Changes are Coming – Chargebacks

chargeback.jpgLast Friday I participated in the ACMO Burlington conference as a speaker on the legal panel. One of the topics that I briefly spoke about was chargebacks and liens. I spoke about the changes coming to the lien and chargeback processes in the Condominium Act, 1998 (the “Act”). Today I’m going to summarize my presentation for those who were not able to attend the conference. 

Amendments to the Act

As it is now, there is no process in the Act for chargebacks to unit owners. This has lead to several court cases and countless disputes. Fortunately, the amendments to the Act include a process for chargebacks by a condominium. The process is:

  1. Within 15 days of adding the amount to the owner’s ledger the corporation must give the owner notice;
  2. Within 30 days of receiving the notice the owner shall:
    1. Pay the amount;
    2. If the owner transfers the unit within 30 days ensure that the amount is held in escrow and notify the corporation;
    3. Apply to the Condominium Authority Tribunal (if applicable); and
    4. Apply to the Superior Court of Justice (if the Tribunal has not be established or is not authorized to hear the dispute).
  3. After 30 days, the corporation can proceed with a lien if the owner does not take steps to dispute the chargeback.

If an owner applies to the Tribunal or Court, he is exempt from paying the chargeback until there is an agreement or order that says otherwise. Once he is no longer exempt from paying, the corporation must send notice to him with a due date for payment.

This amendment came about because corporations abused the lien right and registered improper liens without any legal right to do so. It is unfortunate that a few bad apples spoiled it for the rest as this new process will likely cause plenty of headaches to good intentioned corporations simply looking to recover charges incurred because of the misconduct of an owner or tenant. I hope the Tribunal is set up with a summary dismissal process that allows it to dismiss claims that clearly have no merit so corporations aren’t saddled with huge legal bills to dispute chargebacks for $100. If not, corporations will have to determine if that $100 chargeback is worth the risk of a claim (and the legal costs likely to be incurred because of it).

Other Lien & Chargeback Issues

I also spoke about two payment issues that happen often in condominiums in Ontario. Sometimes owners will make payments for one type of charge (i.e. monthly fees), but not another (i.e. chargeback, special assessment). Can the condominium use payments for one type to pay down the other charges? Can the condominium apply payments to the oldest arrears?  The answer to both questions is yes. The courts have held that condominiums can apply payments received from owners toward the oldest arrears regardless of the types of charges and payments. The result is that the default rolls forward each month as payments are made. For instance, if a chargeback is added in January and the owner refuses to pay it, the condominium can use payments made in February towards the chargeback. A payment in March would be applied toward the outstanding amount for February, and if any is left over, March. This process continues until the owner catches up or the condominium takes steps to collect the amount.

What should the condominium do with payments made after a lien is registered? Can the condominium refuse payments? Many lawyers tell their clients to refuse payments because they do not want the acceptance of partial payments to be seen as a settlement. (It seems like it would be easy to write to the owner to notify them that the condominium has not agreed to settle for a lesser amount). The more likely reason is that it is less work from an administrative perspective.

What’s the risk to refusing payments? The courts have said that condominiums do not have the right to refuse payments. If a condominium refuses payment it loses the right to charge interest from the date of its refusal to the date that the full amount is paid. Given that many condominium by-laws have interest rates of 18% per annum (or higher) the condominium could be giving up a large amount of money if it refuses payments made by an owner.

My advice is to accept the payments and account for them as you would normally when the owner makes them. The lien could take 2 years to resolve if the owner challenges every step of the way. It isn’t fair to the other owners who make their payments to cover the expenses of the owner. Do you think the other owners would be happy to hear that the condominium refused payments? Do you think they would be happy to hear that the deficit for the year could have been avoided?