Immovables are frequently owned by several co-owners,
residential condominiums being one example that naturally comes to
mind. However, while commercial immovables are not exceptions to
co-ownership, they do, on the other hand, more frequently take the
form of undivided co-ownership, where each co-owner has an
undivided right of ownership to the whole property. This type of
ownership, and especially the associated rights, are frequently
misunderstood. The judgment in 2159-4395 Québec Inc. v.
Gérard Lamarche et Richard Cousineau is a good
FACTS – Lamarche and Charbonneau were
co-owners of an immovable property. Charbonneau sold his 50% share
in the immovable to 2159-4395 Quebec Inc. ("Quebec Inc.")
for a price of $570,000, including $50,000 in cash, with the
balance payable in six (6) interest-free instalments. There was
also a hypothec on the immovable maturing in 2007.
Article 1022 of the Civil Code provides that an undivided
co-owner may, within sixty days of learning that a third party has
acquired the share of the other co-owner, purchase the said share
himself by paying the third party the sale price and associated
costs. This is known as the right of redemption. However, the right
of redemption may not be exercised if the undivided co-ownership
agreement contains a right of preference in favour of the
co-owners, provided the agreement was registered against the
In this case, Lamarche exercised his right of redemption within
the requisite time and offered to reimburse Quebec Inc. for the
first payment of $50,000, and to take over Quebec Inc.'s
hypothec with the hypothecary creditor. He also filed a letter of
credit for the balance of the sale price.
Quebec Inc. objected to the exercise of the right of redemption,
claiming that it had not been validly exercised because
Lamarche's offer was insufficient: it should have included the
full payment of the sale price, since Lamarche did not benefit from
the terms of payment offered to Quebec Inc.
JUDGMENT – The trial judge and the
Court of Appeal ruled in favour of Lamarche, holding that his offer
to pay the $50,000, plus the letter of credit for the balance, were
sufficient, and that he benefited from the terms of payment given
to Quebec Inc.
It should be added that the deed of sale to Quebec Inc. included
a provision that was designed to counteract Lamarche's right of
redemption by stipulating that if Lamarche exercised his right of
redemption, the full payment of the balance of the sale price would
become due—causing Lamarche to lose the benefit of the
terms of payment if he exercised the right of redemption. Without
much discussion on this point, the Court of Appeal refused to give
effect to a scheme aimed at discouraging Lamarche from exercising
his right of redemption.
CONCLUSION – The existence of a right
of redemption has the effect of making the purchaser's title to
an undivided share quite precarious. The right of redemption must
be exercised within one year of the sale. This means that, on the
sale of an undivided share to a third-party purchaser, the
purchaser's acquisition can be challenged for a year following
the sale. Mechanisms should therefore be set up to stabilize the
transaction, i.e. to prevent the right of redemption from coming
into existence. To do so, the undivided co-ownership agreement
should either provide for a pre-emptive right—which
closely resembles the right of redemption, except that it is
exercised prior to the sale and does not therefore give rise to the
same uncertainty—or simply a waiver by the co-owners of
the right of redemption.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Supreme Court of Canada today released its highly anticipated decision in Iona Contractors Ltd. v Guarantee Company of North America, dismissing the application for leave to appeal by the Trustee in Bankruptcy of the bankrupt, Iona Contractors Inc.