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American College of Mortgage Attorneys — Partner with the Best®

Formed in 1974, the American College of Mortgage Attorneys (ACMA) is comprised of over 500 lawyers in North America who are experts in mortgage law.

Canada

Quebec

The Province of Qu&eacute;bec's civil law legal system is unique in Canada. There are several points a lender should know when acting on a cross-border or multi-jurisdiction financing that requires taking security on assets located in Qu&eacute;bec. A “security interest” under common law does not constitute valid security under Qu&eacute;bec civil law. It is therefore not possible to make a filing on the basis of a security agreement executed in accordance with the U.S. Uniform Commercial Code or the Personal Property Security Act of a Canadian Province. The instrument to take security on assets under the Civil Code of Qu&eacute;bec (“CCQ”) is called a hypothec. A hypothec can affect immovable (real) property, movable (personal) property, or both. A movable hypothec can be created with or without delivery of the hypothecated property. A hypothec created with delivery may also be called a pledge. The CCQ provides that a movable hypothec without delivery must be granted in writing to be effective. In certain circumstances, execution of an agreement in private writing is not sufficient. The CCQ requires that a hypothec be created by notarial act “en minute” if (i)&nbsp;the hypothec affects immovable property and (ii)&nbsp;the hypothec is granted on movable and/or immovable property in the context of a syndicated loan where a secured party holds the security as agent or under power of attorney for the lenders. In these cases, the hypothec must be created in the deed executed by the parties before a Qu&eacute;bec notary. The Qu&eacute;bec notary is a legal practitioner, having a practice similar to that of a solicitor, who also has the authority to give authentic value to deeds signed by the parties before him/her. Unlike a security agreement creating a security interest in other jurisdictions, a deed or agreement creating the hypothec must indicate the specific sum in Canadian dollars for which the hypothec is granted. The interest rate must also be expressed. This sum generally corresponds to the maximum amount of the indebtedness. However, since a hypothec is an accessory to the obligations it secures, the hypothec can only be enforced for the amount owed at the time of enforcement. Like a security agreement in other jurisdictions, a hypothec has to be registered in order to acquire enforceability and ranking against third parties, but it is not possible to register in advance of the execution of the document creating the hypothec except in certain limited circumstances. Given the particularities of Qu&eacute;bec law, deeds or agreements of hypothec need to be executed and registrations need to be completed in advance of closing if the lender or lenders want to fund upon execution of the main loan documents. One may ask how this is possible in a funded acquisition, as the buyer/borrower is not yet the owner. The answer lies in &sect;&nbsp;2670 CCQ, which permits hypothecation of another's property subject to the grantor becoming the owner. So, if the closing of the transaction does not occur, the hypothec is invalid and the owner would be entitled to have it discharged from title to the property. Also, in the case of a syndicated loan or loan secured by hypothec on immovable property where the hypothec has to be created by notarial deed, it is a requirement that representatives of the lender or secured party sign in the presence of the notary. If the lender or secured party has no representatives in the Province of Qu&eacute;bec, it is general practice to have special representatives in the Province appointed for the execution of the documents, instead of having the representatives of the lender or secured party or the notary travel for execution. While these particularities of the Qu&eacute;bec security regime are very different from those of other jurisdictions, they should not delay the closing on a financing provided that parties take these preparatory steps in advance to address the presence of assets in the Province of Qu&eacute;bec.

