Owner’s Challenge to Special Assessment

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A unit owner recently brought an application to the court for an order declaring a notice of sale issued by a condominium under a lien null and void. The owner was also the condominium’s declarant. The declarant did not turn over the condominium to the owners when required by the Act or contribute to the common expenses for the units it still owned. Sound familiar?

The owners fought to gain control of the condominium from the declarant. When they finally gained control, the new board discovered the declarant had not contributed for its units so the new board registered a lien against the units owned by the declarant. The declarant did not pay to discharge the lien so the condominium issued a notice of sale under the Mortgages Act. The declarant argued the notice of sale was invalid for four reasons:

  1. the special assessment was not levied in accordance with the by-laws because no budget was in place at the time;
  2. the notice of special assessment failed to provide the information required by the by-law;
  3. the information in the notice of special assessment was misleading; and
  4. the funds collected as part of the special assessment were spent improperly.

On the first two issues regarding compliance with the by-laws, the Court was satisfied by the evidence submitted by the corporation. The newly elected board assumed the budget of the declarant when it was finally able to gain control from the declarant. The special assessment notice provided sufficient detail of the reason for the assessment (i.e. that the declarant left no money in the accounts to pay outstanding bills) to satisfy the requirements of the by-law. The by-law did not require “a line-by-line statement of exactly how the amount of the special assessment was arrived at.”

The Court also rejected the declarant’s argument that the notice was misleading because the corporation did not use the special assessment to bring the balance of the reserve account up to the amount set out in the notice. The corporation argued that it was unable to do so because the declarant refused to pay their share of the special assessment, which was roughly $41,000. The Court said “[u]sing these figures, it is clear that the Corporation could have managed to bring the reserve fund up to the required level had 155 paid its proportionate share of the special assessment”. In short, the Court found that the declarant can’t use a problem it caused to invalidate the notice of sale.

Finally, the owner argued that the the corporation’s use of the special assessment to reimburse an owner for legal costs involved in becoming a director of the corporation was improper. The corporation provided evidence that the amount paid to the owners was for legal services provided to the corporation. A small group of owners paid the legal fees for the corporation while the newly elected board tried to collect money from the owners to pay the bills. The Court found that the legal accounts “were rendered in the period during which the owners were fighting for the control of the Corporation to which they were legally entitled.”

The Court has requested submissions on costs, which I am eager to see given the (unsurprising) outcome of this decision. This case should serve as a warning to other declarants who refuse to turn over control to owners when required by the Act and fail to contribute to the common expenses for units they own.

The full decision is available on CanLii here: https://www.canlii.org/en/on/onsc/doc/2019/2019onsc3715/2019onsc3715.pdf