CANADA – QUÉBEC Law and Practice Contributed by: Eleonora Eusepi, Sabrina Guillot, Janie Chaloux and Nicolas Gosselin, BCF Business Law LLP
debt remains active, notably among private, alterna - tive, and opportunistic capital providers. 3.7 Subordinating Existing Debt to Newly Created Debt In Québec, priority among secured debts is generally determined by the order of registration in the Land Register for immovable hypothecs, in accordance with the principle of “first in time, first in right.” That said, an existing secured debt may become subor - dinated to newly created debt, either by agreement among creditors or by operation of law. The most common mechanism is contractual subor - dination. A creditor holding an existing hypothec may voluntarily agree to subordinate its claim in favour of a new debt granted to another lender. This is typi - cally documented in a subordination agreement or an intercreditor agreement, pursuant to which the exist - ing creditor agrees that its hypothec will rank after that of the new lender. Such an agreement does not extinguish the existing hypothec, but rather modifies its priority ranking in the event of enforcement or insol - vency. Once executed and, where required, published, the subordination is opposable to third parties. Subordination may also arise by operation of law, as certain claims benefit from priority solely as a result of statutory provisions. This includes, for example, cer - tain legal construction hypothecs or those arising from judgments, as well as other statutory priorities provided under the Civil Code of Québec, which may take prec - edence over previously registered security interests. Finally, subrogation may also affect creditor priority. Where a new creditor pays off the debt of a prior rank - ing secured creditor, it may be subrogated to that credi - tor’s rights and rank, thereby effectively stepping into its position in the order of priority vis-à-vis other creditors. 3.8 Lenders’ Liability Under Environmental Laws As a general principle, a lender holding a hypothec over immovable property does not incur environmen - tal liability solely by virtue of making a loan or holding security. A lender that refrains from taking operational control of the property is generally not considered an “owner or person having custody or control” within
the meaning of the Environment Quality Act (EQA). However, the EQA imposes environmental obligations on owners, occupiers, and any person having custody or control of contaminated land, regardless of fault. A lender may therefore become exposed if it moves beyond passive secured creditor status — specifically by exercising hypothecary remedies involving posses - sion, administering or operating the property following default, or otherwise exercising actual control over the site. Accordingly, lenders active in Québec real estate financings routinely require environmental representa - tions, warranties, indemnities, and compliance cov - enants in their loan documentation. 3.9 Effects of a Borrower Becoming Insolvent In Québec, a hypothec remains valid and enforce - able in insolvency if properly created and published, provided immovable hypothecs are granted by notar - ial deed in accordance with the Civil Code. Priority among hypothecs is generally determined by registra - tion order and cession of rank agreements, subject to important exceptions: prior claims, legal hypothecs of construction, and federal deemed trusts rank ahead regardless of registration. Court-ordered super-pri - ority charges in CCAA or BIA proceedings can also take precedence over existing hypothecs. An unpub - lished hypothec is unenforceable against the trustee. In bankruptcy, secured creditors generally enforce without court authorisation, unlike under the CCAA, where the stay is broader. A properly structured and published hypothec nonetheless offers strong protec - tion in Québec real estate financings. 3.10 Taxes on Loans There are no existing, pending, or proposed rules, regulations, or requirements that lenders or borrow - ers pay any recording or similar taxes in connection with mortgage loans or mezzanine loans related to real estate in Québec.
4. Planning and Zoning 4.1 Planning and Zoning Framework
In Québec, land use planning is governed by a hierar - chical framework established under the Act respect - ing land use planning and development (the LAU). At the highest level, the provincial government issues
103 CHAMBERS.COM
Powered by FlippingBook