OVERVIEW

Hypothecs are used to secure payment of obligations in the Province of Qu&eacute;bec. A hypothec is a right on either movable (chattels) or immovable (land) property made liable for the performance of an obligation. Once it is registered, it confers on the creditor the right to follow the property even if it is transferred, to take possession of it, to take it in payment, to sell it or cause it to be sold and, in that case, to have a preference upon the proceeds of the sale ranking as determined in the CCQ (&sect; 2660). Immovable hypothecs are created by notarial act “en minute” (a document executed before a Qu&eacute;bec notary), in absence of which an immovable hypothec is absolutely null and of no further effect. The notion of absolute nullity under Qu&eacute;bec civil law is discussed more fully below. The notarial act must identify the land or building subject to the hypothec, as well as the amount for which the hypothec is given. An immovable hypothec must be published in the land register for it to be enforceable against third parties. Movable hypothecs can be created either with or without delivery. A movable hypothec with delivery, also known as a “pledge”, is created when the debtor delivers the property to the creditor. If the creditor already has the property in his possession, the hypothec is created upon the debtor's consent to allow the creditor to continue to hold the property. A movable hypothec with delivery is published and becomes enforceable against third parties the moment the creditor takes possession of the property charged with the hypothec. Such a hypothec may also be published in the Register of Personal and Movable Real Rights (RPMRR). A movable hypothec without delivery can only be granted in certain cases. An individual may only grant a movable hypothec without delivery on certain motor vehicles, precious goods (such as art, jewellery, stamps, etc.) or certain types of intangible property that are evidenced by a document (such as shares in a company, patents, and trademarks). If the individual is operating a business, a movable hypothec without delivery can be granted on the property of the business, such as office furniture or industrial equipment. Legal persons (companies) can generally grant movable hypothecs without delivery on any type of movable property. A movable hypothec without delivery must be evidenced in a written document describing the movable property charged with the hypothec and the amount of money for which the hypothec is given. To be enforceable against third parties, this type of hypothec must be published in the RPMRR. Generally in real estate financings, the deed hypothecates both immovable and movable property, although a separate movable hypothec document is possible.

SECURITY INSTRUMENTS USED

The Land Registry Office is responsible for publishing all real property transactions. For publication to occur, a property transaction must be registered in the Land Register of Qu&eacute;bec. Publication does not create or confer any rights. Rights arise from 2 parties signing an agreement or contract. However, registration makes public the rights of the respective parties and renders the hypothecary rights of the creditor opposable to third parties. With respect to hypothecs, before a creditor can exercise any rights conferred thereunder, the hypothec must be registered in the Land Register. Registering a hypothec generally confers 2 rights: a)&nbsp;the right to follow the property charged with the hypothec, and b)&nbsp;the right to have preference on the proceeds derived from the sale of the property charged with a hypothec. Without registration/publication, a creditor loses any rights under the hypothec when the property is sold. Note that prior claims (such as the tax lien) and legal hypothecs (such as the construction lien) outrank the conventional mortgage. Lenders can pay the taxes with subrogation and effectively outrank themselves. Construction lenders advancing progressively must monitor the trade lien rights carefully. A construction lien endorsement to a title policy may be available. Lenders also generally register what are known as notices of address. This notice entitles the lender to be informed of the registration of rights that may adversely affect its security, such as tax lien claims, construction liens, or prior notices of recourse exercised by other secured creditors. The lender would then have an opportunity to react to the situation to protect its interest. Bill n&deg;96 passed on June 1, 2022, amending &sect;&nbsp;2984 CCQ to ensure that any registration/publication of a hypothec at the Land Registry Office is exclusively written in French on and after September 1, 2022. Notwithstanding the above, &sect; 212 of Bill 96 provided an exception for any act amending or correcting another act exclusively in a language other than French filed at the Land Registry Office before June 1, 2022. Such amending or correcting act may be filed in that other language.

RECORDING REQUIREMENTS

STATUTES TO BE WAIVED

The CCQ contains a fundamental policy of good faith and fair dealing, which is of public order and consequently may not be derogated from contractually. The pivotal legislative text is &sect;&nbsp;1375 CCQ which states: “the parties shall conduct themselves in good faith both at the time the obligation arises and at the time it is performed or extinguished”. So provisions entitling the lender to act arbitrarily or unreasonably are likely to be found unenforceable and enforceability opinions habitually contain a good faith and fair dealing qualification.

UNUSUAL TREATMENT OF STANDARD PROVISIONS

A hypothec has priority over subsequent hypothecs attached to the same property according the date and time it was published/registered. Generally, hypothecs published first have priority over hypothecs published thereafter.

SECURING FUTURE ADVANCES

As set out in the notarial act “en minute”.

