On April 15, 2022, amendments to the Civil Code of Québec (” C.c.Q. “)[1] came into effect with respect to divided co-ownership insurance, more specifically concerning the constitution of the self-insurance fund.
Definition
In accordance with the new article 1071.1 C.c.Q., the self-insurance fund must be set up by the syndicate and used for the following purposes:
- Payment of deductibles under insurance policies taken out by the syndicate;
- Compensation for damage to property in which the syndicate has an insurable interest[2], when the contingency fund or an insurance indemnity cannot provide it.
The self-insurance fund belongs to the syndicate and must be kept by it. It must be liquid and available in the short term, in the sense that the syndicate must be able to dispose of it quickly in the event of a claim. The amounts constituting the self-insurance fund cannot be seized by the syndicate’s creditors, provided they are deposited in a separate account for this purpose, in which case they will in principle benefit from the protection of article 1078, para. 2[3]. In addition, the self-insurance fund, like the contingency fund, forms part of the common charges of the co-ownership[4].
Amount
According to the third paragraph of article 1071.1 C.c.Q., the amount of the self-insurance fund must be established on the basis of the amount of the deductibles of the insurance policies taken out by the syndicate, plus a reasonable additional amount to provide for the other payments to which it is allocated. Section 2 of the Règlement établissant diverses mesures d’assurance des copropriétés divises[5], which also comes into force on April 15, 2022, sets out the terms and conditions for determining the minimum amount. minimum amount of the fund as follows:
2.The minimum contribution of co-owners of an immovable held in divided co-ownership to the self-insurance fund established under article 1071.1 of the Civil Code is established annually when determining the amounts to be paid to the contingency fund as follows:
1° when the capitalization of the self-insurance fund is less than or equal to half of the highest deductible under the insurance policies taken out by the condominium corporation, the contribution is equal to half of this deductible;
2° when the capitalization of this fund is greater than half the highest deductible provided for by the insurance policies taken out by the syndicate, the contribution is equal to the amount resulting from the difference between this deductible and the capitalization of this fund;
3° when the capitalization of this fund is greater than or equal to the highest deductible under the insurance policies taken out by the syndicate, no contribution is required.
For the application of the first paragraph, the deductible applicable to damage caused by earthquake or flood is not taken into account, if such protection is provided for in the insurance contract.
D.442-2020, a. 2.
This means that the fund must be built up or replenished (if funds have been withdrawn) over a period of period of two years and that contributions are set according to the amount of the deductibles. However, this is only a compulsory minimum amount; it would also be possible to provide for higher contributions, particularly for compensation for loss, as mentioned in the previous section.
Responsibility of the Board of Directors
It’s up to the Board of Directors to set the condominium owners’ contribution to the self-insurance fund (included in the common expenses), after consultation with the condominium owners’ assembly and in compliance with the minimum contribution terms established by the government, as cited above. This means that the first contribution to the fund should be made at the same time as the next co-owner contribution to the contingency fund, once these provisions come into force.
Due diligence on future buyers
In closing, this article is a good opportunity to reiterate the importance of due diligence for future buyers, which should be specifically provided for in the offer to purchase. Any future purchaser of a condo should obtain prior to the sale, for verification purposes, all relevant information concerning the building and the syndicate[6], including in particular the syndicate’s budget for the current year, the declaration of co-ownership and all its by-laws (including all amendments), the syndicate’s insurance policies, the certificate of location, the statements of common expenses due in respect of the unit purchased, and the existence and amount of contingency and self-insurance funds.
[1] RLRQ, c. CCQ-1991. [ 2] For greater clarity, the property in which the syndicate has an insurable interest is defined in article 1073 C.c.Q. and includes the entire immovable. [ 3] As of April 15, 2022, this provision will stipulate that a judgment against the syndicate cannot be exercised against the self-insurance fund, unless the judgment is to recover an amount to which the fund is assigned. [ 4] 1072 C.c.Q. [ 5] RLRQ, c. CCQ, r. 4.1 [6] Articles 1068.2 and 1069 C.c.Q.
