What if your contractor declares bankruptcy?
You purchased the condo of your dreams off-plan, but the contractor let you down. What happens in that situation? What recourses do you have? What precautions can you take to protect yourself?
Although bankruptcy cases during construction are quite rare, buying a condo before construction is completed still carries a risk. However, there are precautions that can be taken to limit your risk and ensure that your experience is not a bad one.
The first thing to note is that since 1999, the Quebec government has maintained mandatory safeguards to protect new home buyers. For now, the regulations apply only to buildings of four stacked units or less.
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It should also be noted that the term “new home” does not include condominiums built into converted churches or old factories, for instance. A building must be completely new.
4 stacked units and less...
Before signing a purchase contract, ensure that your contractor is accredited by the Garantie de construction résidentielle (Residential Construction Guarantee), or GCR, an independent body responsible for accreditation of building contractors since January 1, 2015. If all conditions are met, buyers automatically qualify for the guarantee.
This independent body also inspects construction sites and ensures that all properties covered by the GCR are built in compliance with construction quality standards generally accepted in the Province of Quebec.
4 stacked units and more...
The guarantee plan for a property constructed in a building of more than four stacked units is optional and conditions may vary. That being said, mortgage lenders and municipalities that provide grants, often require a guarantee plan from builders.
Such projects can be covered by the Association des professionnels de la construction et de l’habitation du Québec (APCHQ) and their Garantie des immeubles résidentiels program (GIR), the Association de la construction du Québec and their Plan de garantie (PGAI) or the Garantie Habitation des Maîtres Bâtisseurs (GHMB).
Duty of care
You can also learn more about a contractor by consulting the registry of the Régie du bâtiment du Québec (RBQ), by researching any complaints that may have been registered with the Office de la protection du consommateur (OPC), or by verifying the creditworthiness of the company and its owners through the Registraire des entreprises du Québec.
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According to Guy Giasson, of the Association des consommateurs pour la qualité dans la construction (ACQC), buyers should be cautious when signing a preliminary contract and should negotiate the lowest possible deposit amount.
The contractor must provide the buyer with a copy of the guarantee agreement. If a down payment is involved, a document attesting to the deposit should be completed. In the case of a guarantee plan administered by the GCR, deposits are limited to $50,000.
“In all cases, the most important thing to remember is to never agree to an amount higher than what the guarantee covers,” notes notary Linda Jodoin.
In the event of bankruptcy
If construction is just beginning, the first step is to contact the organization responsible for your guarantee plan in order to recover your deposit. If you are covered by the GCR, the organization will choose to either refund your deposit or to perform the work, depending on the progress of the project.
Were you ready to move? You might face additional problems if your contractor failed to pay any suppliers or professionals (electricians, plumbers, etc.). In such cases, unpaid suppliers or professionals can file legal mortgages up to 30 days after the end of the work.
Pascal Gagnon, a bankruptcy trustee with Ginsberg Gingras, notes that legal mortgages take priority over buyer mortgages, particularly from banks. In certain cases, creditors can claim amounts due to the new owner or proceed to a judicial sale. “The trustee is not required to complete the work,” adds Mr. Gagnon.
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The buyer must attend the meeting of creditors, as someone likely to have claims. “The buyer will eventually need to obtain the services of an attorney in order to enforce his rights,” adds the trustee.
One way to protect against legal mortgages is to have a notary withhold foreseen amounts at the time of sale for up to thirty days following completion of the work. However, the contractor may refuse any withholding of funds when negotiating and, according to the experts consulted, this control mechanism would be of little use.
For more information
=> Guide to buying a new condo covered by the GCR: http://www.garantiegcr.com/consommateur/suivez-le-guide/
=> Explanatory video: http://www.garantiegcr.com
=> Garantie des immeubles résidentiels (GIR): http://www.apchq.com/quebec/fr/la-garantie-immeubles-residentiels-apchq.html
Thanks to the following people for their kind collaboration: Pascal Gagnon of Ginsberg Gingras, bankruptcy trustees; Yves Joli-Cœur of Regroupement des gestionnaires et copropriétaires du Québec; Julie Gagné of GCR; François-William Simard and Jean-Sébastien Lapointe of the APCHQ; Linda Jodoin, notary; Guy Giasson of the Association des consommateurs pour la qualité dans la construction; and Claude Gauthier of the ACQ.
Stock images: Shutterstock
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