Publications

Packed with valuable information, our publications help you stay in touch with the latest developments in the fields of law affecting you, whatever your sector of activity. Our professionals are committed to keeping you informed of breaking legal news through their analysis of recent judgments, amendments, laws, and regulations.

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  • Sales without legal warranty at the buyers’ risk: Clarity is key

    On July 15, 2022, Justice François Lebel of the Court of Québec rendered a decision1 confirming that, in the case of the sale of immovable property, a clear and unambiguous exclusion clause, whereby the warranty is waived at the buyer’s risk, results in a break in the chain of title preventing the buyer from taking any legal action under such warranty against the seller and previous sellers. Justice Lebel thus declared the originating application against the defendants Marshall and Bergeron inadmissible and dismissed the call in warranty. This decision is consistent with the recent decision of the Court of Appeal of Quebec in Blais,2 rendered in May 2022, which clarified the state of the law on the consequence of waiving a legal warranty where successive sales are involved. The facts In March 2009, the defendant Bergeron sold an income property (hereinafter the “Property”) to the defendants, the Marshalls, with a legal warranty of quality. In May 2012, the Marshalls in turn sold the Property to the defendants Hamel and Drouin, still with a legal warranty of quality. In December 2016, the defendants Hamel and Drouin resold the Property to the plaintiff, but this time [translation] “without legal warranty of quality, at the buyer’s risk, but with warranty of ownership”. In the fall of 2020, the plaintiff had work done to repair the drain tile system. It was at that point that it discovered the presence of petroleum hydrocarbons in the soil under the Property’s foundation, rendering the soil unsuitable for residential use. According to an expert report, the alleged contamination stemmed from a heating oil tank once located in a shed behind the Property. The tank was apparently removed before the sale in December 2016. The plaintiff was seeking a reduction in the sale price and to have the defendants Hamel and Drouin, as well as the two previous sellers, the defendants Marshall and Bergeron, held solidarily liable. The plaintiff referred to the warranty of quality provided for in articles 1726 and following of the Civil Code of Québec (C.C.Q.) and the warranty against public law restrictions provided for in article 1725 C.C.Q. The plaintiff also claimed to be the victim of fraud on the part of the defendants Hamel and Drouin. After being called in warranty by the defendants Hamel and Drouin, the Marshalls moved to dismiss the substantive claim and the action in warranty. They claimed that the sale of the Property between the defendants Drouin and Hamel and the plaintiff was made at the buyer’s risk and that such a clause in a subsequent deed of sale irrevocably breaks the chain of title, thereby preventing the plaintiff from taking any legal action against the seller and previous sellers. The law and the importance of a clear clause According to article 1442 C.C.Q., which codifies the principles arising from the decision in Kravitz,3 buyers may seek to have the sellers previous to their own seller held liable. However, for such an action to be deemed valid, it must be established that: The defect existed at the time that the previous sellers owned the immovable; and The right to the legal warranty was transferred to the plaintiff through subsequent sales. Indeed, the buyer of an immovable may take legal action directly against a previous seller in accordance with article 1442 C.C.Q. However, this article presupposes that the right to the legal warranty was passed on from one owner to the next, right down to the current buyer seeking to file a claim for latent defects. In other words, the legal warranty must have been transferred to each owner through the chain of title. In Blais, the Court of Appeal confirmed that an unambiguous warranty exclusion clause results in a break in the chain of title. Such a clause prevents the buyer of an immovable from taking legal action directly against the former owners who sold the immovable with a legal warranty. Given the decision in Blais, it is now clear that such a clause waiving the legal warranty closes the door to any direct recourse against a seller’s predecessors, even if such predecessors sold the immovable with a legal warranty.4 In these circumstances, a buyer who acquires an immovable at their own risk will be deprived of their right to take legal action directly against the previous sellers, insofar as the warranty exclusion clause in the deed of sale is clear and unambiguous. In this case, Justice Lebel considered that the wording of the warranty exclusion clause in the deed of sale, which was binding on the plaintiff, was clear and unambiguous, and that a sale at the buyer’s “risk” excludes both the warranty of quality and the warranty of ownership, which covers the public law restrictions of article 1725 C.C.Q. Justice Lebel indicated that there was a break in the chain of title resulting from the sale at the buyer’s risk and that the plaintiff could not claim that it was still entitled to take legal action directly against any sellers other than the defendants Hamel and Drouin. He therefore ruled in favour of the defendants Marshall and Bergeron and declared the originating application against them inadmissible. Key takeaways A warranty exclusion clause in a deed of sale will only be deemed valid if it is clear and unambiguous. The mention that a sale is made “at the buyer’s risk” completely eliminates the warranty of quality provided for in article 1726 C.C.Q. and the warranty of ownership provided for in article 1725 C.C.Q. A deed of sale containing a valid warranty exclusion clause AND a mention that the sale is made “at the buyer’s risk” precludes any recourse by the buyer against the seller, but also against previous sellers. With the current state of the Quebec real estate market, the decision in Hamel, which ties in with the Court of Appeal’s teachings in Blais, certainly clarifies how case law established in recent years should be applied, in particular as concerns the effect of a warranty exclusion clause on successive sales. The members of our Litigation and Dispute Resolution group are available to advise you and answer your questions. 9348-4376 Québec inc. c. Hamel, 2022 QCCQ 5217 Blais c. Laforce, 2022 QCCA 858. General Motors Products of Canada Ltd v. Kravitz, [1979] 1 S.C.R. 790 Supra note 1, paras. 6 and 8.

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  • Cannabis legalization | Lessors : what steps should you take?

    Subject to many restrictions, the possession and production of cannabis were legalized in Canada following the coming into force of the Cannabis Act1 (the “Cannabis Act”) on October 17, 2018.  In this context, a guide for employers was previously published by our team in Employment and Labour. To consult it, click here.  Beyond the area of employment, the entire legislation concerning cannabis legalization in Canada affects the business community, including cannabis producers, lessors of residential or commercial buildings, associations of co-owners, financial institutions and others. The cultivation, production and use of cannabis raise a number of serious questions arising from real estate law and public law. Residential Leasing For lessors, certain legal considerations regarding the use of cannabis in residential rental properties require specific actions in the short term.  What are they? On June 12, 2018, the Quebec government adopted the Cannabis Regulation Act2 (hereinafter referred to as the “Act”) to complement the Cannabis Act. Section 107 of the Act states the following: 107. A lessor may, until 15 January 2019, modify the conditions of the lease of a dwelling by adding a prohibition against smoking cannabis. [Our emphasis] To that end, the lessor must give the tenant a notice of modification describing the prohibition against smoking cannabis applicable to the use of the leased premises.  The tenant may refuse the modification for medical reasons. The tenant must do so by informing the lessor of the refusal within 30 days after receiving the notice of modification. In such a case, the lessor may apply to the Régie du logement, within 30 days after receiving the notice of refusal, for a ruling on the modification of the lease. In the absence of a refusal, the prohibition is deemed entered in the lease 30 days after the tenant received the notice of modification. In light of this provision, any lessor may take the necessary measures to prohibit the use of cannabis on the leased premises of residential rental properties before January 15, 2019. More specifically, what steps must lessors, who wish to assert their right to modify a lease unilaterally, take before January 15, 2019, under section 107 of the Act? 1. Draft a clause amending the lease. Lessors must first draft an amendment clause for the leases that they wish to amend to include the prohibition against smoking cannabis on leased premises, including, without limitation, balconies. The amendment clause need not extend the prohibition against smoking cannabis to common areas such as halls and lobbies, given that such a prohibition is already provided for under section 12, paragraph 8 of the Act.   2. Send a notice of modification to the tenants. Once this amendment clause is drafted, lessor must send a written notice of modification to all tenants, to the address indicated in the lease, before January 15, 2019.  The notice of modification should include the following: Name and surname of the tenant or tenants concerned; Section 107 of the Act (full text); The exact text of the modification to the lease; and The lessor’s signature and the date on which they have signed the notice of modification. Although no specific requirement in this regard is provided for in either the Act or the Civil Code of Québec, it is recommended that lessors indicate the consequences that tenants face if they fail to comply with the prohibition against smoking cannabis in the notice of modification. These consequences may include the resiliation of the lease in a case where the other tenants’ right to the peaceable enjoyment of the premises has been violated3. 3. Use an appropriate delivery method The lessor will have to choose a means of transmission that will ensure that the notice of change is transmitted AND received before January 15, 2019, and that physical and enforceable proof of receipt by the tenant is kept. The most appropriate means of transmitting the notice of change may vary depending on the circumstances and the means of communication agreed upon between the lessor and their tenant and/or used by them in the past. The methods of transmission provided for in the Code of Civil Procedure include, among other things, delivery by the bailiff, sending by registered mail, personal delivery and sending by technological means. In any event, the lessor must ensure that they choose the method of transmission that provides the most convincing evidence that the tenant has received the notice. When will the amendment clause come into effect? In the absence of a refusal by the tenant (the tenant may, for medical reasons, refuse the modification proposed by the lessor under section 107 of the Act), and following a 30-day period from the receipt of said notice, the prohibition against smoking on leased premises will be deemed to have been entered in the lease.   What happens if a lessor fails to assert their right to unilaterally modify a lease under section 107 of the Act before January 15, 2019? Any lessor who does not send the notice of amendment before January 15, 2019 will have to wait until the expiry of the current lease and will be subject to the general provisions of the Civil Code of Québec for the amendment of a residential lease, unless an agreement is reached with the tenant. Commercial Leasing Are lessors of commercial rental properties, like lessors of residential rental properties, required to take a particular action before a given date? Lessors of commercial rental properties cannot benefit from the right to modify leases unilaterally set out in section 107 of the Act. However, paragraph 17 of section 12 of the Act provides that smoking is prohibited in enclosed spaces that are open to the public, such as office buildings and shopping centres. Moreover, it is possible for the owners of commercial buildings to consider an amendment to the rules and regulations of the buildings in order to prohibit the use of cannabis on leased premises as well as in common areas.  In this regard, lessors of commercial buildings would be well advised to immediately adopt a policy in line with the policy adopted regarding the use of tobacco on leased premises and in common areas, if appropriate.   Cannabis Act, S.C. 2018, c. 16 Cannabis Regulation Act, CQLR, c. C-5.3 Chartier v. Chassé, 2018 QCCQ 2823  

