The legal construction mortgage: the subcontractors’ weapon of mass destruction.
Among the various alternatives offered to an unpaid subcontractor who participated in the works and / or supplied the materials for the works of a building, the publication of a legal construction mortgage constitutes a charge which can have serious consequences for the client.
In fact, the subcontractor who published their mortgage may, at their discretion, subsequently publish a notice of exercise of a mortgage right and exercise one of the following remedies on this building: Taking payment – Taking possession of for administrative purposes – Sale by the creditor – Sale under the supervision of justice.
The consequences to which the owner is exposed are not limited to the risk of seeing the subcontractor exercise a mortgage right on the building. In many cases, the owner who has obtained financing from a lender will have to write off this mortgage within a short time of its publication, otherwise they will be in default under the mortgage contract. In addition, the lender can withhold payments of financing granted for a construction project until the mortgage has been written off. The risks of delays in the work deadlines, the postponement of the delivery of the project and the risk that other subcontractors are unpaid are consequences which can arise in such cases.
Subcontractors who have not directly contracted with the owner must, prior to the execution of their work, denounce in writing their contract with the general contractor. This requirement finds its essence in the right of the owner (contracting authority) to withhold sums from the payments to be made to the general contractor to protect themself against possible claims from unpaid subcontractors.
Likewise, the diligent owner will require the general contractor to progressively provide receipts from their subcontractors for payments that have been made.
However, there will be certain situations where the owner’s vigilance will not be enough to prevent the publication of a legal construction mortgage on their building. Certain protective measures are thus offered to the owner. In particular, they may apply to the court to request the substitution of the mortgage by another security deemed sufficient.
For example, the courts have considered “sufficient collateral” a bond, a letter of guarantee by a financial institution and the deposit of a trust sum with a notary. It is important to specify that the substituted sum must not only guarantee payment of the principal of the claim, but also interest, additional compensation for a sufficient period of time and costs. You must also prove to the court that the publication of the mortgage is causing you significant harm.
In conclusion, the legal construction mortgage is the essential tool for a subcontractor wishing to protect themselves from the risks of being unpaid by their debtor and heavy consequences for the owner of the building thus burdened with this mortgage.
Subcontractor, general contractor, owner and / or owner of a construction project do not hesitate to contact us when needed!