, contractor lien or a builder lien.
When a property owner enters into a construction contract or a renovation contract with a contractor, the contractor will automatically benefit from the right to potentially register a lien against the property of the owner in the event of non-payment or a claim.
The contractor’s right to place a lien on a property materializes automatically at the moment the general contractor enters into a contract with a client.
Who does the construction lien protect?
The construction lien benefits the architect, engineer, supplier of materials, workman, contractor and subcontractor for the materials or services supplied by them.
Beneficiaries of a construction lien in Quebec
The construction lien automatically benefits the contractor having directly signed a contract with a property owner.
What happens if the property owner did not sign a contract directly with the architects, engineers, suppliers and subcontractors having worked on a construction or renovation project?
Can subcontractors mandated by a general contractor but not by the client benefit from the right to register a lien against the owner’s property in case the contractor defaults on their payment?
The answer is yes.
The law grants the right to register a legal hypothec specifically to certain people having worked on a construction or renovation project:
- Supplier of materials
- Subcontractors for material
- Subcontractors for services
If the general contractor does not pay its subcontractors, the law allows them to claim their money against the property owner.
Are there any formalities to respect by the subcontractors to benefit from the right to place a lien on a property?
The subcontractors and suppliers must send a written notice to the owner to protect the value of their work by a legal hypothec.
What is a Notice to Owner
Those who have not entered into a contract directly with the owner can benefit from the construction lien provide they send the owner a “Notice to Owner” or a “Contract Disclosure Notice”.
A notice to owner or contract disclosure notice is a notice given by the subcontractor or supplier who does not have a direct contract with the property owner advising the owner that they have been mandated by the general contractor to provide services or material.
They are essentially disclosing their existence and the existence of their contract to the property owner.
The subcontractor’s notice to owner will typically contain:
- The identification of the subcontractor
- The value of the subcontractor’s agreement with the general contractor
- The nature of services or material required to be given by the subcontractor
- A statement that the subcontractor may register a lien on their property in case the general contractor does not pay them
With the notice to owner, the property owner will legally be made aware of the existence of the subcontractor and will need to take precautions to avoid ending up with a lien on its property due to the general contractor’s default.
If the general contractor defaults on paying its subcontractors and workmen, the client may withhold a sufficient amount of money from what’s owed to the general contractor to settle the claims from the subcontractors.
If the general contractor ends up in a dispute with its subcontractors, the property owner may still end up with a legal hypothec his property even though he may have paid the general contractor in full.
To avoid such a situation, the client should demand a written discharge from the subcontractors validating that they’ve been paid in full and have no claim against the general contractor.
What protection does the notice to owner provide
Under Quebec laws, article 2728 of the Civil Code of Quebec requires a notice to owner be sent to secure the increase in value of work:
The hypothec secures the increase in value given to the immovable by the work, materials or services supplied or prepared for the work. However, where those in favour of whom it exists did not themselves enter into a contract with the owner, the hypothec is limited to the work, materials or services supplied after written notice of the contract to the owner. A workman is not bound to give notice of his contract.
This article establishes the foundation of what is protected by a notice to owner and the preliminary notice required to acquire the protection.
Legal hypothec on the increase in value by the work
The law states that the contractor lien will protect the “increase in value” given to a property by the work.
For example, if a contractor changes the doors in a property from one style to another style, this work does not add value to the property.
Therefore, the contractor cannot claim the protection of a legal hypothec in case of a dispute.
However, if the contractor has renovated finished your entire basement, the contractor will be able to register a legal hypothec for the increase in the value brought by the work.
Securing value of work performed after the notice to owner
As it relates to subcontractors and suppliers, it’s important to note that they will benefit from the protection of the legal hypothec for the value of their work or services rendered after having sent a notice to the property owner.
If a subcontractor finishes the job before sending a notice to the owner to the property owner, their legal hypothec will have no value to secure after the notice.
Generally speaking, the subcontractors will immediately send their written notice to the owner disclosing their contract when they are hired by a general contractor.