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  • Artificial Intelligence and the 2017 Canadian Budget: is your business ready?

    The March 22, 2017 Budget of the Government of Canada, through its “Innovation and Skills Plan” (http://www.budget.gc.ca/2017/docs/plan/budget-2017-en.pdf) mentions that Canadian academic and research leadership in artificial intelligence will be translated into a more innovative economy and increased economic growth. The 2017 Budget proposes to provide renewed and enhanced funding of $35 million over five years, beginning in 2017–2018 to the Canadian Institute for Advanced Research (CIFAR) which connects Canadian researchers with collaborative research networks led by eminent Canadian and international researchers on topics including artificial intelligence and deep learning. These measures are in addition to a number of interesting tax measures that support the artificial intelligence sector at both the federal and provincial levels. In Canada and in Québec, the Scientific Research and Experimental Development (SR&ED) Program provides a twofold benefit: SR&ED expenses are deductible from income for tax purposes and a SR&ED investment tax credit (ITC) for SR&ED is available to reduce income tax. In some cases, the remaining ITC can be refunded. In Québec, a refundable tax credit is also available for the development of e-business, where a corporation mainly operates in the field of computer system design or that of software edition and its activities are carried out in an establishment located in Québec. This 2017 Budget aims to improve the competitive and strategic advantage of Canada in the field of artificial intelligence, and, therefore, that of Montréal, a city already enjoying an international reputation in this field. It recognises that artificial intelligence, despite the debates over ethical issues that currently stir up passions within the international community, could help generate strong economic growth, by improving the way in which we produce goods, deliver services and tackle all kinds of social challenges. The Budget also adds that artificial intelligence “opens up possibilities across many sectors, from agriculture to financial services, creating opportunities for companies of all sizes, whether technology start-ups or Canada’s largest financial institutions”. This influence of Canada on the international scene cannot be achieved without government supporting research programs and our universities contributing their expertise. This Budget is therefore a step in the right direction to ensure that all the activities related to artificial intelligence, from R&D to marketing, as well as design and distributions, remain here in Canada. The 2017 budget provides $125 million to launch a Pan-Canadian Artificial Intelligence Strategy for research and talent to promote collaboration between Canada’s main centres of expertise and reinforce Canada’s position as a leading destination for companies seeking to invest in artificial intelligence and innovation. Lavery Legal Lab on Artificial Intelligence (L3AI) We anticipate that within a few years, all companies, businesses and organizations, in every sector and industry, will use some form of artificial intelligence in their day-to-day operations to improve productivity or efficiency, ensure better quality control, conquer new markets and customers, implement new marketing strategies, as well as improve processes, automation and marketing or the profitability of operations. For this reason, Lavery created the Lavery Legal Lab on Artificial Intelligence (L3AI) to analyze and monitor recent and anticipated developments in artificial intelligence from a legal perspective. Our Lab is interested in all projects pertaining to artificial intelligence (AI) and their legal peculiarities, particularly the various branches and applications of artificial intelligence which will rapidly appear in companies and industries. The development of artificial intelligence, through a broad spectrum of branches and applications, will also have an impact on many legal sectors and practices, from intellectual property to protection of personal information, including corporate and business integrity and all fields of business law. In our following publications, the members of our Lavery Legal Lab on Artificial Intelligence (L3AI) will more specifically analyze certain applications of artificial intelligence in various sectors and industries.

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  • Overview of the Canadian Public-Private Partnerships market

    The Public-Private Partnership delivery model (“PPP” or “P3”) is now well established in Canada, where more than 177 of such projects were closed between 1993 and 2015 (source: InfraAmericas). The great majority thereof (166) have been closed since 2004, and the current trend indicates the number of projects is on the rise. Thus, considering the projects already completed in 2016 as well as projects currently engaged in the tendering process, according to the Canadian Council for Public- Private Partnerships “CCPPP”, the total number of completed and pending PPP projects in Canada currently stands at 247. Canada is often described as the most active PPP market in the world, and is certainly one of the most mature. The life cycle of infrastructures, the Canadian geography and the current economic context are all convergent factors that favour this market. Also, the improvement of public infrastructures through the use of private capital is a concept which has always benefited from the support of the federal government. The Liberal government elected in October 2015 made infrastructure a major pillar of its economic platform with the campaign promise to double the country’s infrastructure investments. On November 1, 2016, Finance Minister Bill Morneau announced the creation of the Canada Infrastructure Bank (“CIB”) in 2017, whose mandate will be to invest in large infrastructure projects by attracting capital from institutional investors. Taking into account existing infrastructure programs ($91 billion), the investments announced last March in the government’s first budget ($14 billion), and additional investments included in the economic and financial update last November 1 ($81 billion), the federal government estimates that the country’s total infrastructure investments will reach $180 billion between 2016 and 2028. According to the CCPPP’s data, the Canadian P3 industry is still dominated by social infrastructure (58%) and civil infrastructure projects (24%). The health sector remains the largest subsector within social infrastructure, with 37% of the completed transactions. However, we note an increase in transportation-related projects, particularly suburban highways and light-rail transit projects. Other types of projects are also being developed, such as wastewater treatment and waste management plants and power transmission lines, all of which are new asset classes offering alternative investment opportunities for investors. Provincial bodies such as Infrastructure Ontario, Partnerships BC, SaskBuilds, Alberta Infrastructure, Partnerships New Brunswick and the Société québécoise des infrastructures are at the heart of the Canadian PPP programs and are directly responsible for the majority of infrastructure projects. Infrastructure Ontario remains the largest agency in terms of size and the number of completed transactions. It also serves as a reference for documentation and processes. At the municipal level, about 15 municipalities have also undertaken to develop their own projects, although they are often implemented in partnership with the provincial agencies. Federally, seven projects have been launched to date in PPP mode, notably the Confederation Bridge and the new Champlain Bridge. Another recent example is the Gordie Howe International Bridge connecting Windsor, Ontario to Detroit, Michigan, which is currently engaged in a call for tenders process. The 177 PPP projects completed since 1993, as reported by InfraAmericas, represent an aggregate value of $79 billion, or an average project value of $482 million. If we consider the aggregate of projects identified by the CCPPP as completed and currently underway (247), this represents a total value of $118 billion. It is generally acknowledged in the industry that a project must have a minimum value of $50 to $75 million to be viable for the PPP delivery model. To date, Ontario and British Columbia have been the most active Canadian provinces in terms of PPP, together contributing 121 out of a total of 177 projects (68%) by the end of 2015. Ontario has completed 90 projects to date, or 51% of the Canadian market. This is followed by Quebec with 10%, New Brunswick with 6%, Alberta with 6% and Saskatchewan with 5%. Canada remains a market open to international competition and foreign capital, and continues to attract numerous players from Europe and the United States. In terms of risk, this is a relatively conservative market that is not so open to projects exposed to volume (or traffic) risk. However, this has the advantage of attracting the interest of institutional investors for Canadian infrastructure debt, which actually benefits from high-quality risk ratings. In terms of financing, the Canadian pension funds and life insurance companies are the main actors involved in investments in the form of private placements. Their interest in this class of assets has made private placements the primary financing solution for the Canadian P3 market. Most of the projects resort to bank credit during the construction phase, which is then refinanced on the bond market once the project has been completed. However, some projects have been financed solely through bond issues. Thus, according to InfraAmericas, of the 177 projects that were financed by the end of 2015, 125 (71%) were financed solely with bank debt, 37 (21%) were financed solely in the capital markets, and 15 (8%) were financed with hybrid forms, i.e., through a combination of bank debt and long-term bond financing. More recently, a secondary market for PPP projects has developed which has some potential throughout Canada. While most institutional investors such as pension funds and insurance companies view PPPs as long-term investments, there are also some promoters who potentially wish to assign their interests in certain projects after a relatively short time, in order to redeploy their capital in other projects or sectors.

