A Warning to Owners Leasing their Units

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A recent case provides a warning to owners leasing their units. Briefly, the facts are as follows. A unit owner leased her unit to a tenant. The tenant “did not live harmoniously with his neighbours” and was in constant conflict with management. He sued the condominium for over $5,000,000. The condominium’s lawyer wrote to the owner to warn them that the costs incurred by the condominium to defend itself against the tenant’s claim would be sought from them. The owner’s son, who was power of attorney, ignored the warning and provided an affidavit in support of the tenant’s claim against the condominium. The tenant’s claim “failed miserably” and the condominium sought to recover about $86,000 in legal fees from the owner.  The owner refused to pay and the condominium registered a lien against the unit.

The court found no reason to question the validity of the lien. The main argument presented by the defendants was that the owner was not properly served by the condominium. The court found that the owner was in India at the time and it was difficult for her own family to contact her. “It would not be realistic to require the corporation to serve her personally and the law does not require it.”

The court reviewed the new provisions of the Condominium Act, 1998 at paragraph 27:

The Condominium Act establishes what must be done to serve a document for the purposes of the Act:

  • Section 46.1(3)(b) requires the corporation to keep a record of each unit owner’s address for service if that address is in Ontario.
  •  Section 46.1(4) states that a document can be served on an owner in several different ways including delivery by prepaid mail addressed to the owner at the address for service that appears in the records of the corporation.

The court was satisfied that the documents were served on the owner when the condominium sent the document via registered and regular mail to the address for service provided by the owner. “There was nothing more that the corporation could do.”

The owner also disputed the validity of the process because the condominium did not bring an action or have a hearing before registering the lien. The court reviewed section 85(1) of the Act and confirmed the process does not require an action to be commenced prior to the registration of a lien against a unit. The condominium must register the lien within three months of the default and must provide notice of the lien at least ten days before registering it. The condominium satisfied the requirements of the Act.

The owner tried to argue that it was not fair for them to be responsible for their tenant. In response, the court said:

[36]           The simple answer to the questions raised by the Sandhu family is that section 134(5) of the Condominium Act makes the unit owner responsible for the financial consequences of her tenant’s actions. If a corporation is awarded costs in an order which is made against an owner or an occupier of a unit, the costs, including the legal fees of the corporation, are added to the common expenses of the unit. That is simply the law of Ontario.

[37]           There are very good reasons for that law. One must consider the nature of condominiums and the rules that are necessary to regulate them. A condominium draws many strangers to live together in a single building. For many unit owners, the purchase of their condominium unit will be the largest financial investment of their lives. It is essential that the building is managed in a way that preserves the value of the property and maintains a sense of fairness for everyone.

[38]           The sense of fairness is created by imposing strict responsibilities both on unit owners and managing corporations. Unit owners are responsible for paying their share of the common expenses and for the conduct of any one who occupies their unit. The corporation is responsible for collecting the common expenses and notifying the unit owner of any troubling behaviour by a tenant. The purpose of the legislation is to ensure that the actions of a single unit owner do not give rise to additional expenses for all the other unit owners.

The court, while sympathetic to the owner’s situation, granted judgment in favour of the condominium and granted it possession of the unit so it can sell the unit to recover the amounts owing under the lien.

 

 

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?

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The Battle Rages On…

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A few years ago I wrote about a case that had dragged on for over six years.  It involved a former director and a condominium. The director took various steps without legal authorization from the board, including terminating the manager and commencing a legal action against the property management company and its president. The director also commenced an action against the condominium and accepted service of his own claim so the other directors were not aware of the claim. This was all within 4 months of being elected by the owners. Not surprisingly, the owners requisitioned a meeting to remove him. That didn’t stop him. He started 5 legal actions in 2010, all of which were dismissed with costs. He appealed, which was also dismissed. Continue reading

Winter Case Law Reading

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I feel like all I write about these days is Bill 106 (the amendments to the Act). Today, I’m getting back to my roots and writing about some important decisions released by the courts and tribunals in Ontario in the past few months. The first is about the enforcement of a lien. The second is about an owner who won’t quit. And the third is about a director who felt she was discriminated against because of her age. All of the decisions are available on CanLII if you want to read them in their entirety.   Continue reading

Is lien work really for lawyers only?

liensThis post is likely to be unpopular with my colleagues, but it needs to be said.

