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Liens Are Not the Only Way for Condos to Collect Arrears

In case there was a doubt in anyone’s mind, registering and enforcing condominium liens is not the only method available to condominiums wishing to collect arrears. Indeed, in a recent case, the Court of Appeal confirmed that condominium corporations can also sue for unpaid common expenses, the same way any creditor could for an unpaid debt. 

Facts of this case

It would be difficult to summarize the facts of the cases opposing Mr. Burdet to the small condominium corporation housing his many units.  This case has been ongoing since at least 2009 and there are no less than 8 reported decisions on this legal saga, two of which by the Court of Appeal. The legal issue at the basis of this battle was whether the 18 storage units in the condominium basement were units with a vote or whether they were storage units without a vote.  These units were described as “storage units” (without a vote) in the original declaration, which was later amended to show them as “industrial commercial units” (arguably with a vote).  For what it’s worth, there is no water in these 18 basement units and they had been used as storage space  for the first 11 years of existence of this condominium corporation.  These units were eventually sold to Mr.  Burdet (or to various entities controlled by him, directly or indirectly).  With a vote per unit, he became the majority owner in this condominium corporation. He eventually made his way onto the board of directors and, for all intents and purposes, controlled the corporation and its board of directors, with dire financial consequences for the minority owners.  The minority owners attempted to amend the declaration and brought oppression remedies in the past.  An administrator was eventually appointed.  When Burdet’s units fell in arrears, liens were placed on them and power of sale proceeding were instigated.

The above is an oversimplification of an extremely painful and lengthy legal battle but, for the purpose of this blog, the long and short of it is that the owner(s) of the defaulting units owed some $300,000 in common expenses and was ordered to pay some $790,000 in legal fees and disbursements (as calculated in March of 2015).  We blogged on this already.

Before the Court of Appeal, Mr. Burdet raised a myriad of arguments, but the one of interest today dealt with whether a corporation could sue for unpaid common expenses or whether its only recourse was to register and enforce a lien.

How can a condominium collect on arrears?

By law, owners are required to contribute to the common expenses in the proportions specified in the declaration. If an owner defaults in this obligation, the corporation automatically has a lien against the owner’s unit for the unpaid amount together with all interests owing and all reasonable legal costs incurred by the corporation in connection with the collection of these amounts. Such a lien has priority over every registered and unregistered encumbrances (such as mortgages), with some exceptions such as for municipal taxes.  However, a lien expires three (3) months after the occurrence of the default that gives rise to the lien unless the corporation registers on title a certificate of lien within that time.  Naturally, a corporation who does not register a lien in time loses this very powerful priority over any arrears which are older than 3 months.

But a corporation who does not register its lien on time does not lose its right to sue for arrears.  The provisions of the Condominium Act do not eliminate any other remedies available to the corporation.  Indeed, it has been recognized on numerous occasions that condominium corporations can also sue to collect their arrears, provided that the lawsuit is commenced before the expiry of the limitation period.

This “clarification” by the Court of Appeal has resulted in an additional cost award in favour of the condominium corporation in the amount of $27,000.

Lessons learned

It is far simpler and less expensive to register a lien before the expiry of the 3-month period following the default.  Prior to registering a lien, the corporation must have provided the owner with a 10-day notice. It is therefore crucial to act swiftly and to keep these important deadlines in mind.  If all fails, commence a claim before the expiry of the limitation period.

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