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  • Renewable energies: the trend is toward hybrid financing

    For about two years now, most renewable energy projects, particularly wind farm projects, have been financed using a so-called “hybrid” model, i.e. a combination of medium-term bank debt and long-term financing or private placements. The term “hybrid” is derived from the vocabulary of the Public-Private Partnerships industry, particularly projects involving an operational and maintenance component as part of a long-term concession. Indeed, during the construction phase, these projects generally involve a bank construction loan with a term of 2 to 5 years, combined with a long-term bond issue. In most cases, the bank financing is to be repaid upon project completion by payments from the Public Authority, while the bond financing is amortized over the duration of the project’s operational phase. Until not so long ago, renewable energy projects were financed through one of two different models: medium-term bank financing of 5 to 7 years, or more rarely 10 years (i.e. “mini-perm financing”), or long-term financing (or a private placement) whose term was as close as possible to the term of the power purchase agreement — generally 18 to 20 years. Bank type loans were primarily granted by the large Canadian banks, while long-term financings were generally the hallmark of the insurance companies and foreign banks. More recently, particularly for the wind farm projects stemming from the latest call for tenders for community projects in Quebec, we have witnessed the emergence of hybrid financings which allow for the optimization of the project’s financial cost and benefit from a lower interest rate on the mini-perm tranche, while still enabling the financing to be secured over the full duration of the project. One of the features of this type of financing is that the long-term lenders must agree to grant a capital repayment holiday for the duration of the amortization of the bank’s tranche. Indeed, if the two tranches were required to be amortized at the same time, the burden of repayment would have an excessive impact on the project’s cash flows. Also, the long-term lenders generally prefer the bank’s tranche to be fully amortized over its initial term to avoid any risk of refinancing at maturity. It is technically possible using modeling to work up a plan to simultaneously amortize the two financing tranches that could be absorbed economically by the project. However, this would require a substantial reduction in the amount of the bank’s tranche, and therefore minimize the financial benefits of the hybrid structure. Other technical issues must also be addressed, such as, for example, how disbursements are to be made during the construction phase. The simplest way is to proceed in a similar fashion to PPPs, i.e., by fully disbursing the long-term financing at the start of the construction and starting the progressive payouts on the bank’s tranche once the funds of the long-term tranche have been fully spent. Another way of proceeding is to pay out the two tranches at the same time with progressive payouts made pro rata to each other. This method is sometimes less suitable for institutional lenders for administrative and cash management reasons.

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  • Your Contracts: a Systematic and Disciplined Approach is Called for

    Every day, and several times a day, we enter into contracts without knowing it or without considering and controlling their effects. This newsletter provides a brief and non-exhaustive summary to help you better understand, prepare for and monitor your contractual environment. Do you know that? a contract is a meeting of minds that may be expressed and entered into in different ways (written, verbal, e-mail, filling of orders, etc.); a contract may be amended or rights abandoned by actions, words or subsequent writings, or by failing to take action in a timely manner; the law governing the interpretation and performance of a contract is determined based on various factors and circumstances if the parties do not choose what law applies; the imperative provisions of certain statutes may take precedence over certain contractual clauses; the suppletive provisions of certain statutes may complete a contract which is silent with respect to matters covered by the suppletive provisions; the laws are not the same from one jurisdiction to another and some contractual clauses may be valid and enforceable under the laws of one state but not under the laws of another state; the courts are not bound by the designation, description or name given to a contract by the parties and will examine the true nature of the relationship and transactions between the parties; under the Civil Code of Québec (articles 6, 7 and 1375), the entering into and performance of contracts must be carried on in good faith; the Supreme Court of Canada also recognized a duty of honest performance in common law1;1 ; in Quebec law, good faith is not limited to the absence of malice, vindictiveness or bad faith; in Quebec law, the legality of a right does not necessarily mean that it is being exercised legitimately (the answer to the following question determines whether it is being exercised legitimately: “Would a reasonable person placed in the same circumstances act that way?”); under the Civil Code of Québec (article 1434), a contract binds the parties “not only as to what they have expressed in it but also as to what is incident to it according to its nature and in conformity with usage, equity or law”; under the Civil Code of Québec (article 1425), “the common intention of the parties rather than adherence to the literal meaning of the words shall be sought in interpreting a contract”; however, when the meaning of the words used, placed in the context of entering into and performing a contract is clear, the courts will not intervene; under the Civil Code of Québec (article 1435), “an external clause referred to in a contract is binding on the parties”; an external clause is one that is found in another document, such as the general conditions found on a website; also under the Civil Code of Québec (article 1428), a contract must be interpreted in a way that gives a clause “a meaning that gives it some effect rather than one that gives it no effect”; and a contract with a consumer is subject to specific rules, both as to its substance and its form. Examples of case law interpretations The case law provides us with several examples of the courts’ interventions and interpretations. Here are a few: in a service contract, unless he has unequivocally waived his termination right, a client is entitled to terminate the contract unilaterally and without cause before the expiry of the stated term, as provided under article 2125 of the Civil Code of Québec2; in a franchising or distribution contract, even in the absence of a territorial or geographical exclusivity clause or a non-competition clause, unfair competition by the franchisor will not be tolerated by the court3; the right to unilaterally terminate a contract may be set aside or be made subject to conditions by the courts if the particular exercise of the right constitutes a breach of the duty of loyalty or is abusive4; a unilateral amending clause is valid to the extent that it contains objective criteria and limits which do not depend upon the exclusive control of the beneficiary5; even where a party’s termination right (for example, upon 60 days’ prior notice) is set out in a contract with an indefinite term, a notice of termination that is longer than that provided for in the contract could be required by the court if the contract has been in effect for several years6; the common error of the parties to a contract may be corrected by them by mutual consent and the court may intervene to ascertain the legitimacy and necessity of the amendments made by the parties7. Practical advice before you enter into a contract Before entering into a contract, it is important to: verify the identity, capacity and solvency of the other party; understand the environment, goals and business expectations of both parties; avoid statements, or concealing or omitting facts, which could lead the other party into error regarding your abilities or aspects of your property, products or services; understand and define the nature and features of the property, products or services, the rights to use them, etc. (specifications); specify and understand the laws governing the contract and the legal framework which will apply (mandatory and suppletive provisions); be informed about the relationships and experiences involving the other party in general (other contracts, performance quality, disputes) and the purpose of the contract in particular (letter of intent, written communications, etc.); be aware of the relative strengths, time constraints and alternative solutions (e.g. withholding the financial consideration, the nonavailability of property, services or products, etc.); be prepared for the risks of failure to perform or insolvency of the other party and plan the steps which could be taken to reduce its adverse effects, through both contractual rights and practical means; clarify all the main elements of the contract to be drawn up, i.e. prepare a document, ideally working with the other party, in the form of a term sheet or checklist; choose the form, type of contract (letter, short contract, long contract, contract of adhesion or negotiated contract) and the language of the contract; provide for a dispute settlement procedure, but be wary of arbitration clauses conferring on one or several arbitrators the power to make business decisions or conferring upon persons who do not have legal training the authority to interpret contractual clauses; determine what will be the internal review and approval procedure for each party. Practical advice for drafting and negotiating contracts In drafting and negotiating contracts, it is advisable to: adopt a balanced, legitimate and reasonable approach; use simple language, readily understandable by persons who do not have legal training; beware of models which were negotiated under different circumstances; be consistent in the use of words and expressions and include definitions; avoid being overly complicated, but be precise enough; set out the common business goals and those which are specific to each party and state the context (in recitals), if they might be relevant in the case of a dispute; clearly provide for what will happen in the event of a default and at the end of the contract; describe how disputes will be dealt with and how any price, product and service adjustments will be made; if you are the client, favour the progressive payments approach and if you are the supplier, provide for payment guarantees; state how and by whom the contract may be amended and who can bind you; protect your intellectual property and the confidentiality of your information; define the exclusivities, non-competition restrictions and territorial or business sector protections required from each party. Advice regarding the performance and monitoring of contracts It is important to: not begin to provide products or services or to transfer property without having come to an agreement on the terms and conditions of the contract; not let deadlines expire and, therefore, to keep a schedule indicating which deadlines are coming up; not involuntarily waive rights; not amend the contract before those in authority have given their explicit approval; for instance, beware of purchase orders that modify the contract; document any failure to perform by either party; quickly determine what you intend to do if the other party is in default, quickly notify the other party about the default noted and, if there are discussions, clearly inform the other party in writing that they are being held under reserve of, and do not constitute any waiver of, your rights; avoid letting any ambiguity continue if it is not in your favour; designate a person in charge in your company to coordinate and monitor the performance of the contract; if you are the purchaser, check the compliance with the contract of any service, property or product provided by the other party immediately upon receipt and avoid signing any receipt or bill of lading which states in print that the property or product is in good condition; if you are the supplier, require that the property or product be examined and the purchaser acknowledge satisfaction quickly, or create a presumption of acceptance. Conclusion In summary, clarity, transparency, a mutual understanding of the goals and expectations of each party, good faith and the use of a systematic and disciplined approach should be favored. Bhasin v. Hrynew [2014] 3 S.C.R. 494. Centre régional de récupération C.S. inc. v. Service d’enlèvement de rebuts Laidlaw (Canada) Ltd., J.E. 96-1048 (C.A.); Société canadienne des postes c. Morel, 2004 CanLII 21187 (QCCA); Services Matrec inc. v. CFH Sécurité inc., 2014 QCCA 221. Provigo Distribution inc. v. Supermarché A.R.G. inc., [1998] R.J.Q. 47 (C.A.). E. & S. Salsberg inc. v. Dylex Ltd., [1992] R.J.Q. 2445 (C.A.); Mabe Canada inc. (Camco inc.) c. 2849-9937 Québec inc., 2008 QCCA 847. Laflamme c. Bell Mobilité, 2014 QCCS 525. Bertrand Équipements inc. v. Kubota Canada Ltée, REJB 2002-32020 (S.C.). Québec (Agence du revenu) v. Services Environnementaux AES inc. [2013] 3 S.C.R. 838.

