The Superior Court of Quebec has handed down an important decision on the protection of new home buyers in the Bel Habitat inc. bankruptcy case. In this case, the plaintiffs respectively entered into preliminary sales contracts with Bel Habitat inc. and Bel Habitat 2 inc. (collectively “Bel Habitat”), under which Bel Habitat undertook to build and sell homes to them. Under these preliminary contracts, the plaintiffs paid substantial amounts as deposits on the sale price. However, before the construction work had been completed, and even begun in the case of some of the plaintiffs, Bel Habitat sold its assets, thereby jeopardizing the down payments made by the plaintiffs. The claimants therefore turned to Garantie de construction résidentielle (“GCR”), the administrator of the guarantee plan to which Bel Habitat had subscribed prior to its bankruptcy, in accordance with the requirements of the Building Act, to have GCR carry out the building completion work in accordance with article 9 of the Regulation respecting the guarantee plan for new residential buildings (the “Regulation”). This provision stipulates that in the event of the contractor’s failure to meet its legal or contractual obligations prior to acceptance of the building, the warranty plan must cover: a) either the deposits paid by the beneficiary (in this case, each of the plaintiffs) or b) the completion of the work if the beneficiary is the titleholder. Because of their disagreement as to the interpretation of this provision of the Regulation, the parties asked the court to issue a declaratory judgment on the following three questions:
- At what point must the beneficiary of the guarantee plan hold title to the building to be able to request completion of the work in accordance with the Regulation?
- Does the work have to have reached a certain stage of completion for the beneficiary to claim completion?
- Does DGC have any discretion as to whether or not to complete the work?
With regard to the first question, and following a study of the legal regime applicable to the contract of sale, the Court ruled that the beneficiary would be considered the holder of the titles of ownership under article 9 of the Regulation if he held them before the bankruptcy or if he acquired them from the trustee after the date of Bel Habitat’s bankruptcy, but not if he acquired the titles from a third party after the bankruptcy. With regard to the second question, the Court states that, in order to benefit from completion, the building must have undergone work, other than survey site preparation, design or plan preparation. Otherwise, for example, in the case of a vacant lot, the beneficiary may only be entitled to reimbursement of the down payments made. With regard to the third question, there is no doubt in the court’s mind that if, in the end, the Settlement opens the way to completion and there is no unjust enrichment, the guarantee plan administrator will have no discretion to refuse completion of the work or impose reimbursement of the advance payments.
In conclusion, this ruling sheds light on the protection regime applicable to buyers of new homes in the event of the contractor’s bankruptcy, and more specifically on situations that may entitle them to completion of the work under a warranty plan. However, the ruling also serves as a reminder of the caution these same buyers should exercise when it comes to making large down payments when no work has been done by the contractor.