Lien work is gravy work for lawyers. It takes us very little time from start to finish, it can be easily delegated to staff, and it can be very lucrative because most boards don’t know or care what is charged since the owner foots the bill. As a result, many law firms spend thousands of dollars a year on advertising their lien work. Take a look at the advertisements in the condo industry magazines for the past year. I bet you find at least 2 firms advertising their special lien software or collection “guarantees”.

In recent weeks you’ve probably read an article or two about the appropriateness of non-lawyers registering and discharging liens. The discussion stems from a single Small Claims Court case where an owner sued a property management company after it registered and discharged a lien against her unit. The owner (a paralegal) felt that it was inappropriate for the management company to use an in-house paralegal to register and discharge the lien.  She brought an action in the Small Claims Court seeking the return of the legal fees she paid ($819.25) for the lien and punitive damages.

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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.  Continue reading

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.  Continue reading

Improper Use of the Indemnification Clause

Many declarations contain a clause that requires the owners to indemnify the corporation for a loss, cost, damage or injury to the common elements or units if it was caused by the owner, his family, tenants, guests etc. Many condominiums attempt to apply these clauses to other types of expenses incurred by the condominium, such as legal costs.

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Lien Deadlines

Today I thought that I would share a practical tip about liens with you.

Many boards like to wait until the very last moment to register a lien so they give the owner the most time possible to make payment. This is risky because the lien right expires and delaying may mean the condominium is unable to register a lien before the right expires. As you know, section 85 of the Condominium Act, 1998, states that the lien right expires 3 months after the default if a lien is not registered against the unit (or POTL for common elements condominiums).

The 3 month period set out in the Act isn’t the only deadline you need to be aware of. It is important to note that the electronic registration system used by most lawyers only permits documents to be registered between the hours of 8:30 a.m. and 5:00 p.m. Monday to Friday, excluding holidays. So if you send instructions to lien to the lawyer at 4:55 p.m. on the last day of the month there is a good chance that they may not have time to register it and the condominium will lose the right to register a lien for the oldest arrears.  Continue reading

Chargeback or Fine?

I’m often asked by directors if they can fine owners for unruly or disruptive behaviour, like excessive noise or improper parking. The simple answer in Ontario is no. While a condominium cannot fine an owner, it may be able to charge some costs back to the offending unit owner in certain circumstances. This process is typically referred to as a “chargeback”.

The Condominium Act, 1998, is clear that a condominium may only lien an owner for “common expenses”, which according to the Act are “expenses related to the performance of the objects and duties of a corporation and all expenses specified as common expenses in this Act or in a declaration”. It is noteworthy that it says the Act or declaration, not the by-laws or rules. This seems to suggest that an indemnification clause in a by-law or rule is not sufficient, in itself, to support a lien against a unit for a chargeback.

A provision in a by-law or rule may be sufficient to support a lien against a unit for a chargeback if it is authorized by the Act. For example, a condominium may pass a by-law extending the circumstances where a deductible may be charged back to an owner. While the provision is within a by-law, it is enforceable because of section 105 of the Act, which authorizes a condominium to pass such a by-law.

This is a controversial topic. Many lawyers ignore the definition of “common expenses” in the Act and rely upon provisions in rules and by-laws, without further support, to charge costs back to owners. If you have any doubts about the condominium’s ability to charge back an amount to an owner you should discuss it with the condominium’s lawyer or property manager.

For more information, see the Ontario government’s website.