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  • Licence security requirements to be hiked shortly

    Effective September 18, 2016, anyone wishing to obtain a general contractor licence will be required to first provide security of at least $40,000. The amount will be $20,000 for specialized contractors. Effective January 21, 2017, the Regulation to amend the Regulation respecting the professional qualification of contractors and owner-builders also amends the description of the work authorized for some contractors specialized in heating, ventilation and refrigeration. On July 20, 2016, following a lengthy review period, particularly before the Régie du bâtiment du Québec (Board), the government passed a regulation to amend the Regulation respecting the professional qualification of contractors and owner-builders.1 The amendments mainly deal with two matters. Firstly, as indicated at the outset, the amount of the security required to be provided by contractors under law2 will be doubled, effective September 18, 2016.3The increase aims to reflect that of the value of contracts since such obligation was introduced. However, the purpose and mechanics of the security remain the same: it aims to compensate clients who sustain a loss following non-performance or performance of construction work if the loss results directly from instalments paid, failure to carry out construction work or faulty work or defects discovered in the year following completion of the work. The security does not cover the claims of persons who took part in the construction work, damages resulting from delays in construction work, damages for moral injury or punitive damages.4 In addition, the client who suffered a loss must obtain a judgment before making a claim before the Board. However, the exemption for contractor dealing in new residential buildings covered by a guaranty plan, Class I or II remains.5 The increase of the security threshold is only effective for the provision of a new security or upon renewal of a licence: a contractor who currently holds a licence is required to provide the new amount of security only from the expiry date of the payment of the fees and charges payable to maintain the contractor’s licence.6 The new security will then replace the former security without it being necessary to give the notice otherwise required by law.7 Secondly, the amending regulation makes some adjustments to the description of the work which holders of some licence subclasses, regarding heating, ventilation and refrigeration work. Many of those adjustments concern language: “warm air” and “hot water and steam” systems will be referred to respectively as “pulsed air” and “hydronic” systems. As to substance, two amendments, scheduled to come into force on January 21, 20178 must be noted. One is that contractors who specialize in natural gas burners will also be allowed to perform work on propane burners. This amendment, which concerns subclasses 15.2 and 15.4 of Schedule II, reflects the harmonization of applicable standards within the industry. Also, a contractor who perform works on systems which allows both heating and air-conditioning, whether on a pulsed air or hydronic system, must henceforth hold the necessary competences for both systems. This amendment concerns subclasses 15.1, 15.1.1, 15.4, 15.4.1, 15.7, 15.8, 15.9 and 15.10 of Schedule II. In case of doubt as to the determination of the relevant subclass, the client relations department of the Régie du bâtiment du Québec should be consulted. Lavery has the necessary knowledge and experience to assist you in your dealings with the Board. Do not hesitate to contact us. Order in council 703-2016 dated July 6, 2016, GOQ.II.2968, rectified by GOQ.II.4711 [the Order in council] adopting the draft Regulation to amend the Regulation respecting the professional qualification of contractors and owner-builders, GOQ.II.2359 dated July 22, 2015 amending the Regulation respecting the professional qualification of contractors and owner-builders, CQLR c B-1.1, r 9 [the Regulation]. Building Act, CQLR c. B-1.1, section 84. Order in council, sections 1 and 11(1). Regulation, section 25. Regulation, section 26. Order in council, section 11(2). Order in council, section 10. Order in council, section 11 para. 1.

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  • Significant amendments to the Act Respecting Duties on Transfers of Immovable following the 2016-2017 provincial budget

