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Divided co-ownership: the role of the insurance trustee

Divided co-ownership: the role of the insurance trustee

An important aspect of the insurance of a divided co-ownership is the fact that Québec's legislators believed it to be wise to entrust a third party with the management of the rebuilding of the building and the indemnity paid by syndicate's insurer in the event of a major insurance loss.

On this subject, article 1075 of the Civil Code of Quebec states as follows:

“1075. The indemnity owing to the syndicate following a substantial loss is, notwithstanding article 2494, paid to the trustee appointed in the constituting act of co-ownership or, where none has been appointed, designated by the syndicate.

The indemnity shall be used to repair or rebuild the immovable, unless the syndicate decides to terminate the co-ownership, in which case the trustee, after determining the share of the indemnity of each of the co-owners according to the relative value of his fraction, pays the preferred and hypothecary creditors out of that share according to the rules in article 2497. For each of the co-owners, he remits the balance of the indemnity to the liquidator of the syndicate with his report.”

This constitutes an exception to the general rule regarding insurance companies envisaged by the Civil code of Quebec, which stipulates in article 2494 C.c.Q. that the insurer, subject to the rights of the mortgaged creditors having priority, reserves the right to repair, rebuild or replace the insured property.

Therefore, in the event of major damage affecting a co-ownership building, the right to repair, rebuild or replace the insured property is entrusted to the insurance trustee named in the declaration of co-ownership, or, failing this, chosen by the syndicate.

The obligation to have an insurance trustee serves protect the interests of the co-owners and those of their mortgage creditors who have an interest that the building be repaired or rebuilt in the event of a major disaster, or a total loss of the building. The duty of the trustee is to properly manage the indemnity paid by the insurer, which must be used to repair or the rebuild the building, unless the co-owners, by means of a decision of the assembly of the co-owners, decide to terminate the co-ownership.

This decision is extraordinary and must be made according to the double special majority called for in article 1108 C.c.Q., i.e. by a majority in number of the three quarters of the co-owners of the building who represent a minimum of 90% of the votes of all the co-owners of the building. In this case, the trustee will determine the share of the indemnity of each co-owner according to the relative value of thier fraction, and will pay, according to this portion, the mortgaged creditors having priority according to the law 1. The mortgage creditors having priority hold a security interest that gives them a direct right against a fraction of the co-ownership, and it is important to understand that once this fraction is damaged or completely destroyed, their security on the property is diminished or ceases to exist.

If there remains a balance of the indemnity, the trustee returns it to the liquidator of the syndicate with his report on the management of the indemnity.

If the co-owners do not decide to terminate the co-ownership according to article 1108 C.c.Q., then the trustee must make sure that the indemnity paid by the insurer is used only to repair or rebuild of the building..

The trustee must pay the cost of the materials and the labour necessary for the work. The trustee releases the payments according to the written instructions of the syndicate's Board of Directors which must obtain the written certificate from an architect, an engineer or a professional technologist attesting the completion of the work and that it conforms to standards
It is essential to proceed according to this procedure in order to avoid two possible problems, either that a contractor would be paid when the work is only partially completed or doesn't conform to standards, or that a payment would be issued to the wrong contractor, because the insurer will not pay a second time if there is an error in the payment of the funds.

The trustee will require a receipt and discharge from the contractor in favour of the syndicate of co-ownership up to the amount of the sum paid. In the case of an full or partial payment, the trustee will require that the contractor sign a complete or partial renunciation of his right to register a legal construction hypothec on the fractions of the building for the added value brought to the building by the work carried out and the materials provided.

The fiduciary named in the declaration of co-ownership

In certain cases, the trustee is named ahead of time in the declaration of co-ownership. However, you should be aware that trust companies thus named and who offered this kind of service are often not active anymore in this field. If the trustee named in the declaration of co-ownership is not active anymore in this field, the syndicate of co-ownership can designate one by means of a resolution of the Board of Directors and it must sign a contract which clearly defines the trustee's mandate, their powers and duties, as well as the manner of their remuneration.

The legal or physical persons entitled to act as a trustee are financial institutions, other than a bank, which carry out “trust” activities, notaries and lawyers.

In all the cases, ensure that the fiduciary has professional liability insurance covering the errors and omissions which they might make in the course of their mandate.

In case of doubt, do not hesitate to communicate with our team of specialized lawyers.

About the author

Me Kevin J. Lebeau, avocat

Diplômé de l'Université McGill (B.A.) et l'Université de Montréal (LL.B.), Me Lebeau est membre du Barreau du Québec depuis 2000.

Depuis 2001, il a exercé en droit immobilier avec concentration en droit de la copropriété dans plusieurs contextes, dont en milieu d'association, en société et en contentieux d'entreprise au sein d'une firme de gestion se spécialisant dans la gestion des copropriétés divise, Gestion Immobilière Ges-Mar Inc. Me Lebeau est également conseiller juridique aux membres d'Avantages Condo.

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