A notice of default is a formal letter. Its purpose is to persuade a person (the debtor) to either do or stop doing something within a certain time frame.

For example, let’s say that you entered into a contract with a small company for the construction of your kitchen cabinets, but they have been delaying the work for no reason. You might decide to send a notice of default requesting the company to carry out the work agreed upon in the contract.

First, note that the debtor (the person who owes you something) is automatically in default in certain situations. For example, a clause in a contract may state that a party’s failure to perform an obligation automatically serves as notice of default.

Nevertheless, the rule is the following: before taking legal action against someone, it is strongly recommended to send that person a notice of default ordering him to rectify the problem according to certain terms and within a reasonable time frame.

This notice of default gives the debtor an opportunity to fulfill his obligation to you. For example, Claudine worked on contract as an assistant camera operator for a movie being filmed in Quebec. For three months, she has been waiting for her cheque. Despite reassurance from the producer, she fears she will not be paid for her work. She therefore sent the producer a notice of default telling him to pay her the $3,000 owed to her within ten days or face legal action.

A notice of default does not mean you have to take the debtor to court. Upon receipt of this formal document, the debtor may be motivated to perform, or he may do nothing. At this point, you decide whether to take the debtor to court.

Some types of proceedings (suing on a contract for example) require a notice of default, so it is a good idea to send one before starting legal action. If a notice was required and not sent, there is a risk that the action will be dismissed or that legal costs will not be repaid to you.

Furthermore, a notice of default may incite the other party to settle amicably, without having to go through court proceedings.

A notice of default is a legal document. It is an expression of your intention to take legal action and is the last friendly step before beginning a lawsuit. It has a dual effect:

from a purely legal standpoint, it is the starting point for calculating interest owed to you on the outstanding balance, as well as a possible way of proving the debtor’s bad faith;

from a dispute resolution standpoint, the formality of such a letter may encourage the debtor to meet his obligation.

As explained in the above question, a notice of default has legal effects, but it is not an official document.

Contrary to the time limits that apply to launching legal proceedings, there is no time limit for sending a notice of default. However, if you want to send one, it is best to do so as soon as possible, because:

• it shows that your intentions are serious;
  
• everyone’s memory will be fresh and there will be a greater chance that both parties still have all relevant documents;
  
• in certain cases, such as those involving latent defects, the law requires that a written notice be sent within a reasonable time.

Be careful! If your notice of default goes unanswered or leads to negotiations that do not result in settlement, you must take legal action within the time limit imposed by law. Otherwise, you risk having your claim dismissed.

It’s a good idea to consult a lawyer as soon as possible (especially if you are pursuing a city or municipality for property damage) to find out about the time limits that apply in your case.

You can write your own notice of default or ask your lawyer to do it. A letter from a lawyer often has a greater impact on the debtor than if you write it yourself.

The notice of default is a legal document, so it must include certain key elements. It is important to be careful in your choice of words when writing the letter. The other party might try to use your written statements against you in court, by arguing that they are admissions of your own responsibility (either express or implied). For this reason, it is a good idea to consult a professional. Usually it is not that expensive to have a lawyer draft a notice of default and it might actually save you from higher legal costs later on.

A notice of default must:

• be in letter form (date, recipient address, sender’s address, signature);
  
• be written clearly using precise language;
  
• include the term "notice of default " in the body of the letter so that the person knows exactly what it is;
  
• include the phrase "without prejudice." This phrase is meant to protect the sender from the contents of the letter;
  
• state what is being requested (what obligation you want fulfilled);
  
• state the reasons for the request (the facts on which the obligation is based) - for example, a signed contract between two parties;
  
• state the time limit and terms with which the debtor must comply;
  
• state the consequences for failure to perform – for example, if the purchase price is not paid, the merchandise will not be delivered and legal proceedings will be commenced.

You should send a notice of default by registered mail accompanied by a notice of receipt. It is very important to keep a copy of both the notice of receipt and your notice of default. These documents will serve as evidence that the debtor received your notice of default. If you think the debtor might refuse to sign for the letter or fail to pick it up, you can have the letter delivered by a bailiff instead. This is more costly, but it allows you to obtain proof that the letter was received – without needing the debtor’s signature.

A person who has received a notice of default has several choices. She can:

• respond to the demands made in the notice of default (by paying a sum, doing the required act or ceasing the objectionable conduct);
  
  
• contact the sender of the notice of default (or his lawyer) to negotiate a financial payment or a different solution than that contained in the notice of default;
  
  
• do nothing and wait for the sender of the notice of default to take the issue to court.

It should be noted that most liability insurance policies (usually part of a housing insurance policy) require that the insurer be informed of any complaints as soon as possible, otherwise they may not be covered. A person receiving a notice of default would therefore be well advised to contact her insurer.