    The use of a nominee corporation The Act Respecting Duties on Transfers of Immovables (the “Act”) imposes transfer duties (also known as the “welcome tax”) on the transfer of immovables in Quebec. Since transfer duties are only payable from the time the transfer is registered in the land register (section 6 of the Act), some property structures make it possible, in practice, to avoid paying them. One of these ownership structures consists in registering a nominee corporation as the owner in the land register, while the real owner is the corporation’s shareholder. This way, upon the sale of the property, it is not the nominee corporation who is a party to the transaction, but rather its shareholder who sells the property and the shares of the nominee corporation. The name of the owner of the immovable remaining unchanged in the land register, this makes it possible to avoid paying transfer duties. These transactions deprive municipalities of significant revenues, as was the case for Quebec City when the Hotel Le Concorde was sold in 2014. The 2016-2017 budget tabled on March 17, 2016 by Minister of Finance Carlos Leitão (the “Budget”) provides for significant amendments to the Act to end this practice. Therefore, effective from March 18, 2016, the Act will be amended to provide that the payment of transfer duties will be due from the date an immovable is transferred, irrespective of whether or not the transfer deed is registered in the land register. In the case of a transfer which is not registered in the land register, the transferee will be required to file a notice of disclosure within 90 days from the date of the transfer, failing which he will be required to pay to the Minister of Revenue supplementary duties equal to 150% of the transfer duties payable in respect of the transfer, as well as interest. The Budget also announces other, more technical changes to the Act, which are summarized hereinafter. Although most of the changes announced in the Budget also apply from March 18, 2016, it must be noted that no bill has been tabled. Pending the adoption of the Budget and the tabling of a Bill, it is recommended to rely on what is provided for in the Budget. Tightening of some exemptions Transfer between a legal person and a natural person who controls the shares: clarifications as to the concept of “control” Until the Budget, there was an exemption from transfer duties when the transfer of an immovable was made between, on the one hand, a natural person and, on the other hand, a legal person, 90% of the issued fully voting shares of whom were owned by the natural person immediately before the transfer. The Budget specifies the conditions for the exemption as to the 90% percentage which must henceforth be established by calculating the number of votes attached to the issued shares of the share capital of the legal person, irrespective of the number of shares held. This amendment does away with the ambiguity that existed in the case of multiple voting shares. Transfer between “closely related legal persons”: reduction in scope of this definition An exemption is also provided for when the transfer of an immovable occurs between two closely related persons. Until the Budget, legal persons were considered to be closely related, particularly when one of them held either (i) more than 90% of the fully voting shares of the other legal person or (ii) at least 90% of the fair market value (FMV) of all the shares issued and outstanding of the other legal person. The Budget restricts the scope of the definition of “closely related legal persons” by deleting the criterion based on the FMV of the shares because it was difficult in practice to verify compliance. It is to be noted that for the purpose of this definition, the obligation to hold 90% of the voting shares will also be replaced with an obligation for one of the legal persons to hold 90% of the voting rights attached to the issued shares of the share capital of the other legal person, irrespective of the number of shares held. New obligation to maintain the conditions for exemption for a minimum period of 24 months following or preceding the transfer Furthermore, in order to eliminate some schemes, the sole purpose of which is to momentarily satisfy the exemption condition related to the percentage of voting rights, the Act will be amended to introduce a minimum period during which the condition for exemption of exempted transfers will be required to be maintained. Thus, in the case of the exempted transfer of an immovable by a natural person to a legal person or between two closely related legal persons, compliance with the condition for exemption pertaining to the percentage of voting rights must maintain for a 24 month period following the transfer. In the case of the transfer by a legal person to a natural person, the exemption will only be granted if the condition has been complied with for a minimum period of 24 months preceding the transfer. If the legal person which transferred the immovable to a legal person has been incorporated for less than 24 months prior to the transfer, the exemption from the payment of the transfer duties will be granted provided that the condition of exemption has been satisfied from the date of the incorporation of the legal person until the moment immediately preceding the transfer. In the case where a transferee ceases to be entitled to the exemption, he will be required to pay the transfer duties. In such a case, a notice of disclosure will be required to be provided to the municipality within 90 days from the date on which such condition ceases being met, failing which the transferee will be required to pay to the Minister of Revenue supplementary duties equal to 150% of the transfer duties payable in respect of the transfer, as well as interest. Beware of some provisions of shareholder agreements and other agreements Furthermore, when, during the 24-month period preceding or following, as the case may be, the date of transfer of an immovable which allowed the transferee to benefit from the exemption from transfer duties, a person acquires the right to acquire or control the voting rights or require the legal person to redeem, acquire or cancel shares of its share capital held by other shareholders, it will then be deemed to have acquired the shares on which this right applies, except for some exceptions which will be found in the amendments to the Act. New exemption for transfer between former common-law partners The Act will be amended to introduce an exemption from the payment of the transfer duties when the transfer of an immovable is made between former common-law partners within 12 months following the breakup. Common-law partners are two persons who have been living together in a marital relationship for a 12-month period or are the father and mother of a same child. This amendment will apply in respect of the transfer of an immovable made after March 17, 2016.

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  • Undivided co-ownership – Beware of the repossession of the leased premises!

    WWII deeply modified the Canadian economy1. The concentration of resources toward the war effort brought about, among other things, a shortage of rental premises2. Hence, the law governing leases was adapted3. and the existing liberal vision of free negotiation of contracts and consent made way for a stricter one. At the time, the legislator only aimed to avoid abuses against tenants and strike a balance between the respective interests of the parties4; however, it was only with the 1979 reform that a policy aiming to conserve the residential dwellings pool was implemented. Despite their early stage, this is how “protectionist” notions respecting leases as we know them today came to be. One of these fundamental notions, which remains among the most unique is the right of tenants to remain in the premises, which has become a key principle of residential dwellings law in Quebec, being codified in our statutes and entrenched in our law. Therefore, the repossession of a rental dwelling by the lessor, although allowed by the legislator in certain circumstances, constitutes an exception to this principle. This exception, which is found at article 1957 of the Civil Code of Quebec, allows the lessor to repossess a dwelling as a residence for himself or herself or for ascendants or descendants in the first degree or any related person for whom the lessor is the main support. The lessor may also repossess the dwelling as a residence for a spouse of whom the lessor remains the main support after a separation from bed and board or divorce or the dissolution of a civil union5. With the real estate wave seeking the conversion of rental buildings (duplexes, triplexes, etc.) into undivided co-ownerships, we deem it relevant to note a little known fact which constitutes an exception to that rule and specifically applies to undivided co-owners of a rental building. The owner of an undivided share of an immovable may not repossess any dwelling in the immovable unless the only other owner is his or her spouse6. Following the protectionist line of the reforms of the Civil Code of Lower Canada, and more specifically in 1987, the legislator further restricted the right to repossess. Co-ownership is said to be undivided when the right of ownership is not accompanied by a physical division of the property7. The most common instance of undivided co-ownership is when a couple purchases a single family house. Both spouses are undivided co-owners and, unless specified otherwise in the sales contract, they are presumed to hold equal shares in this property8. Conversely, co-ownership is said to be divided when the right of ownership is apportioned among the co-owners in fractions, each comprising a physically divided private portion and a share of the common portions9. This is commonly referred to as a condominium. Therefore, should you purchase a rental building with a person other than your spouse, you will be prohibited by law from repossessing a dwelling in that building unless the tenant occupying it voluntarily decides to leave. The decisions issued by the Régie du logement are crystal clear on the fact that a lessor cannot repossess a dwelling held in coownership with one or several members of his or her family, friends or other persons, except his or her spouse - whether married or not. What is more, if you still wish to purchase a property with others and hold it with them as an undivided co-owner despite this inconvenient limitation, it is strongly recommended that you establish all the rights of the undivided co-owners in a co-ownership agreement. The agreement should then be published to make it enforceable against third persons. Originating from an era where the intervention of the State was necessary in the context of the contractual relationship between lessors and tenants, and having since evolved in the same direction, it is not to be expected that the legislator will relax its protectionist rules. It is therefore essential to know one’s rights and obligations, be it as tenant, lessor, purchaser or seller since each of us may be called upon to act in any of these capacities over the course of our lives. 1 Pierre-Gabriel JOBIN, Le Louage, 2e édition, Cowansville, Éditions Yvon Blais, 1996, p. 4. 2 Ibid. 3 Ibid. 4 Ibid., page 7 5 Art. 1957, par. 2 C.C.Q. 6 Art. 1958 C.C.Q. 7 Art. 1010, par. 2 C.C.Q. 8 Art. 1015, par. 1 C.C.Q. 9 Supra, note 7, par. 3.

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  • The Supreme Court rules on a broker’s right to a commission when no sale is concluded