SECURING ADDITIONAL ADVANCES TO PROTECT THE COLLATERAL

Bill n&deg;28 passed on April 20, 2015, amending &sect;&nbsp;2692 CCQ to simplify the holding of a hypothec through a hypothecary representative called the “fond&eacute; de pouvoir” (a person holding the power of attorney of the creditors) and also to remove the requirement for a separate title of indebtedness (bond, promissory note, debenture). Prior to Bill n&deg;28 coming into force, a person could not hold a hypothec in favour of a third party unless it was a hypothec in favour of a fond&eacute; de pouvoir granted in compliance with the conditions set forth in &sect;&nbsp;2692 CCQ. The amendment now permits the grantor to create a hypothec in favour of 1 of the creditors, the only creditor, or a third party. The hypothecary representative may be appointed by the debtor, the grantor or by one of the creditors. The representative is the holder of the hypothec and has the power to exercise all the rights it grants. The former wording of &sect;&nbsp;2692 CCQ also restricted the type of obligations that could be secured under such a hypothec to the payment of bonds or other titles of indebtedness. The new &sect;&nbsp;2692 CCQ allows for the obligation to be of any nature, present or future, of a legal person, (i.e. a corporation), partnership or trust. Despite the increase in flexibility, the requirements of &sect;&nbsp;2692 CCQ as to form remain firm: a hypothec in favour of a hypothecary representative must be granted by notarial act “en minute”, regardless of the nature of the obligations the performance of which it secures, on pain of absolute nullity.

HOLDING A HYPOTHEC IN FAVOUR OF A THIRD PARTY

THE LEGAL CONCEPT OF NULLITY UNDER QU&Eacute;BEC LAW: The CCQ makes reference to 2 distinct types of nullity: relative nullity, which can be waived, and absolute nullity, which cannot be waived as the impugned deed is deemed never to have existed. This distinction is by no means limited to hypothecary security. A good example, in the domain of real estate financing, is the mortgagee loss payee endorsement. Suppose a property is registered in the name of a nominee (called a pr&ecirc;te-nom in Qu&eacute;bec), which is holding title for what the common law would coin beneficial owners. Suppose the property damage insurance policy the lender is counting on the event of casualty names the pr&ecirc;te-nom as the named insured, without disclosing the true owners. Qu&eacute;bec civil law does not distinguish between legal and beneficial co-ownership. The courts have ruled that the pr&ecirc;te-nom has no insurable interest, which nullifies the policy ab initio. The courts have then extended the reasoning to deny coverage to the mortgagee with a typical mortgagee endorsement, pursuant to which the insurance company's defences, which may be set up against the insured, are not opposable to the mortgagee. The reasoning is that the endorsement forms part of a policy that juridically is deemed not to have existed and falls with the policy. The writer's practice is to name the insured as “ABC Inc. as pr&ecirc;te-nom and mandatary for XYZ Limited Partnership”. This applies to all types of policies, including title insurance policies (&sect; 2693 of the CCQ).

THE LEGAL CONCEPT OF NULLITY UNDER QU&Eacute;BEC LAW

Any natural person having the full exercise of his civil rights and any legal person authorized by law may act as a trustee. If the trustee is a corporation, it must be a trust company authorized to do business in Qu&eacute;bec, generally under the Trust Companies And Savings Companies Act, R.S.Q. c. S-29.02.

CORPORATE OR INDIVIDUAL

None. However, for non-resident lenders, the interest may attract withholding tax and this issue should be addressed as it impacts the yield. PROHIBITION ON THE PURCHASE OF RESIDENTIAL PROPERTY BY NON-CANADIANS ACT (THE “PPRPNCA”): The PPRNPCA came into force on January 1, 2023 to prohibit the purchase of residential property by non-Canadians. Section 4(1) of PPRNPCA's regulation provides that the definition of a “purchase” for the purposes of the PPRNPCA is “the acquisition, with or without conditions, of a legal or equitable interest or a real right in a residential property.” There are, however, some exemptions, established in section 4(2) of PPRNPCA's regulation, notably when there is an acquisition due to a transfer resulting from the exercise of a security interest or secured right by a secured creditor. Therefore, a non-Canadian secured creditor is likely exempted from the PPRNPCA when it acquires a residential property through the exercise of its security interest or secured right.

