CANADA – QUÉBEC Law and Practice Contributed by: Eleonora Eusepi, Sabrina Guillot, Janie Chaloux and Nicolas Gosselin, BCF Business Law LLP
7.3 Management of Construction Risk Risk management in construction contracts is achieved through indemnification clauses, legal and contractual warranties for defects or poor workman - ship, and limitation or exclusion of liability, all subject to statutory and public‑policy constraints that vary across provinces. In common‑law provinces, these clauses are generally enforceable unless unconscion - able or contrary to statute. In Québec, their enforce - ability is further limited by the Civil Code, particularly in cases involving bodily injury or gross fault. Parties also rely on insurance requirements, performance guarantees such as bonds or letters of guarantee, and dispute‑resolution clauses, with the chosen mecha - nisms reflecting their respective bargaining power. 7.4 Management of Schedule-Related Risk It is common, particularly in contracts involving public clients, to find clauses imposing liquidated damages or financial penalties on the contractor in the event of a breach of contract, particularly in the event of failure to comply with the work schedule. In Québec, clauses imposing liquidated damages or financial penalties are typically characterised as penalty clauses under the Civil Code. Although, in principle, the party invoking the clause does not have to prove the damages suffered to be compensated, the courts may reduce the amount if it is considered excessive or disproportionate to the actual prejudice suffered. Depending on the circumstances, the agreed amount of such damages may be subject to judicial scrutiny. However, a contractor who is subject to financial penalties for delays in the performance of the work may demonstrate that these delays were due to force majeure or to the fault of the client. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance It is common for the project owner to require addi - tional guarantees regarding the proper performance of the work by the contractor. In general, these guar - antees often take the form of bonds, such as a bid bond, a performance bond, and a labour and material payment bond. It is also common to provide a certified check or an irrevocable and unconditionally payable bank guarantee letter.
7.6 Liens or Encumbrances in the Event of Non-Payment In Québec, unpaid participants in the construction or improvement of a property – such as architects, engineers, material suppliers, workers, contractors, or subcontractors – may register a legal construc - tion hypothec. This hypothec exists by operation of law but must be preserved through publication in the Land Register within 30 days of completion of the work, and the notice must be served on the owner. It secures payment for work, materials, or services that added measurable value to the property. If the claim remains unpaid, the beneficiary must publish a notice of exercise of a hypothecary right within six months of completion to maintain the hypothec. An owner may remove a legal construction hypothec by paying the outstanding amount or seeking court‑ordered cancellation, particularly where condi - tions for the hypothec were not met, the work added no value, or defects required correction. Owners may also request a substitution of security, such as depos - iting the disputed amount. 7.7 Requirements Before Use or Inhabitation Construction projects must comply with applicable building, safety and zoning regulations before they may be occupied or used for their intended purpose. At the provincial level, building codes (largely based on the National Building Code of Canada) establish minimum standards relating to structural integrity, fire protection, accessibility, energy efficiency and life safety. Compliance with these standards is typically verified by municipal authorities through inspections conducted at various stages of construction. Before occupancy, municipalities generally require the issu - ance of an occupancy permit or certificate confirm - ing that the project complies with applicable build - ing and zoning requirements. Certain projects may also require approvals from other regulators, such as fire safety, environmental, public health or technical authorities (eg, elevators or electrical systems). Failure to obtain required permits can prevent occupancy and lead to penalties.
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