In a recent court case, a condo owner challenged a lien registered against his unit, alleging that the corporation was late in registering it and that it ought to have mediated the chargeback prior to registering the lien. In this post, we review this decision and the important lessons it brings.
Facts of the case
Three years ago, Mr. O’Regan left his condo unit while his eggs were cooking on the stove. Neighbours alerted the superintendent that smoke odour was emanating from the unit and that the fire alarm could be heard from the hallway. When no one answered the door, the Super entered using the master key. The unit was found empty, with smoke billowing from a pot on the stove. The Super removed the burning pan, soaked it in water and opened the balcony door and windows to let the smoke out.
The Corporation retained a contractor to remedy the smoke damage in the hallways, at a cost of $8,637. The Corporation charged back the deductible portion of the work ($5,000). When the owner did not pay, the condo served a notice of lien and, eventually registered a lien.
Questions raised in this case
The owner contested the lien, claiming that:
- Only “regular” monthly condo fees could result in a lien, not chargebacks;
- The condo ought to have mediated the chargeback before registering a lien;
- The condo ought to have first obtained an order before being able to lien the unit;
- The lien was registered beyond the 3-month time limit.
The timeline of events is important to understand this case:
- December 18, 2018: The smoke incident;
- January 23, 2019: the corporation was invoiced for the remediation work;
- August 8, 2019: the corporation paid the contractor;
- January 31, 2020: (13 months after the smoke incident) the condo advised, for the first time, that it was charging the deductible and gave the owner 30 days to pay. This was the first request for payment;
- March 1 2020: the deadline given to pay;
- May 13, 2020: service of the notice of lien; and
- May 29, 2020: registration of lien.
Can condos lien for chargebacks?
The owner first argued that the corporation could not lien a chargeback and that only “regular monthly fees” could be the subject of a lien. The court did not agree with him.
Section 85 of the Act creates an automatic lien against a unit when the owner defaults in his obligation to pay common expenses. Section 1 of the Act defines common expenses as those related to the performance of the objects and duties of the corporation and all expenses specified in the declaration.
In this case, the declaration contained a strong indemnification provision which provided that:
Each owner shall indemnify …the Corporation from and against any loss, costs… which the Corporation may … incur … caused by an act or omission of such owner…. with respect to the common elements…
All payments pursuant to this clause are deemed to be additional contributions towards the common expense and recoverable as such.
Since the expense incurred by the condo corporation resulted from the owner’s acts or omissions (leaving unsupervised eggs on the stove), accordingly the corporation could charge the remediation cost as a common expense and, therefore, could lien if the owner failed to pay the charge.
When does the 3-month period to lien start to run?
The owner argued that the corporation was out of time to register the lien, since more than three months had passed between the smoke incident and the registration of the lien.
Subsection 85(2) of the Act provides that the lien expires three months after the default that gave rise to the lien. So the central question to this case is : when does the clock start to run?
- On the day of the damage to the common elements?
- When the corporation incured the expense to remediate the common elements?
- When the corporation paid the contractor?
- When the expense is added to the ledger?
- When the corporation asks for payment?
The court confirmed that the three-month period begins to run when the unit owner fails to pay the obligation relied upon to invoke the lien. Until the corporation demanded payment the owner had no obligation to pay. The owner can only be said to have been in default as of March 1, when the deadline to pay expired. As such, the lien was registered on time.
Must condos mediate chargebacks before registering liens?
The owner argued that the corporation ought to have mediated and obtained an order under section 134 of the Act prior to being able to register a lien under s. 85. The court did not agree with him.
These sections deal with two distinct processes:
- s. 85 deals with the collection of arrears and the registration of liens
- s. 134 deals with compliance orders
The court concluded that this was not a matter of compliance. The Corporation did not require an order to force the owner to comply with the legislation or with its governing documents. This was not a case where the owner smoked in a smoke-free building, or leased a unit on a short-term platform when rules provided otherwise. Here, the corporation was seeking to collect common expenses. As such, the corporation was not required to obtain an order prior to being able to charge the unit the cost of the deductible.
On the question of mediation, the court confirmed that mediation was not a mandatory prerequisite to the registration of a lien. The sections of the Act dealing with the registration of liens did not expressly require mediation and liens were also not referred to under section 132 of the Act (which imposes mandatory mediation to certain disputes).
We have said it before, it is quite risky for an owner to ignore a charge made by the corporation. The risks and costs associated with such a refusal can have very serious consequences for the owner. In case of doubt, it is best to consult with a lawyer.
The decision (O’Regan v. CCC 169) is presently unreported but you can read it here.