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March 21, 2023

Me Arnaud Drouin: Construction of a building on a piece of land covered by an offer to purchase? Beware of transfer duties!

Author : Arnaud Drouin
Arnaud Drouin
Arnaud Drouin

Contractors in the construction field regularly sign agreements with developers under which :

  • They reserve a number of lots in a real estate project;
  • They build a building on the developer's land;
  • When they find a client (consumer), they exercise the option on the land desired by the buyer, in order to become the owner;
  • When the building is completed, they buy the land and sell it built (often the same day) to the client;

However, it turns out that such a practice is not without risk for the manufacturer. Indeed...

What is the transfer tax?

Commonly known as the "welcome tax", the transfer tax is a tax that every city or municipality must collect from a buyer when a real estate transaction takes place on its territory. It should not be confused with property taxes, such as school and municipal taxes, which have their own rules.

The rules for calculating this tax are set out in the Act respecting duties on transfers of immovables and the Act respecting municipal taxation .

The calculation of the transfer tax is based on the value of the property sold.

The decision Ville de Granby v. 9116-5803 Québec inc.

In a decision rendered on March 18, 2022, the Quebec Court of Appeal confirmed that a construction contractor must absolutely ensure that it enters into a superficies agreement with its developer co-contractor, if it wishes to optimize the tax treatment of transactions whereby it acquires ownership of built-up land.

He will thus be able to make his property rights opposable to all (including the city or municipality in charge) by publishing the agreement on each of the lots that are the subject of a transaction, in the Quebec land register.

The calculation of the transfer tax payable by the city or municipality will then be based solely on the value of the land so acquired.

If the developer fails to comply with these conditions, the city or municipality can (and should) base its calculation on both the value of the land acquired by the contractor and the value of the building constructed. The fact that the developer and the taxing authority acknowledge the existence of superficies will not change this. In other words, the transfer fees will be paid by the builder based on the value of the land acquired and the building constructed by him!

What is superficies and what is its purpose?

Superficies is the process of dividing the ownership of land, which belongs to one person, called the "owner of the land", from the ownership of the permanent structures and works on the land (for example, a building that you have built), which belong to another person, called the "superficiary".

This type of ownership is of particular interest in the field of construction since it allows a construction contractor (superficiary) and the real estate developer (subsoil owner) to benefit from it.

On the one hand, the construction contractor is only required to acquire ownership of land from the developer following the conclusion of a preliminary contract with a client. This promotes the solvency of the company by making the completion of transactions with the developer dependent on those concluded with clients who have already demonstrated their financial capacity to acquire the buildings constructed by the contractor.

On the other hand, the real estate developer becomes the beneficiary of a promise to purchase the land on which he allows the construction, which will be carried out under the same conditions and under the same financial guarantees as those enjoyed by the contractor.

At the time of the transaction between the developer and the contractor, the latter will have to pay a transfer tax which will be calculated only on the basis of the value of the land thus acquired, provided that he ensures that two cumulative conditions are met.


Superficies provides operational and financial benefits to the developer and construction contractor.

In order to optimize the tax treatment of a real estate transaction to which the entrepreneur is a party, it is in the entrepreneur's interest to enter into a superficies agreement with the developer (1), and to have it published in the land register before a transaction governed by it is concluded (2).

If you fail to meet these cumulative conditions, the responsible city or municipality will collect a transfer tax based on the value of the building you have built, even if you have always owned it.

However, it should be noted that this arrangement is not without disadvantages for the developer. Even if the contractor does not acquire the land, the contractor's subcontractors will have the right to register a legal construction mortgage on the superficies.

A saying to keep in mind: "The (tax) law is hard, but it's the law".

Crochetière, Pétrin offers comprehensive and high quality legal services in construction and real estate law.

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