This way, they know that they will be protected for the value of all their work.
Can a subcontractor register a lien on property without a notice to owner
Without a notice to owner, there will be no value to secure by registering legal hypothec.
Although nothing prevents the subcontractor to try to register a lien on a property, the owner can present an important defense against the legal hypothec by claiming the legal hypothec must be rejected due to the failure of sending this notice.
If the court considers that the subcontractor had not value to protect by a legal hypothec, the court may even consider that the legal hypothec was published abusively and condemn the subcontractor for costs.
Article 2728 of the Civil Code of Quebec states:
The hypothec secures the increase in value given to the immovable by the work, materials or services supplied or prepared for the work. However, where those in favour of whom it exists did not themselves enter into a contract with the owner, the hypothec is limited to the work, materials or services supplied after written notice of the contract to the owner.
The subcontractors who have not directly entered into a contract with the owner must provide the owner with a written notice to protect the increase in value to the property “after” the notice was given.
If no notice was given, there will be no increase in value to protect with a legal hypothec.
As a result, the notice to owner is essential for subcontractors in providing the owner with the required preliminary notice.
If the subcontractor does not disclose its contract to the client, its only recourse will be against the general contractor in case of dispute.
On the other hand, once the notice to owner is served by the subcontractor to the end client, the subcontractor can register a lien on property for the increase in value to the property resulting from their services.
This right will subsist for the entire duration of the project until 30 days after the completion of the project.
For how long does a legal hypothec exist in favour of subcontractors
The increase in value provided by the services rendered by the subcontractor will be covered by the right to publish a legal hypothec against the owner’s property from the moment a notice to owner is served to the owner until 30 days following the completion of the work.
The completion of the work relates to the entire project as requested by the client and not necessarily the completion of the work by the actual subcontractor.
For example, to build a house, a general contractor may hire an electrician and plumber.
Each of these subcontractors will perform their work and finish their job before the house is fully built.
The law allows the electrician and plumber to publish a legal hypothec until 30 days after the house is fully built.
Who is exempt from serving a notice to owner
The architect, engineer, workman or contractor who enters into a contract directly with the property owner does not need to send a notice to owner.
The law grants them the protection to secure the value of their work and material they offered by registering a lien on the owner’s property.
This is logical as they’ve entered into a contract directly with the owner.
The owner knows precisely their identity, the work they are required to do, the value of the contract and so on.
A workman is also exempt from giving notice of his or her contract to the property owner regardless if he or she entered into a direct contract with the property owner.
A workman is a manual worker or labourer hired by the contractor or subcontractors to do specific work on the property.
The law protects the employees and workmen and allows them to publish a legal hypothec against the property in case they were not paid for their work without having to provide a written notice to owner.
The workmen may be the most vulnerable party in a construction project or renovation contract and so the law grants them protection without expecting any specific formalities from them.
A notice to owner or contract disclosure notice is a written notification issued by a subcontractor to a property owner with whom it does not have a direct contractual relationship.
The notice to owner is used to notify the owner that a subcontractor has been mandated to perform work or provide material in the context of the client’s construction project or renovation project.
The contract disclosure notice is an important preliminary disclosure required to protect the value of the subcontractor’s work by a contractor lien or legal hypothec.
When a notice to owner is sent to the end client, the subcontractor will have the ability to place a lien on the property if the general contractor defaults in paying them for their services or material.
This legal protection is granted to architects, engineers, suppliers of material, workmen and subcontractors having worked on the construction or renovation of a property.
Even though they do not have a direct contract with the property owner, they can demand payment from the property owner by placing a lien on the owner’s property.
Owners must be mindful of this legal protection given to subcontractors and those participating in a construction project.
Owners may be faced with a subcontractor lien on his or her property even when fully respecting the terms of their contract with the general contractor.
Should you need any legal support or assistance with respect to a notice to owner or a construction lien, don’t hesitate to contact our real estate lawyers for advice.
We wish you the best of luck with your construction project.