    Standard real estate brokerage contracts generally stipulate the obligation for the seller to pay a commission to the broker in the event that an agreement for the sale of the property occurs during the term of the brokerage contract or where the seller voluntarily prevents the free performance of the contract. It is not unusual, even in the absence of an actual sale, that real estate brokers claim the payment of the commission stipulated in the brokerage contract. Such was the situation in the case of Société en commandite Place Mullins v. Services immobiliers Diane Bisson inc.1, on which the Supreme Court of Canada recently ruled. THE FACTS In this matter, Place Mullins gave a mandate to a brokerage firm for the sale of its immovable through an exclusive brokerage contract written on a standard form of the Association des courtiers et agents immobiliers du Québec (since replaced by the Organisme d’autoréglementation du courtage immobilier du Québec). According to the terms of the brokerage contract entered into in September 2007, which are to the same effect as those in the current standard form, the obligation of Place Mullins to pay the commission to the brokerage firm was triggered, inter alia, where an “agreement to sell the immovable” was concluded during the term of the contract, or if “the seller voluntarily prevents the free performance of the contract”. A conditional promise to purchase was initially entered into between Place Mullins and Mr. Douek, the buyer, through the brokerage firm. This promise to purchase gave Mr. Douek the possibility to withdraw the promise if he was not completely satisfied with the due diligence on the immovable. The due diligence having revealed the existence of potential soil contamination, Mr. Douek withdrew from the initial promise and submitted a new offer, conditional upon Place Mullins decontaminating the property at its own expense. Place Mullins refused to do so and the sale was never concluded. The brokerage firm claimed the amount of the commission from Place Mullins despite the fact that the immovable was not sold during the term of the contract. ISSUES IN DISPUTE The dispute raised two issues, namely: Was an “agreement to sell the immovable” validly concluded within the meaning of the brokerage contract? Did Place Mullins voluntarily prevent the free performance of the brokerage contract? DECISIONS OF THE LOWER COURTS The Superior Court of Québec dismissed the claim of the brokerage firm while in a split decision; the Court of Appeal of Québec set aside this judgment and decided in favour of the brokerage firm. ANALYSIS OF THE SUPREME COURT As to the first issue, Mr. Justice Wagner, on behalf of the Supreme Court, indicated that a sale was not necessary for the broker to be entitled to the commission, since the contract provides that he is entitled to it once an “agreement to sell the immovable” is concluded. He went on to say that the wording of the clause was broad enough to encompass an accepted promise to purchase, but the obligations that flow from such a promise must become certain, that is, unconditional. The Court was of the view that so long as a promise to purchase is not unconditionally binding on the buyer and the seller and it is not yet possible for one of them to bring an action to compel transfer of title, there is no “agreement to sell the immovable”. In the case under review, since Mr. Douek was entitled to withdraw the promise if he was not entirely satisfied with the results of the due diligence, the promise to purchase remained conditional. By sending a formal notice to Place Mullins in which he was reiterating his interest to purchase the immovable provided Place Mullins decontaminated it at its own expense, Mr. Douek was repudiating the initial promise and submitting a new offer to purchase, which was never accepted. The second issue was based on the argument of the brokerage firm whereby Place Mullins, by refusing to decontaminate the immovable, prevented the brokerage contract to be performed. The Court mentioned that to be successful, the brokerage firm had to prove, among other things, that Place Mullins had committed a fault which prevented the performance of the brokerage contract. To rule on the existence of a fault, the Court reviewed to obligations to which Place Mullins was bound pursuant to the promise to purchase, on the one hand, and, on the other hand, the brokerage contract. The Court came to the conclusion that under the promise to purchase, Place Mullins had neither the obligation to decontaminate the property, nor that of negotiating anew the conditions of the initial promise to purchase. As to the brokerage contract, it is true that it stipulated that Place Mullins was required to provide an immovable which was in accordance with the environmental protection laws and regulations. However, the Court stated that this provision of the brokerage contract on its own, absent proof of bad faith, cannot serve as a basis for arguing that the seller voluntarily prevented the free performance of the contract. The Superior Court and the Court of Appeal having both recognized the good faith of Place Mullins and the fact that it was unaware of the contamination at the time the brokerage contract was entered into, it cannot be said that, through its fault, it prevented the sale from being concluded. Furthermore, the Court noted that contrary to what the brokerage firm maintained, the declarations of the seller in the brokerage contract did not constitute warranties. The legal warranties could not apply since no sale had been concluded. Under art. 1396 of the Civil Code of Québec, a promise to enter a contract is not equivalent to the proposed contract. Therefore, the accepted promise to purchase is not equivalent to the sale and does not produce any of its effects. CONCLUSION In short, Place Mullins had committed no fault respecting its obligations both under the promise to purchase and the brokerage contract. Therefore, it had not voluntarily prevented the free performance of this brokerage contract. Accordingly, the brokerage firm was not entitled to the commission. COMMENTS According to the Court, the seller was acting in good faith since it was unaware of the contamination at the time the brokerage contract was entered into. However, had it been aware of the contamination, the seller could have been considered to be in bad faith and ordered to pay the commission on the basis of the stipulation in the brokerage contract whereby it was required to provide an immovable that complied with the environmental protection laws and regulations. 1 2015 SCC 36.

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  • A Heads-up on Asbestos!

    To allow for adequate planning, the Quebec government phased in the coming into force of certain regulatory amendments on building safety that were adopted in the past few years. These new standards were previously discussed in bulletin Nos. 6 and 9, issued in April 2013 and June 2014 respectively, of our Lavery Real Estate and Construction series. This newsletter serves as a brief reminder of the most imminent deadlines.  ASBESTOS: JUNE 6 IS FAST APPROACHING Our newsletter No. 9, published in June 2014, summarized the new standards for safe asbestos management that came into force on June 6, 2013, most of which appeared in division IX.1, entitled “Provisions on the Safe Management of Asbestos”, of the Regulation respecting occupational health and safety, CQLR, c. S-2.1, s. 223.1 This regulation was adopted from the perspective of occupational health and safety and imposes both an obligation to identify (and reduce) risks and an obligation to inform workers. Identification of existing risks The regulation provides that the employer must: (1) locate flocking in all buildings constructed before February 15, 1999, and heat insulating material in all buildings constructed before May 20, 1999, to find the asbestos they contain — by June 6, 2015; (2) thereafter, conduct inspections of such flocking and heat insulating material every two years; (3) at all times, make the necessary corrections to the flocking, heat insulating material or interior finishes whose condition has deteriorated or which pose a risk; (4) record this information in a register. Identification of high-risk workBeginning June 6, 2015, all buildings covered by the regulation will have a register. These registers should be consulted by any person wishing to do work on the building, regardless of the scope of such work. Indeed, as soon as work is being considered that could lead to asbestos dust emissions, the employer is required to check for the presence of asbestos in any materials and products likely to contain it and, where it is found, to: (1) take the appropriate corrective or mitigation measures; (2) inform the person planning the work of any risks; (3) inform the workers likely to be exposed to asbestos dust and, moreover, inform them of the risks, prevention methods and specific safe working methods for the work to be done; these workers also have the right to consult the registers. Responsibility for these obligations The regulation states that the employer’s responsibility to inspect relates to “any building under the employer’s authority”. The key issue of who has authority over a building will necessarily vary depending on the nature of the building or the operations conducted therein. Thus, the employer-owner-occupant will undoubtedly generally hold the “authority” over the building, but a single tenant, real estate manager or tenant under an emphyteutic lease could also do so. There is, however, no similar limitation on the obligation to take corrective measures, which seems to be imposed on the employer’s authority even where the building is not under its control. It is therefore even more important to consult the registers under these circumstances. Remember also that the Act respecting occupational health and safety, CQLR, c. S-2.1, extends the employer’s obligations to any person who retains the services of a worker for the purposes of the employer’s establishment. As for the potential role of the Commission de la santé et de la sécurité du travail with respect to asbestos exposure of workers, we refer you to the newsletter Need to know prepared by our colleagues in the Labour and Employment sector. In any event, prudence dictates that the various persons who may be exercising some form of control over the building should agree on the efficient sharing of responsibilities. FACADES AND PARKING: WHEN WILL YOUR (NEXT) INSPECTION BE? As we indicated in our newsletter No. 6 of April 2013, pursuant to chapter VIII entitled “Buildings”, which was added to the Safety Code on March 18, 2013 by the Regulation to improve building safety,2 any facade of a public building with five or more storeys, and any underground or aboveground multistorey garage with a concrete slab whose driveable portion is not laid directly on the ground, must henceforth be the subject of an in-depth verification report every five years attesting that it is not in a dangerous condition (or indicating the corrective measures that must be taken3). Inspection of facades The deadlines for completing the first in-depth verification, which is to be signed by an engineer or architect, are being phased in based on the age of construction. Some deadlines have already passed and others are approaching — see the regulation for details. In all cases, the age of construction of the building is calculated in reference to March 18, 2013, the date the regulation came into effect. Verification of multistorey garages For multistorey garages built less than five years after the coming into force of the regulation, an in-depth verification report, supervised by an engineer, was required to be done by March 18, 2014. Owners of older multistorey garages have a longer time period, until March 18, 2016, to obtain such a report. The regulation also requires every owner of a multistorey garage to conduct an annual verification, the first of which was to be completed in the first year following the adoption of the regulation, that is, by March 18, 2014. The wording of the regulation seems to imply that a serious visual inspection conducted by the owner himself is sufficient. We refer you to our bulletin No. 6 of April 2013 for more details. Keeping a register Here again, it is compulsory to maintain a register for keeping the verification reports and maintenance plans on file, but also the construction plans, photographs or description of the work done or to be done. Similar measures also exist for water cooling towers. We refer you to our bulletin No. 6 of April 2013 for more details. SANCTIONS AND CONSEQUENCES The Régie du bâtiment du Québec can impose similar sanctions for keeping an inadequate register as for the breach of the positive duties of verification or implementation of preventive measures. We refer you to our bulletin No. 6 of April 2013 for an overview of the severe fines which offenders could face, as well as the consequences of these changes for contracts dealing with real estate, whether they relate to leasing, management, co-ownership, insurance or financing. CONCLUSION Finally, in closing, it should be borne in mind that while the purpose of the regulatory amendments passed by the government in the past few years is to enhance safety requirements in building construction and maintenance, they only set minimum standards. Indeed, every municipality is free to adopt more stringent standards. _________________________________________ 1 Regulation to amend the Regulation respecting occupational health and safety and the Safety Code for the construction industry, order in council 476-2013 of May 8, 2013, (2013) 145:21 GOQ.II, 1999. 2 Regulation to improve building safety, order in council 1263-2012 (December 19, 2012), (2012) 145:3 GOQ.II, 179. 3 See our newsletter No. 6 of April 2013 on this point.

