Securing Financial Interests in Crops, Machinery, and other Agricultural Property in Quebec

April 4, 2013


Prepared by Dany Afram in Miller Thomson’s Montreal office

In the Province of Quebec, charges, mortgages or liens granted as security for the payment of debts and the performance of covenants in favour of a secured creditor take the form of movable or immovable hypothecs depending on the nature of the property that is being charged.

In the agriculture industry, we see movable hypothecs over personal property such as crops, machinery and accounts receivable and immoveable hypothecs over land or farm fixtures such as silos. The effect of movable hypothecs over crops is however suspended until crops are physically extracted from the land to become movables.

Whether they are moveable or immoveable, hypothecs are either legal or conventional. Legal hypothecs are charges created under the Civil Code of Quebec (the “CCQ”) to secure the payment of debts specifically designated in the CCQ. 

Conventional hypothecs are the most common; they are given by a grantor who agrees to mortgage all or a portion of its property in favour of a secured creditor. The grantor may either be the actual debtor or a third party, such as a guarantor. Regardless of the property charged by the hypothec, a conventional hypothec must be in writing and be limited to a specific amount.

In the case of immovables (real assets) or certain movables (personal property) that are specifically designated by the CCQ, the hypothec must be granted by notarial act received by a Quebec Notary. For example, the people who have participated in the construction of silos (i.e. architects, engineers, construction workers and suppliers of material) will automatically beneficiate of a charge over the entire real property (i.e. the land, the silos and all immovables such as buildings erected thereon) for an amount equal to the value added to the land by their work. This charge will exist in favour of the secured parties without said parties having to obtain a written security document from the land owner.

In order to be enforceable against third parties and take rank – meaning to grant the secured party a preference over other creditors and determine the rank of its security vis-à-vis other secured creditors – the hypothec must be published at a registry office, namely the Register of Personal and Movable Real Rights (“RPMRR”) for movable hypothecs and the Land Register of Quebec for immovable hypothecs.

A hypothec may either charge specific assets (i.e. road vehicles, pieces of equipment or indemnities payable under an insurance policy) or assets generally (i.e. all of the grantor’s claims, stocks or machinery).

A hypothec may also charge the property of another person or a future property but in that case its effect will remain suspended until the grantor acquires title to the hypothecated property. For example, if a farmer creates a movable hypothec in favour of a financial institution over all of its present and after acquired crops, the financial institution will have a preferred security over future crops until the full performance by the farmer of its obligations towards same.

One of the characteristics of the movable hypothec is that it can be granted with or without delivery. When it is granted with delivery, the constitution and publication of the hypothec is effected by the actual physical delivery of the property or the title to the secured party. This kind of hypothec is also known as a pledge.

Since the hypothec is an accessory right, it subsists only as long as the obligation whose performance it secures continues to exist. This means that the charge will automatically end once the performance of the obligation is made unless the agreement between the debtor and the secured party provides that the debtor may oblige itself once again towards the secured party (i.e. a line of credit where the borrower may borrow again until the line of credit is closed). No specific steps are required to extinguish the hypothec once the obligation has been performed but if the grantor wishes the registration to be removed from the registry office, a discharge form must be signed by the secured party and filed at the proper registry (RPMRR or Land Register). 

The hypothec will also be extinguished by the loss or expropriation of the charged property, where such events affect the property as a whole. This is obviously more common in the case immovable hypothecs over land where an expropriation of same by the state or the municipality may put an end to the hypothec holder’s preference.

If you have specific questions about hypothecs related to your agriculture business in the Province of Quebec, please contact us.


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