The Ontario Court of Appeal reiterated that the 3-month deadline to register a condo lien is a strict one. Failure to act in a timely manner will result in the lien being lost. This is true, not only when dealing with monthly arrears but also when collecting on a judgment.
This matter initially involved a compliance matter between an owner and a corporation. On February 14, 2011, the condo corporation obtained an order restraining the owner from harassing the corporation staff and residents. The corporation also obtained a cost award of $15,000. [Keep an eye on this amount. It’s about to drastically increase over the course of this litigation]. The owner had 30 days to pay the costs award [This is pretty standard for orders].
March 16 came and went, without the owner paying the cost award. Five months later, the corporation demanded payment of the costs award for the first time. The corporation gave the owner until September 14 to pay. When payment was not received, the corporation sent a notice of lien and eventually registered its lien, on December 12, 2011, which was 9 months after the initial court-imposed deadline to pay.
Eventually, the legal battle evolved into a dispute between the corporation and the owner’s mortgage lender over who should get the proceeds of the sale of the unit. The corporation claimed it had a valid lien covering the costs award and the additional cost incurred by the corporation (by then $113,616, which included $82,000 in legal fees). The mortgage lender argued that the lien was invalid as it was not registered within 3 months of the default.
The mortgage lender argued that the default first occurred when the owner failed to pay the costs award as ordered by March 16, 2011. The corporation claimed that the 3-month deadline to register the lien started to run in September, which was the first payment deadline provided by the corporation.
While it may appear rather obvious that the first default is when the owner failed to pay by March 16 as ordered by the Court, an interesting twist may have to do with the fact the owner may not have known of this deadline and of the requirement to pay. Indeed, it appears from my review of the reasons that the judgment against the owner may have been obtained by default or in the absence of the owner. Another interesting argument by the corporation is the suggestion that section 134(5) of the Condo Act permits a corporation to extend the time for payment by the owner of the unit.
Indeed, section 134(5) of the Act provides that an award for damage or cost obtained by the corporation (together with actual costs incurred by the corporation in the compliance matter) shall be added to the common expenses of the unit. But this section also provides that the corporation may specify a time for payment by the owner of the unit. The Corporation argued that this is what it did when it gave the owner until September to pay.
The decision provides a fairly detailed and interesting analysis of the interaction between section 85(2) [dealing with the deadline to register a lien] and section 134(5) [dealing with the corporation’s ability to tack on a unit a court award, costs and additional costs incurred].
The conclusion, however, is this: A corporation must register a condo lien within 3 months from when the default first occurred. The default first occurred when the owner did not pay the cost award by March 16 as ordered by the court – regardless of when the owner may have become aware of this order. A corporation cannot indefinitely extend the deadline to register a lien by giving the owner additional time to pay. What the corporation should have done is register the lien within 3 months, even if it then opted to provide an owner with additional time to pay.
The end result is that the corporation lost the ability to use a lien to protect it priority over the initial $15,000 costs award. But it also lost the lien protection over the $82,000 of legal costs incurred. The corporation also has to pay some $62,500 in costs to the mortgage lender. Undoubtedly, there will be a further costs award for the lost appeal.
Very often, corporations reach out to us far too late to register a meaningful lien. This is sometimes due to the corporation’s hesitation to incur legal fees and sometimes due to the fact the arrears have fallen through the cracks (as may have been the case here).
A lien is an incredibly powerful collection tool which allows condo corporation to protect 3 months worth of arrears and all future defaults in paying common expenses. It even allows the corporation to take priority over a mortgage. But to benefit from a condo lien, the corporation must register the lien within 3 months of when the default first occurred. Corporations also tend to forget that the corporation must provide the condo owner with a written notice of its intention to register a lien. This must be done at least 10 before the lien can be registered. These deadlines apply whether you are dealing with arrears of the monthly condo fees or whether you are attempting to protect and collect on a judgment against an owner.
Corporations and managers should keep a close eye on owners’ ledgers and should reach out to their legal counsel early on. Don’t wait on the eve of the third month anniversary.