The Condo’s Lien Right – When Does Default Occur?

bank.jpgRecently, the court released an interesting decision on cost awards against owners and the right to lien.The facts are lengthy, but it is important to understand the background.

The condominium brought a compliance proceeding against one of the owners. The condominium was successful. The judge made an endorsement that required the owner to pay $15,000.00 in costs within 30 days of the date of the endorsement. The condominium switched counsel and management companies shortly after the endorsement was made. Several months later the condominium added $44,000 to the unit owner’s ledger. The condominium’s lawyer then sent a letter to the owner demanding payment within 30 days.  The owners did not pay so the condominium’s lawyer sent a notice of lien in November 2011 and registered the lien in December 2011. The condominium served a statement of claim for possession and a default judgment was signed in April 2013. A notice of sale was sent in May that indicated $77,709 was owing. The condominium obtained possession of the unit in November 2013.

In December 2013, the owner stopped paying his mortgage. The lender, CIBC, began making demands for payment. CIBC obtained judgment on October 22, 2014, for $135,411 plus costs. For unexplained reasons, CIBC was not aware of the power of sale proceedings of the condominium and the fact that the condominium was set to sell the unit within a few days. The condominium and CIBC agreed to continue with the sale of the unit and hold the proceeds in trust until a court could determine the priority of the lien and mortgage. 

The issue was whether the lien was valid. If the default by the owner was within 3 months of the registration of the lien, the lien takes priority over the mortgage and the condominium was entitled to the proceeds from the sale before CIBC, but if the default was more than 3 months prior to the registration of the lien, the lien was invalid and CIBC’s mortgage had priority.

The condominium argued that s.134(5) involved a two-step process: 1) obtain the cost award; and 2) chargeback to the owner. The chargeback did not occur until the condominium took some additional step to collect the amount.

CIBC argued that the condominium’s position would give condominiums the unilateral ability to alter the deadline for perfecting liens for court orders made against owners, which would defeat the “delicate balance” struck by the Legislature when it created the lien right and the requirement for registration within 3 months of the default.

The court agreed with CIBC’s reasoning. At paragraph 51 the judge said:

The common-sense meaning of default when used in relation to an obligation to pay is that default occurs when the payment is due but not made.

The court found in favour of CIBC and ordered the condominium’s lawyer to provide the sale proceeds to CIBC. The condominium was left with nothing.

As in this case, with costs awards the default begins the day after the costs were to be paid to the condominium. No additional step is required to make the amount payable by the owner.

Using the same reasoning with monthly condominium fees, it would be the day after they are due. For instance, if the fees are due on the 1st of the month, the default would occur on the 2nd of the month.

What about chargebacks for extraordinary expenses like picking up garbage or pet waste? Fixing a window or other damage caused by an owner?  Legal costs for enforcement matters where a cost award has not been made? For chargebacks, it may be wise to discuss the default with the condominium’s lawyer to make sure the deadline is not missed. Is the default when the condominium incurred the loss or received the invoice? When the condominium makes a demand for payment on the owner? When the owner misses the date for payment set out in a letter from the condominium?