RESIDENCY REQUIREMENT

THE INTEREST ACT: Section&nbsp;10 of the federal Interest Act, R.S.C., 1985, c. I-15, deals with prepayment rights of loans secured by immovable hypothec. For a closed loan for more than 5 years, even with prepayment rights or yield maintenance where the amount would exceed 3 months' interest, the following should be taken into consideration: (i)&nbsp;&nbsp; a borrower that is a natural person may prepay, with a 3-month interest penalty, despite anything contained in the loan documents to the contrary. As noted previously, since Qu&eacute;bec civil law does not distinguish between legal and beneficial ownership, the prevailing view in Qu&eacute;bec is that where the owner is a natural person, this will apply even where a pr&ecirc;te-nom corporation is holding registered title; (ii)&nbsp; the following are exempted: <ol>
 <li>a) corporations;</li>
 <li>b) joint stock companies;</li>
 <li>c) partnerships, whether general or limited;</li>
 <li>d) trusts settled for business or commercial purposes; as this is an exception and thus receives a restrictive interpretation, non-business/commercial trusts, such as family trust created for tax or estate planning, would not qualify;</li>
 <li>e) unlimited liability companies under the laws of British Columbia, Alberta and Nova Scotia; and</li>
</ol> (iii) the financial impact on yield maintenance to the lender where the exemption does not apply can be serious. Take the example of typical 10-year closed mortgage loan at market interest rates: suppose other 5 years interest rates have fallen to today's historic lows and the borrower wants to re-finance without having to pay the yield maintenance. It prepays the balance of the loan with 3 months' interest and the lender is stuck having to re-invest the capital at a diminished return. Among other targets, the lender may very well seek recourse against the issuer of the enforceability opinion. Some title companies, such as First Canadian Title, offer Interest Act endorsements. So if there is doubt, title insurance with the endorsement is an attractive option.

THE INTEREST ACT

Before exercising rights under a hypothec after a debtor default, the creditor must file a prior notice at the registry office together with evidence that it has been served on the debtor (&sect;&nbsp;2757 CCQ). The prior notice must include a description of the debtor's failure to fulfill any obligation under the hypothec, a reminder to the debtor that he or she has the right to remedy the default, the amount of the claim in capital and interest, the nature of the right the creditor intends to exercise, a description of the property charged with the hypothec, and instructions to the debtor indicating a specific period within which he or she must surrender the property. In the case of immovable property, the notice period is 60 days (&sect;&nbsp;2758 CCQ). The debtor may defeat the exercise of the hypothecary right by either paying the creditor the full amount due, or by remedying the omission or breach described in the prior notice. The debtor is responsible for all costs incurred by the creditor in exercising his or her hypothecary right. If the debtor fails to defeat the exercise of the creditor's rights under the hypothec, he or she must surrender the property. Surrender is voluntary or forced (&sect;&nbsp;2763 CCQ). Where it is voluntary, the debtor abandons the property to the creditor and the creditor may either take possession of it or consent in writing to take possession at an agreed time. Surrender of property is forced where the court orders it. Once the property is surrendered, the creditor may exercise its rights under the hypothec. There are 4 ways to exercise a hypothecary right: <ul>
 <li>taking possession of the property for the purposes of administration (in the case of a business, for example);</li>
 <li>taking the hypothecated property in payment;</li>
 <li>sale of the property by the secured creditor; or</li>
 <li>sale of the property by judicial authority.</li>
</ul>

BRIEF DESCRIPTION OF PROCEDURE

A debtor, a person against whom a hypothecary right is exercised, or any other interested person can defeat the exercise of this right by paying the creditor the amount due or by remedying the omission or breach set forth in the prior notice as well as any subsequent omission or breach and, in either case, by paying the costs incurred by the creditor. This right may be exercised before the property is taken in payment or sold, or at any time if the creditor chooses to exercise its right to take possession of the property for the purposes of administration.

REDEMPTION PERIOD AND PRICE

WAIVER OF REDEMPTION; REDUCTION OF REDEMPTION PERIOD

If the creditor chooses to sell the property, either himself of by judicial authority, and the proceeds of the sale are insufficient to pay his claim and costs, the creditor retains a claim against his debtor and his guarantors for the balance due to him. If the creditor chooses to take the property in payment, the obligation is extinguished and the creditor cannot claim any outstanding sums from the debtor or the guarantors.

DEFICIENCIES

Generally, the voluntary or forced alienation of leased property or extinction of the lessor's title for any other reason does not terminate the lease by operation of law. This general rule has some exceptions: for commercial leases with an indeterminate term, the new landlord may terminate/resiliate the lease in accordance with the provisions of the CCQ. For commercial leases with a fixed term and more than 12 months remaining as of the date of alienation or extinction of title, the landlord may terminate/resiliate the lease upon expiry of 12 months by giving 6 months' written notice to the lessee. The landlord may not terminate/resiliate the lease if said lease was published/registered in the land registry office before the deed of alienation or the prior notice of the exercise of a hypothecary right was so published/registered.