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  • Cooling Towers and Asbestos: New Obligations for Owners, Tenants, Managers and Employers

    Over the last year and half, the legislator has addressed the building safety issues in order to ensure the safety of the occupants and visitors of these buildings, as well as the persons who may be exposed to hazards because of equipment attached to such buildings.On March 18, 2013, the Regulation to improve building safety, which became Chapter VIII entitled “Buildings” of the Safety Code adopted under the Building Act came into force.The “Buildings” chapter of the Safety Code (“SC”) provides for rules governing the maintenance of building façades and concrete multistorey garages, in addition to containing various fire safety rules which are slated to progressively come into force between March 18, 2013 and March 18, 2018.Additional fire safety provisions are in force since March 18, 2014 for sleeping rooms covered by the SC (namely, some hotels, motels, multiple-unit residential buildings, condominiums complexes, retirement homes and healthcare facilities). The provisions in force since March 18, 2014 particularly govern smoke alarms, carbon monoxide alarms and emergency lighting.The remainder of the provisions of the SC respecting fire safety will come into force on March 18, 2016 and March 18, 2018. These new provisions may involve significant modifications and costs for the owners of relevant buildings. The progressive coming into force of the provisions aims to allow the owners in question to prepare accordingly.WATER COOLING TOWERSOn May 12, 2013, the Regulation to amend the Safety Code containing provisions pertaining to water cooling towers came into force. These provisions have also been integrated in the SC.These provisions impose new obligations to owners of cooling towers, particularly the implementation of a preventative maintenance program developed by a professional, the maintenance of a register containing information pertaining to the towers and providing information to the Régie du bâtiment du Québec (“RBQ”). The coming into force of these provisions was further to the outbreak of Legionella during summer 2012. At the time, no regulatory framework was governing the maintenance of water cooling towers and no register was in existence to locate operating cooling towers.The provisions which came into force in May 2012 were succinct. They consisted in six sections and contained no details as to the standards and methods to be complied with respecting the maintenance of water towers.On May 28, 2014, an “update” of the Regulation to amend the Safety Code was published in the Gazette officielle du Québec. The new provisions will come into force on July 12, 2014. They specifically deal with the methods to be followed in maintaining cooling towers. They are, in a way, phase 2 of the provisions pertaining to water cooling towers maintenance. They contain additional specific measures concerning the procedure for maintaining water quality and the frequency of sampling. The most demanding provisions for tower owners relate to the obligation to have samples analyzed monthly by a laboratory which is accredited by the Centre d’expertise en analyse environnementale du Québec to determine their Legionella pneumophila concentration. The draft regulation announced that the new provisions would involve costs for enterprises which own the towers. The cost of an analysis by an accredited laboratory is approximately $250, for an annual cost of approximately $3,000.Most of the measures covered by the new provisions were already included in the guide for the maintenance of water cooling towers published in May 2013, which was posted on the RBQ’s website. Since they are now included in the Regulation to amend the Safety Code published on May 28, 2014, they are henceforth compulsory.Moreover, the new provisions specify that the owners of the towers are responsible for obtaining all the results of the analysis performed by the accredited laboratory. The owners of the towers must also make sure that the accredited laboratory sends to the RBQ all the results of the analysis performed within 30 days from the date the relevant sample was taken.The new provisions also impose on owners the obligation to obtain the results of the accredited laboratory forthwith or the business day following the result of the analysis where a result indicates a Legionella pneumophila concentration equal to or greater than 10,000 CFU/L and where it is impossible to quantify the Legionella pneumophila concentration.Lastly, the provisions provide for immediate measures to be taken by owners when the Legionella pneumophila concentration is 1,000,000 CFU/L or more, particularly the obligation to ensure that the RBQ and the public health director of the region where the water cooling tower facility is located receive the result from the accredited laboratory without delay.The Building Act includes penalties and penal provisions for failure to comply with the measures applicable to cooling towers. It must be noted that the RBQ conducted over 1,900 inspections of water cooling towers since 2012 and that with the register it now has, it precisely knows where the cooling towers are. It is therefore essential to comply with the new measures to avoid sanctions.Beyond the measures that may be imposed by the RBQ (including a remedial notice and obtaining an order enjoining compliance with the Act and fixing a time limit for doing so), the RBQ may also order the shutdown of the cooling towers. Owners who refuse to comply with the Act and orders are liable to penalties ranging from $3,000 to $15,000. In the case of renewed breaches, the amount of the penalties may be multiplied by 10.ASBESTOSOn June 6, 2013, the Regulation to amend the Regulation respecting occupational health and safety and the Safety Code for the construction industry came into force. Most of the provisions of this Regulation are now integrated in Division IX.I of the Regulation respecting occupational health and safety entitled “Provisions on the safe management of asbestos”.This Regulation requires that all buildings built before February 15, 1990 be inspected to locate asbestos flocking and all buildings built before February 20, 1999 be inspected to locate heat insulating material containing asbestos. The first inspections to be made under the Regulations must be carried out no later than June 6, 2015. Thereafter, employers must verify every other year the asbestos flocking and insulating material containing asbestos, except if they are entirely enclosed in a permanent structure resistant to fibres and access to flocking and heat insulating material is only possible by a destructive operation of the structure.It is important to note that it is the employer’s responsibility to locate flocking and heat insulating material in respect of any building under the employer’s authority. The employer may obviously be the owner of the building but ownership is not necessary. The employer can be, for instance, the tenant or manager of the building, as long as the building is under his authority. The Regulation imposes other obligations on employers, including that of setting up and maintaining a register which must contain information concerning flocking and heat insulating materials. The result of the inspections conducted by the employer must also be entered in the register. The employer is required to make this register available to employees and their representatives who work in his establishment.The method for analysing samples and the frequency of inspections are also covered. The Regulation also provides for various measures to be taken in the event flocking and heat insulating materials are located. Under this Regulation, it is presumed that all flocking and heat insulating materials contain asbestos and only an analysis may demonstrate the contrary.The Regulation also requires any employer undertaking work that may generate dust by a direct or indirect action on or inside a building to check for the presence of asbestos in the materials and products likely to contain some. It must be noted that where asbestos is detected in materials and products, the employer must repair or remove them taking into account the degradation and dispersal factors.Once again, if these provisions necessarily apply to an owner carrying out work on his building, the Regulation may also apply to a tenant, manager or contractor having the authority to carry out work on a building, who will then be required to assume the resulting expenses.CONCLUSIONThe new provisions pertaining to water cooling towers and asbestos will have a financial impact for owners of towers and, in the case of asbestos, for many employers, whether they are owners, tenants, managers or contractors. One can well imagine that the new Regulation concerning asbestos will have an impact on the negotiation and drafting of construction contracts, property management agreements and commercial leases since the parties will want to allocate the risks and specify the responsibilities of each party as to compliance with the Regulation.

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  • Quarterly legal newsletter intended for accounting, management, and finance professionals, Number 24

