Timely collection of common expenses by condominium corporations is essential to the safeguard of their financial viability. For this reason, the Condominium Act permits condominiums to register liens against the unit of owners who are in default of paying their common expenses. Once registered, the lien has priority over mortgages. However, to benefit from this powerful collection tool, a corporation must register the lien within three months from when the default first arose. This is a strict deadline. Missing this deadline by even one day may either render the lien invalid or may not capture all of the arrears.
Calculating the 3-month period is easy when dealing with an owner’s default to contribute to the monthly common expenses. However, as an Ottawa corporation recently found out, it may be far trickier to calculate this deadline when the corporation is attempting to recover legal fees.
Facts of this case
In 2012, Carleton Condominium Corporation No. 22 (“CCC 22”) turned to the corporation’s lawyer to send a “cease and desist” letter to a unit owner, claiming that her adult son’s behavior was causing problems in the community. We already blogged about this.
In the context of the corporation’s demand letter, the corporation’s lawyer requested that the owner pay $450, representing the legal fees incurred by the corporation to have the letter drafted. The letter, which was dated July 9, 2012, gave the owner two weeks to pay these legal fees, failing which the amount would be added to the unit’s common expenses. The corporation paid its lawyer’s legal account on August 22 and added this expense to the owners’ ledger on the 1st of September.
The owner felt these fees were unfair and decided not to pay them. Reminders were sent by the corporation, which were equally ignored by the owner. Eventually, on November 2, 2012, the corporation served a Notice of Lien on the owner. By then, the amount claimed had climbed up to $1,164. The owner also ignored this notice. The corporation registered it lien on November 13, 2012, increasing the total amount claimed to $1,734.
We were retained to contest the validity of the lien. We argued that it had been registered too late to capture the legal fees claimed in July.
When does the clock start to run?
The question for the judge was to determine whether the lien had expired prior to its registration.
- The owner argued that the 3-month period started to run either on July 9 (the date of the demand letter) or, at the latest, on July 23 (the expiry of the 2-week deadline to pay).
- The corporation argued that the lien had not expired and that the clock did not start to run before either August 22 (when the corporation paid the lawyer’s invoice) or September 1st (when the corporation added the legal fees to the owner’s ledger).
The starting point was the language of the Condominium Act which provides that a corporation’s lien to collect arrears expires three months after the default unless the lien is registered on title. The judge was of the view that courts have applied the 3-month deadline strictly and have rejected corporations’ attempts to revive or extend liens. To proceed any other way would upset the fairness in which the Condominium Act balances the rights of the various stakeholders, including the corporation and the owners.
The judge then had to determine when the “default” to pay the common expenses first occurred. He first considered the fact that CCC 22’s declaration defined “common expenses” as including any sum of money which was paid or payable by the corporation. He also considered the fact that the declaration provided that any legal fees incurred (not necessarily “paid”) by the corporation as a result of an owner’s breach became immediately due and payable by the owner. Considering the fact that the corporation had given the owner 2 weeks to pay, the judge concluded that the default first arose when he did not pay by July 23, 2012.
The lien was registered too late. It was therefore invalid. The judge ordered the lien to be lifted at the corporation’s cost and ordered the corporation to pay in excess of $10,000 in costs to the owner. This was a fairly expensive lesson for a corporation who was initially seeking the payment of $450.
- When claiming legal fees as part of a compliance letter, it is best to give the owner a deadline to pay, otherwise there may be some uncertainty as to the starting point of the deadline to lien. The starting point may even be the date of the letter;
- A corporation should pick a deadline that “makes sense” like the first of the month, rather than having various mid-month dates;
- It is best to immediately add the expense to the owner’s ledger, to make sure that a default to pay will be picked up immediately when reviewing the owners’ ledgers. Sometimes, the person at the property manager’s office dealing with the arrears and liens is not aware that a compliance letter has been sent;
- It is best to put in place a system with proper reminders to avoid losing the ability to place a lien;
- Finally, it is best to speak with the corporation’s lawyer sufficiently in advance to be able to register the lien (ie. don’t wait until the last minute; talk to your corporation’s lawyer within the second month).