EFFECT OF FORECLOSURE ON LEASES

Under &sect;&nbsp;347 of the Criminal Code, R.S.C. 1985, c. C-46, interest rates exceeding 60% per annum are “criminal rates of interest”. Under &sect;&nbsp;6 of the Interest Act, R.S.C. 1985, c-I-15, when principal money or interest is secured by a hypothec on an immovable, interest can be charged only if the hypothec expressly states the principal amount and the interest rate to be charged. Under the CCQ, the concept of usury is recast as that of lesion. The CCQ provides that in the case of a loan of a sum of money, the court may pronounce the nullity of the contract, order the reduction of the obligations arising from the contract, or revise the terms and conditions of the performance of the obligations to the extent that it finds that, having regard to the risk and to all the circumstances, one of the parties has suffered lesion (&sect; 2332 CCQ). Lesion applied to loans must result from a “serious disproportion between the prestations of the parties” (&sect;&nbsp;1406 CCQ). In 136327 Canada Inc. v. Canadian Asset Based Landing Enterprise, 2015 QCCS 1435, the plaintiffs asked the Superior Court of Qu&eacute;bec to order the nullity of a loan for $300,000 CAD, arguing that the stipulated interest rate of 47% caused them to suffer lesion. The Court held that the interest rate is not, by itself, sufficient to determine the existence of lesion. The person seeking relief must also convince the Court that, in the same context of kind of business and risk, other lenders would accept a significantly lower interest rate. The appeal in this matter was dismissed after the Court of Appeal found no errors in the first decision.

USURY CEILING

USURY EXCEPTIONS

Hypothecs on movable property are filed at RPMRR. Hypothecs on immovable property are filed at the Land Register in the registration division where the mortgaged lot is located. The application for either register can be filed electronically or by mail.

LOCATION(S) FOR FILING

SECURITY INSTRUMENT USED AS FIXTURE FILING

A guarantor is technically known as a “surety”. In cases where the debtor is bound to furnish a surety, such surety must have its domicile in Canada and have sufficient property in Qu&eacute;bec to be able to reimburse the loan. The lender is bound, at the surety's request, to provide him with any useful information concerning the amount of money guaranteed, the terms and conditions of the loan and how much of the loan has been repaid. A surety cannot waive the right to be so informed by the lender; such waiver would not be legally valid. If the lender has not been repaid by the loan repayment due date, it can sue the debtor or the surety. If the lender sues the surety before the debtor, the surety can invoke its right to the “benefit of discussion”, which means the court will order the lender to seize and sell the debtor's assets before continuing the lawsuit against the surety. Only in the event that proceeds from the sale of the debtor's assets are insufficient to repay the whole loan amount will the lender be able to sue the surety for the remainder. In practice, lenders require sureties to waive their right to the benefit of discussion in the contract of guarantee and such a waiver would be valid. If there is more than one surety, the lender can sue any of them for the full amount of the loan. If the lender sues one of multiple sureties, that surety may invoke its right to the “benefit of division”, which obliges the court to split repayment of the loan among all of the sureties. Should any of the sureties become insolvent, that surety's amount will be divided among the remaining sureties. In practice, lenders insist that sureties waive their right to the benefit of division in the contract of guarantee and this waiver would be valid. Lenders also generally require that the surety be solidarily (i.e. jointly and severally) liable with the debtor and other sureties, if applicable, for the repayment of the loan, meaning that any of the parties involved can be sued for the full amount of the loan. If a surety repays the debtor's loan, he is subrogated into the rights of the creditor. Creditors often ask the debtors to waive the benefit of subrogation. This waiver is not enforceable. When dealing with the debtor or any surety, it is essential to obtain the consent of all of these which are solidarily liable. The reason is that solidary debtors repaying more than their respective shares are entitled to be subrogated in the rights of the creditor for the over payment. Now, if the creditor releases a surety without the consent of the others and the released surety becomes insolvent, the insolvent debtor's share becomes absorbed by the creditor.