    CONTENTSNominees in the context of litigationUse of a nominee by limited partnerships and trusts for holding immovablesVoluntary registration for GST and QST purposes by a nomineeImmovables held by a nominee: Issues with respect to consumption taxesNOMINEES IN THE CONTEXT OF LITIGATIONLéa Maalouf In commercial matters, it frequently happens that two persons agree to hide their true intent from third parties and express such intent in a secret contract (or counter letter), while publicizing another contract, known as a fictional or apparent contract. This process is called simulation. This practice is entirely legal unless it is used to break the law or allow a party to avoid liability, for instance, by removing an item of property from his patrimony in order to avoid the execution of a judgment. Simulation is governed by articles 1451 and 1452 of the Civil Code of Québec. A counter letter is subject to no condition as to form: it is valid whether it is in the verbal or written form. A nominee agreement is one of the forms under which simulation may be carried out: when a person uses a third party to enter into a contract with another person, the third party is called a nominee. With as many players at the table, it is interesting to review the issues related to the liability of the parties and the precedence of the contracts in the event a dispute occurs. If a dispute occurs between the parties to the nominee agreement, the law is clear: the counter letter, whether verbal or written, prevails over the apparent contract. Either party cannot refuse to give effect to the nominee agreement. It is interesting to note that proof of the existence of a counter letter may be made by any mean, including testimony. This is rather exceptional, considering that the rules of evidence do not allow the parties to a written contract to use testimony to contradict or vary its terms. The reasoning of the courts is that the nominee agreement constitutes a contract by itself, which is separate from the apparent contract. This being so, testimony is not used to contradict the apparent contract but rather to establish the existence of a new contract. However, if a third party institutes proceedings while being in good faith – meaning that the third party is unaware of the existence of the secret instrument, the Civil Code of Québec provides that the third party may, according to his interest, avail himself of the apparent contract or the counter letter. In principle, third parties do not need to prove fraudulent intent of the parties to the counter letter to rely on the secret instrument. However, according to some judgments, third parties should at least prove that they suffered some kind of harm as a result of the simulation. Once again, proof of the simulation may be made by any mean. Conversely, parties to a counter letter may decide to publish it to end the simulation: in that case, it will be more difficult for third parties to rely on the apparent contract. However, in a recent case1, the Superior Court found liable both the nominees and true owners of an immovable, concluding that the parties had deliberately created confusion tantamount to abuse of right and that the theory of alter ego had also to be applied. In closing, although it may look surprising at the outset, a fictive instrument, such as a nominee agreement, is entirely legal unless it is used for improper purposes. However, parties to that fictive instrument must remember that a third party in good faith may set such instrument aside and rely on the apparent contract as being the true agreement between the parties, even if this does not constitute the initial intent of the contracting parties. _________________________________________1 9087-7135 Québec inc. c. Centre de santé et de services sociaux Lucille-Teasdale, 2013 QCCS 3856. USE OF A NOMINEE BY LIMITED PARTNERSHIPS AND TRUSTS FOR HOLDING IMMOVABLESDominique Bélisle Several legal arguments justify the practice that has developed in Quebec and in the common law provinces of registering the ownership title to immovables or real estate, acquired by a limited partnership or a real estate investment trust (“REIT”), in the name of a nominee. One of these arguments is based on the fact that partnerships and trusts created under the Civil Code of Québec (“Civil Code”) do not benefit from legal personality and therefore are not separate «persons» distinct from their members, partners or beneficiaries. Indeed, historically, under the civil law, the patrimony was always considered to be attached to a natural or legal person. Over time, the concept developed which attributed a distinct patrimony to the partnership from the patrimonies of the partners, and which attributed a patrimony by appropriation to the trust, autonomous and distinct from the patrimonies of the settlor, trustee or beneficiary thereof. In the case of trusts constituted under the Civil Code, including REITs, nominees have not been consistently used in practice and are less common. Indeed, article 1278 of the Civil Code states that the titles relating to the property of the trust are drawn up in the trustees’ names. On this basis, it is common to see the title to property held by a REIT registered in the land registry under the names of all the trustees acting in their capacity as trustees of the trust. Other legal advisers still register the title to the property directly in the name of the REIT, despite article 1278. For the time being, nothing indicates that this practice affects the validity of the property title. In the above cases, however, a nominee is not used on the basis of the lack of legal personality of the trust because the Civil Code expressly recognizes that the parties involved have no real rights in the distinct patrimony. This recognition helps resolve the ambiguity caused by this lack of personality. The advantage of a nominee for a REIT therefore lies elsewhere, such as, for example, in the flexibility offered for transfers of title between parties related to the trust, and in relation to the transfer duties that are triggered when these transfers are registered in the land register. Indeed, the exemptions provided for in section 19 of the Act respecting duties on transfers of immovables (Quebec) with respect to a corporate restructuring do not apply in the cases of a trust or partnership. Some exemptions contained in section 20 of that statute do apply to trusts, but in very specific cases. In the case of a partnership, however, the use of a nominee is more common and warranted not only in connection with the Act respecting duties on transfers of immovables, but also due to the uncertainty caused in relation to the holding of title to property because of the partnership’s lack of legal personality. Indeed, in contrast to the situation pertaining to trusts, the Civil Code does not directly provide for the autonomous nature of the patrimony for partnerships, or that the partners hold no real right in the partnership’s property. Furthermore, in the case of Ville de Québec c. Compagnie d’immeubles Allard ltée 1, the Court of Appeal stated that since the limited partnership did not have a distinct legal personality from its members, it did not hold the partnership’s assets, and therefore found that the partners held an undivided real right in the property. In that case, the Court determined that the transfer by a partner of his interest in the partnership constituted a transfer of his undivided share, thereby triggering transfer duties (the parties having had the bad idea of registering the transfer…). This decision has created some uncertainty surrounding the identity of the property owner. Is the property title really held in undivided co-ownership by each of the partners? And what about limited partnerships? The argument relied on by the Court of Appeal to justify its conclusions applies equally to limited partnerships. In practice, however, the partners in a limited partnership would certainly not intend to trigger a transfer in undivided co-ownership of the property each time a unit is transferred. This uncertainty has led to the commercial practice of registering the property title in the land register in the name of the general partner, or a nominee corporation. _________________________________________1 [1996] RJQ 1566 (C.A.).  VOLUNTARY REGISTRATION FOR GST AND QST PURPOSES BY A NOMINEEDiana Darilus In an immovable property context, a person can act as a nominee for another person for the purpose of holding title to the property and handling the property management. This type of structure implies the existence of a mandatary-mandator relationship that is not disclosed to third parties. In the context of this type of relationship, the mandator is the person considered to be carrying on commercial activities involving the property, and is therefore generally required to register for GST and QST purposes. However, a nominee corporation holding title to immovable property on behalf of the true owner may wish to register voluntarily for several reasons, such as the following: use of the nominee’s GST and QST registration numbers in the legal and administrative documentation, such as invoices or commercial leases, in order to preserve the confidentiality of the true owner of the property; joint election by the mandator and mandatary provided for in subsection 177(1.1) of the Excise Tax Act (“ETA”) and section 41.0.1 of An Act respecting the Québec sales tax (“AQST”), which allows the mandatary to remit the GST and QST collected to the tax authorities on the mandator’s behalf; and joint venture election provided for in sections 273 ETA and 346 AQST, which enables the co-venturers to designate an “operator” responsible for remitting the GST and QST collected to the tax authorities and claiming the input tax credits and input tax refunds (ITCs/ITRs) on behalf of the co-venturers. A nominee corporation can only register voluntarily for GST and QST purposes if it carries on a commercial activity in Quebec. The definition of “commercial activity” is very broad and includes the carrying on of a business by a corporation without a reasonable expectation of profit, except to the extent to which the business involves the making of exempt supplies. As for the definition of the term “business”, this includes any undertaking of any kind whatever, whether or not engaged in for profit. In light of these definitions, it seems that a nominee corporation whose activities are limited to holding title to property on behalf of the true owner without receiving compensation for doing so, could be considered to be carrying on a commercial activity. However, Revenu Québec has raised doubts in the past few years about the voluntary registration of certain nominee corporations in the form of “shell corporations” on the basis that they did not carry on any commercial activities, and retroactively canceled their registration numbers. To avoid such a dispute with the tax authorities, one should in our view be cautious when setting up a nominee corporation as part of a structure for holding immovable property in Quebec. We recommend that the following minimum measures be taken to reduce the risk of contestation by Revenu Québec: monthly fees (plus applicable taxes) should be paid to the nominee corporation pursuant to terms of a written nominee agreement; and the nominee corporation should open a bank account to receive its compensation. We believe that if such measures are taken, it is more reasonable to consider that the nominee corporation is in fact carrying on a commercial activity, i.e., the taxable supply of services as a mandatary on behalf of a mandator or participants in a joint venture. IMMOVABLES HELD BY A NOMINEE: ISSUES WITH RESPECT TO CONSUMPTION TAXESJean-Philippe Latreille In the last few years, tax authorities have intensified their auditing efforts aimed at corporations holding immovables as nominees. In this context, the validity of some elections pertaining to joint ventures in respect of GST and QST has been questioned. These elections allow the participants in a joint venture to designate one of them as “operator”, whose role is to remit taxes and claim input tax credits and input tax refunds in the name of the other participants. Now, in some circumstances, tax authorities adopt a position whereby a corporation which is solely used as a nominee is not a participant in the joint venture and thus, cannot validly be appointed as “operator”. However, tax authorities recently announced that they gave instruction to their auditors not to assess when such a situation occurs. This administrative tolerance is conditional to all returns having been filed and all amounts due having been paid. This measure is temporary since it only applies to reporting periods ending prior to January 1, 2015. Furthermore, tax authorities expect all participants in a joint venture relying on the tolerance to make valid elections in the future. Owners of immovables relying on a nominee should therefore now review their holding structure in the light of the positions published by tax authorities.

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