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Court Expands Condo Lien Notification Requirements

In a not yet reported case, courts appear to have expanded the notice requirement when liening a condo unit. Failure to properly notify the owner’s spouse may render the lien invalid as against said spouse, even if she neither owns, nor occupies the unit.

Facts of the case

This case involves a condo unit registered solely in the husband’s name. Following their separation, the owner’s wife left the unit and registered a Designation of Matrimonial Home on title. This Designation contained her new address.

Some years later, the owner defaulted in paying his monthly common expenses. The corporation sent a notice of lien and, ten days later, registered a certificate of lien against the unit. While the owner was notified of these steps, the corporation did not notify the spouse.

The corporation eventually commenced power of sale proceedings, after having sent a notice to both the husband and the spouse, but (in both cases) at the unit’s address. The corporation eventually took possession of the unit and took steps to prepare it and list it for sale, at great cost to the corporation.

In parallel to this, in the context of an unrelated family law proceeding, the spouse obtained an order granting her exclusive possession of the matrimonial home and vesting it in her name. By the time the spouse took possession of the unit, the arrears totalled more than $41,000 (including legal fees). The former wife commenced a claim and brought a motion for partial summary judgment seeking to have the certificate of lien and the power of sale proceedings declared null and void.

Who should you give notice to?

The process leading to the forced sale of a unit has three distinct steps, with three distinct notice requirements.

The notice of lien

Section 85(4) of the Act provides that prior to registering a lien, the corporation shall give written notice of the lien to the owner whose unit is affected by the lien. An owner is defined as the person who is shown as the owner of the unit in the land registry records.  In this case: the husband.

The registration of the lien

Section 86 then provides that, on or before the day the lien is registered, written notice must be given to every encumbrancer whose encumbrance is registered against the title of the unit. This usually refers to mortgage lenders or people with a charge against the unit.

Subsections 86(5) and 86(6) provide that failure to give the required notice to an encumbrancer will result in the lien losing priority over said encumbrancer. The lien therefore remains valid but loses its priority as against specific encumbrancers.

The forced sale

Once validly registered, a lien may be enforced in the same manner as a mortgage.  This brings us to the Mortgages Act, which requires that notice be given to anyone having an interest in the mortgaged property.

The interplay with the Family Law Act

The Family Law Act, however, provides a certain protection to “matrimonial homes” (the property ordinarily occupied by married spouses). Regardless of who owns it, both spouses have an equal right of possession of the matrimonial home. This designation is effective as against the other spouse.  This means that the owner cannot sell or dispose or encumber a matrimonial home without the other spouse’s consent.  It is interesting to note in passing that these restrictions applicable to the matrimonial home do not apply to the acquisition of an interest in the property by operation of law (for example, the statutory lien under the Condo Act).

Section 22 of the Family Law Act provides that “when a person proceeds to realize upon a lien… against… a matrimonial home, the spouse who has a right of possession (the wife in this case) has the same right of redemption … as the other spouse (the husband, here)… and is entitled to the same notice respecting the claim and its enforcement or realization”.

The Decision

While the judge acknowledged that section 85(4) of the Condo Act is silent on whether the notice of lien has to also be given to spouses when units are  matrimonial homes, the Judge concluded that section 22 of the Family Law Act required that notice be given to spouses at every step of the liening process (the notice, the registration and the forced sale).  The judge viewed that each of these steps were “steps towards the realization” of a lien.

Based on the above, the Judge concluded:

…before a condominium corporation takes a step that may affect the possessory rights of an untitled spouse in a matrimonial home, it must first make reasonable inquiries about whether the unit is a matrimonial home and the existence and address of any untitled spouse. Conducting a review of the title to the unit would constitute a reasonable inquiry in this case, which would have revealed sufficient particulars to determine that the unit was a matrimonial home, and the name and current address of the untitled spouse.

The judge concluded that the lien remained valid as against the registered owner (the husband) but that it was ineffective and invalid as against the other spouse.

Lessons learned

We will leave to others in the industry to comment on this decision and its practical ramifications. But, for the time being, the take away from this decision is that corporations ought to take reasonable steps to identify and locate the owner’s spouse when taking any lien steps.

This may be difficult in many instances as corporations may not necessarily know the (potentially changing) marital status of an owner. Keep in mind that the matrimonial home designation is only available to married couples and not to common law partners.  Having stated this, in most (but not all) cases, both spouses appear on title as it is very common for spouses to hold title jointly.

However, to complicate things even more, one must keep in mind that the matrimonial home protection may be triggered whether one registers a designation to that effect or not.

Liening and collections are becoming a minefield. Yet another reason to involve the corporation’s lawyer every step of the liening way.

You can read the decision here.

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