GUARANTY

The registration of a hypothec on movable property is valid for 10 years following the date of registration, unless renewed. The registration of a hypothec on immovable property is valid for 30 years following the date of registration, unless renewed. In either case, if the registration is not renewed they are automatically removed from the system. The 30-year limitation for immovable property does not apply in the case of hypothecs securing the price of emphyteusis, a rent constituted for the price of an immovable, a life annuity or a usufruct for life, hypothecs given in favour of La Financi&egrave;re agricole du Qu&eacute;bec or the Soci&eacute;t&eacute; d'habitation du Qu&eacute;bec, or hypothecs in favour of a hypothecary representative for present and future creditors to secure the performance of the obligations of a legal person, partnership or trustee. The period to exercise recourses, known as “prescription”, has generated an interesting controversy in the case law. Actions to enforce personal rights, such as recovery of a loan, are prescribed by 3 years. Actions to enforce immovable real rights are prescribed by 10 years. Since hypothec is an accessory real right to a personal obligation, if the lender is prescribed by the 3-year rule but is within the 10-year rule, would hypothecary recourses nonetheless be prescribed? The Qu&eacute;bec Court of Appeal has held that the 3-year rule applies to hypothecary recourses securing personal rights, such as those created under a loan, are prescribed by the 3-year rule, given that the hypothec is accessory to the underlying obligation and that the hypothecary right subsist only for so long as the obligations they secure likewise subsist.

STATUTE OF LIMITATIONS PERIOD

A release of lien is referred to as the release of a hypothec, the discharge of a hypothec, or the French term mainlev&eacute;e. The release frees the property from all encumbrances and allows for the removal of the registration of the hypothec from the appropriate register. A release can result from a mutual agreement or a judgment. The release of a hypothec may be under private signature (“sous seing priv&eacute;”) or in notarial form. Where it relates to an immovable hypothec and is under private signature, the document must indicate the date and place it is drawn up and be accompanied by the certificate of a notary or lawyer confirming that he has verified the parties' identity, quality, and capacity and the act's validity as to form, and that the document represents the will expressed by the parties (&sect;&nbsp;2991 CCQ). If the release pertains to a hypothec on movable property, no such certificate of verification is required (&sect;&nbsp;2995 CCQ). If the hypothecary lender refuses to grant a release, the debtor can call upon the court to order the cancellation of the hypothec's registration. The court will grant such a request in 1 of 2 situations: either the hypothec has extinguished due to the lapse of time prescribed by the contract or by law, or the loan has been entirely reimbursed.

REQUIREMENTS FOR RELEASE OF LIEN

HOMESTEAD ISSUES

When a couple gets married in Qu&eacute;bec, a family patrimony is created by operation of law. One of the assets included in the family patrimony is the “family residence”, the place where members of the family usually live while carrying on their principal activities. Neither spouse may hypothecate any movable property in the “family residence” that serves for the household's use, either by furnishing it or by decorating it, unless they have obtained the other spouse's consent. A spouse having neither consented to nor ratified a hypothec concerning any such movable property may apply to have it annulled. If the immovable has fewer than 5 dwellings and is used in whole or in part as the family residence, neither spouse may hypothecate it without the other spouse's written consent. A spouse having neither consented to nor ratified such a hypothec may apply to have it annulled if a declaration of family residence was previously registered against the immovable in the land register. A declaration of family residence can be registered against an immovable by both or either of the spouses. Such a declaration obliges one spouse to obtain the other spouse's written consent before granting a hypothec on the immovable or the movable property inside the immovable that is used by the family.

