Everyone knows about mortgages as security offered to a creditor. But did you know there is a type of security provided by law that allows a creditor to be paid even before a mortgage holder? These special securities are called legal priorities. Let’s take a look at what they are, how they work, and what types of claims they can secure.

Definition and Characteristics

A legal priority is a right granted by law to a creditor. It allows them to be paid before mortgage creditors. Unlike a mortgage, a priority arises automatically when certain conditions are met. It is enforceable against third parties without registration (art. 2655).

However, the priority does not follow the property into the hands of a purchaser. It must therefore be exercised before the debtor transfers the property. The law also provides that priority creditors take precedence over mortgage creditors (art. 2657). Among themselves, they follow the order established by article 2651 of the Civil Code of Quebec. Finally, if the claim or the property no longer exists, the priority is extinguished (art. 2659).

Priorities under article 2651 C.C.Q.

1. Court costs and expenses incurred in the common interest (art. 2651 para. 1(1))

This priority applies to both movable and immovable property. It covers seizure, action, or judgment costs, as well as expenses incurred to preserve or increase assets for the benefit of all creditors.

2. The claim of the unpaid seller for the price of movable property sold to a natural person not operating a(n) enterprise (art. 2651 para. 1(2))

This applies when movable property is sold to an individual not operating a business and the price remains unpaid. In case of seizure of the property in question, the seller’s claim takes priority, and the priority guarantees only the balance of the sale price.

3. The claim of the person holding a right of retention over a movable (art. 2651 para. 1(3))

The third priority protects the claim of someone holding a right of retention over a movable. The right of retention, under article 1592 C.C.Q., allows a person to retain property belonging to their contracting party until payment of a debt directly related to that property.

The priority applies only to the property in question, and in case of seizure, the creditor must allow the property to be seized but may claim their amount in priority.

4.The State’s claim for tax debts (art. 2651 para. 1(4))

The fourth priority benefits the State for its tax claims. It applies only to movable property and covers taxes, interest, fines, penalties, and fees. However, the State must disclose the amount of its claim upon request, failing which it loses its priority.

5. The claim of municipalities and school service centers for property taxes (art. 2654.1)

This priority is granted to municipalities and school service centers for property tax payments. This is the only priority accompanied by a real right. It therefore follows the immovable, and the purchaser may be personally required to pay the unpaid property taxes.

6. The claim of municipalities for taxes other than property taxes (art. 2651 para. 1(5))

Finally, this applies to municipal claims for taxes other than property taxes, levied under a special law, such as the welcome tax. Unlike property taxes, this priority does not involve either a real right or a right of pursuit.

Enforcing a Priority

To enforce a legal priority, article 2656 C.C.Q. provides several remedies. The creditor may bring a personal action, seize the property, or exercise a real action for priorities accompanied by a real right. They may also resort to provisional measures or intervene in proceedings already initiated by another creditor.

Extinguishment of Priority

A priority may be extinguished in several ways. It disappears upon the sale of the property (unless a right of pursuit exists), upon the loss of the property, by waiver of the creditor, or by any other cause of extinction of the obligation (art. 2659).

Conclusion

A legal priority is a powerful tool that allows certain creditors to be paid before even mortgage creditors, without particular formalities. However, it is subject to precise conditions and a strict ranking order. Understanding legal priority is essential, both to protect one’s rights as a creditor and to assess risks as a purchaser or debtor.

In the broader context of real estate law, these mechanisms directly influence the validity and security of transactions. Our firm offers recognized expertise in real estate law and can assist you in analyzing, contesting, or managing legal priorities to protect your interests.