The collection of unpaid common expenses, whether it is the monthly contribution payable by each unit owner or the extra payments which can be collected pursuant to the Condominium Act, 1998 or a corporation’s governing documents, is one of the primary responsibilities of a board of directors and the management company.
We had noticed some trends recently which are causing us concern on behalf of our clients where management companies are registering liens themselves. In light of the frauds which are alleged to have occurred recently by one or more condominium management companies, it is a simple step for boards to ensure that their collections are properly handled and no funds go missing or remain uncollected.
Here are some examples of the matters which we have encountered and about which boards of directors should be aware.
- Mistakes are made by managers. We see situations where the proper Form 14 was not used, it was not sent in the prescribed time frame and/or the registration of the lien was completed beyond the three months permitted under the Condominium Act or not registered at all. This results in amounts not being collectable by the Corporation. When management does the collection based on its own Form 14 and/or Notice of Lien, there is no independent oversight to bring to a board’s attention the mistakes that have been made and so the loss of the amounts due ends up being absorbed by the condominium owners, without the board of directors realizing that perhaps the management company should be responsible.
- If the lien is not registered by the corporation’s solicitor and an error has been made resulting in a defect in the lien registration process it will impact the ability to proceed by power of sale and the corporation’s losses will be even greater.
- When a management company’s services are terminated and that company has been doing the collections, including the lien work, the corporations have been unable to obtain the records of what units are in arrears and what procedures have been carried out pursuant to the Condominium Act, to collect those arrears. The cost of obtaining these records from a management company is rarely worth the legal fees to obtain them. We recently encountered a situation where the management company charged the condominium corporation for the registration of a lien which it never registered, so not only did the condominium lose its priority for the arrears but it paid a fee to the management company that did not do the work for which the corporation was billed.
- The Condominium Act sets out specific requirements with which a condominium corporation must comply in order to ensure its lien priority over other registered encumbrancers like mortgagees on title. The failure to properly serve those mortgagees or other encumbrancers with the required notices, may invalidate the lien and will certainly affect the priority. If that occurs those losses are rarely recoverable from the management company either because the board of directors is not made aware of the reason for the problem, since the manager should be financially responsible for it, or it is never brought to the board’s attention as it is not in the management company’s interest to do so.
- Management companies should not be making decisions on whether collections, other than monthly common expenses and special assessments, are properly recoverable by way of a lien. In addition to the provisions of the Condominium Act, each corporation has different provisions in its documents governing the ability to collect charges owing by a unit owner by way of a lien. Often legal review is necessary to make these determinations. Sometimes management companies fail to consider registering a lien because they do not think the corporation has the authority to do so or lien when there is no authority to do so.
- Finally, our concern with management companies registering liens, is that S. 85(3) (c) of the Condominium Act allows, in addition to the recovery of arrears of common expenses, “all interest owing and all reasonable legal costs…”. That phrase was included in the legislation to ensure that the registration of liens was only done by members of the legal profession. There is a strong argument that the fees charged for registering liens by management companies are not recoverable by a condominium corporation.
As board members, good governance mandates that someone other then the management company be retained to register liens on behalf of the corporation. We urge you to review the practice in your condominium and ensure that your board is following best practices
- Are you receiving your Ontario Clean Energy Benefit (OCEB) rebate of 10%? Under the Ontario Clean Energy Benefit Act, 2010, condominiums are eligible to receive a rebate of 10% on their bill, regardless of their level of electricity consumption or demand. It has recently come to light that many condominium corporations eligible for the OCEB may not be receiving the 10% OCEB rebate. The rebate is retroactive to January 1, 2011. Condominium corporations that have not been receiving this 10% rebate should contact their local electricity utility and request a self-declaration form to confirm they are eligible for the OCEB.
- We recommend that when issuing status certificates, which include an indication that there are arrears of common expenses in paragraph 6, surcharges in paragraph 8 or additional payments in paragraph 12, the following statement be added after the amount disclosed in any of these three paragraphs: “Please contact the management office, prior to closing, for a statement as to the amount of arrears owing at the time of closing.”
- Condominium corporations should seek expert advice before entering negotiations with a neighbouring development. How negotiations should be handled depends on the specific facts of each case. Boards of directors need to fully understand the relevant facts involved before entering negotiations so that the corporation’s residents are fully protected.