COMMUNITY PROPERTY

MORTGAGE TAX

DOCUMENTARY STAMP TAX

The rules pertaining to transfer duties in Qu&eacute;bec are set forth in An act respecting duties on transfers of immovables, R.S.Q., c. D-15.1 (the “Act”). All municipalities in Qu&eacute;bec collect land transfer duties (also known as the “welcome tax” or “taxe de bienvenue” in French) when the right of ownership on immovable property in their territory is transferred. Transfer duties constitute a prior claim on the immovable that is the subject of a transfer and are secured by a legal hypothec, that outranks a conventional hypothec. The following acts constitute a “transfer” for the purposes of the Act: The transfer of the right of ownership on a property; The establishment of an emphyteusis; The transfer of the rights of the emphyteutic lessee; and A lease for a term exceeding 40 years (including all extension periods) Amendments to the regime governing land transfer duties were introduced as part of budget measures in March 2016, rendering land transfer duties eligible on unregistered beneficial transfers of property, and thus bringing Qu&eacute;bec's regime much closer in line with practices in other Canadian provinces. The Act provides for many exemptions to the imposition of transfer duties, including transfers to governmental bodies, transfers between registered charities and transfers among controlled entities (“closely related legal persons”), with control being at least 90% of the issued and outstanding voting shares, and has been amended to adapt the regime applicable to legal persons to partnerships. For these purposes, a partnership is deemed to be a legal person and the shares of a partnership are deemed to be shares held by the partners in proportion to their profits or losses in the partnership. As a result, the pre-existing “closely related legal persons” test, based on the criterion of at least 90% of the voting rights in a legal person, is now transposed to partnerships based on a criterion of at least 90% of the profits or losses. The Act also provides the following exemption for situations where the transferee's business is lending on real security: <ol start="18">
 <li>There shall be an exemption from the payment of transfer duties where the business of the transferee consists in the lending of money on the security of real property and the following conditions have been fulfilled:</li>
 <li>a) the transfer of an immovable to the transferee must result from the exercise of a right to take in payment or must have been effected in any other manner for the purpose of extinguishing a debt secured by real property or ensuring the protection of such security or of any claim;</li>
 <li>b) the transferee must not be a person related to the transferor within the meaning of section 19 of the Taxation Act (chapter I-3); and</li>
 <li>c) the transferee must not have acquired the land pursuant to 1 or more transactions made mainly for the purpose of avoiding or evading the payment of transfer duties.</li>
</ol> Qu&eacute;bec courts have consistently interpreted the “lending of money” requirement to be a situation where the lender is truly in the lending business, as opposed to “one-offs”. A 2015 Superior Court decision, Gagn&eacute; v. Montr&eacute;al (Ville de), 2015 QCCS 1138, utilized &sect;&nbsp;1525 CCQ to explain the essence of the exemptions: The carrying on by 1 or more persons of an organized economic activity, whether or not it is commercial in nature, consisting of producing, administering or alienating property, or providing a service, constitutes the carrying on of an enterprise; The practical application would be as follows: a conventional mortgage lender foreclosing by way of taking in payment could qualify for the exemption. A seller with a VTB that is not in the lending business could not, and would be subject to transfer duties.

TRANSFER TAX

ENFORCEABILITY OF AGREEMENTS AS TO CHOICE OF LAW: &sect; 3111 CCQ states that a juridical act, whether or not it contains any foreign element, is governed by the law expressly designated in the act or whose designation may be inferred with certainty from the terms of the act. The law may be expressly designated as applicable to the whole or to only a part of a juridical act. Conflict of law rules on movable (chattel) property security generally refer to the registered office of the grantor of the security while the validity of real estate security would be governed by the law of the location of the real property.

ENFORCEABILITY OF AGREEMENTS AS TO CHOICE OF LAW &sect;

When a secured creditor wishes to realize upon a security interest against a debtor's assets, they employ the services of a third party, a receiver, for the purpose of liquidating the assets. Such activities are carried out under the authority of the federal Bankruptcy and Insolvency Act, RSC 1985, c B-3 (“BIA”), as they involve the estates of insolvent or bankrupt persons. A receiver can be appointed by a court through a court order or by a secured creditor through a letter of appointment. The receiver's role under the BIA is to take control of the property, to supervise the liquidation proceedings, and to remit the proceeds according to priorities established by law.

RECEIVERSHIP

There are no specific prohibitions or special provisions affecting loan applications, loan fees, or commitment fees.

ANY PROHIBITION OR SPECIAL RULES REGARDING LOAN APPLICATION, LOAN FEES OR COMMITMENT FEES

As of May 1, 2020, supervision of mortgage brokerage was transferred from the Organisme d'autor&eacute;glementation du courtage immobilier du Qu&eacute;ebec to the Autorit&eacute; des March&eacute;s Financiers (AMF) and mortgage brokers are required to be licensed by the AMF. Mortgage brokers are required to have an establishment in Qu&eacute;bec, pay into the civil liability insurance fund for mortgage brokers and comply with the relevant provisions of the Act respecting the distribution of financial products and services D-9.2, its relevant by-laws and regulations, as well as the rules and requirements of the AMF as their governing body. &nbsp; MODIFICATIONS - UNUSUAL PROVISIONS OR REQUIREMENTS FOR MODIFICATIONS OF EXISTING MORTGAGE LOANS: &sect;&nbsp;2938 CCQ provides that the modification of a published right, including immovable real rights, requires publication. The Qu&eacute;bec Court of Appeal attenuated this requirement in 136227 Canada Inc. v. Masse et al., 2005 QCCA 354, holding that it only applies in cases where the modification affects an essential element of the hypothecary agreement. An “essential element” is an aspect of the contract that is of relevance to third parties consulting the register, such as the property description, the interest rate, the amount for that the property is hypothecated, or the amount due. In that decision, the Court of Appeal held that a modification to a loan's term does not affect an essential element and therefore does not require publication.

LENDER QUALIFICATION AND/OR LICENSURE

The Environment Quality Act, R.S.Q., c. Q-2 (the “EQA”) provides that the Minister of Sustainable Development, Environment and Parks (the “Minister”) may take all such measures as he may indicate to clean, collect, or contain contaminants that are or are likely to be emitted, deposited, discharged, or ejected into the environment when he considers such measures necessary to avert or diminish the risk of damage to public or private property, human beings, wildlife, vegetation, or the general environment. The Minister may also, where the measures taken concern the presence of land contaminants, require registration in the land register of a notice of use restriction, a notice of contamination or a notice of decontamination. The Minister may claim the cleanup costs by presenting the invoice to the property owners. If the owner of a property thus cleaned up by the Minister becomes bankrupt or makes a proposal under the BIA, the Minister's claim is immediately secured by an immovable security on the immovable of the debtor that is contiguous thereto; this security guarantees payment of the Minister's claim, that ranks above any other claim, right, charge, or security against the property, despite any other provision in any federal or provincial law. The Minister's claim is enforceable in the same way as a mortgage, hypothec, or other security on real property and would outrank mortgages. Prior to 2003, the general rule was that the “polluter pays”. In 2003, Bill n&deg;72 amended the EQA to provide that the Minister may order “any person who has or has had custody of the land as owner, lessee or in any other capacity” to submit and execute a rehabilitation plan for contaminated land. Consequently, without having contributed to the pollution directly, a hypothecary lender foreclosing on a contaminated property may be ordered to rehabilitate it. Although the Minister has yet to use this power against a lender, financial institutions have adjusted their practices to account for this potential liability. Accordingly, environmental liability indemnifications are now typically required in mortgage financings.

ENVIRONMENTAL LIEN LAW ISSUES

Qu&eacute;bec does not have a local bar opinion report that articulates standard accepted opinion practices. LABOR AND MATERIALMEN'S LIEN CLAIMS - PRIORITY ISSUES

LEGAL OPINIONS

&sect;&nbsp;2724 CCQ provides that claims by persons having taken part in the construction or renovation of an immovable give rise to a legal hypothec. A construction hypothec does not need to be published for it to exist, and it subsists for 30 days after the work has been completed. It further subsists if, before the 30-day period expires, a notice describing the charged immovable and indicating the amount of the claim is registered and served on the immovable's owner. The construction hypothec expires 6 months after the work has been completed unless, to preserve the hypothec, the creditor publishes an action against the owner of the immovable or registers a prior notice of the exercise of a hypothecary right.

INCEPTION OF LIEN

Under Qu&eacute;bec law, legal construction hypothecs rank before any other published hypothec, for the increase in value to the immovable. Such hypothecs rank concurrently among themselves, in proportion to each claim's value.

PRIORITY AS TO REMOVABLE FIXTURES

There are 2 types of title insurance policies available in Qu&eacute;bec: owner policies and hypothecary lender policies. The form for both types used by companies such as Chicago Title Canada or First Canadian Title is based upon the American Land Title Association's 2006 loan policy, with the terminology adjusted to reflect the reality of Qu&eacute;bec's civil law system.

FORM USUALLY REQUIRED BY LENDER

Although some of the endorsements that are available from title insurers in the United States do not necessarily apply in Qu&eacute;bec, title insurance policies in Qu&eacute;bec will include customary endorsements, such as gap, survey, contiguity, “restrictions, encroachments, minerals,” “usury,” and “zoning.” However, if there is a particular endorsement required, title insurers in Qu&eacute;bec are flexible and will strive to meet a client's needs. &nbsp;

Quebec

Mortgage Law Summary

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Mortgage Law Summary for Quebec

Quebec

Mortgage Law Summary

Continue reading theMortgage Law Summary for Quebec

Continue reading the
Mortgage Law Summary for Quebec