In Ontario, condominium corporations can register liens against the unit of an owner who defaults in paying his or her common expenses. Once the lien is registered, it grants the condominium priority over the mortgage. This very powerful tool to collect arrears expires if the lien is not registered within 3 months of when the default first occurred.
Two weeks ago, we blogged about an Ottawa case where a judge confirmed that the 3-month deadline to register a lien to recover legal fees started to run from the expiry of the deadline given to the owner to pay. At about the same time, a Toronto judge was hearing a case raising a similar question: when does the 3-month deadline to register a lien start to run when a corporation seeks to recover a costs award or “additional actual cost” incurred in the context of a compliance proceeding?
In the Ottawa case, the corporation’s lawyer sent a “cease and desist” letter to an owner, demanding compliance with the corporation’s rules. In that same letter, the corporation’s lawyer gave the owner 2 weeks to pay the legal fees associated with the letter ($450). When the owner refused to pay, the corporation registered a lien. In that case, the judge ordered that the lien be discharged because it had been registered too late. The judge concluded that the 3-month deadline to register the lien started to run at the expiry of the 2-week deadline given to pay. Not when the corporation added the legal expense to the ledger.
The Toronto case is slightly different but leads to the same result. In that case, the corporation actually commenced a compliance court proceeding. It was alleged that the owner had violated various provisions of the Condominium Act. As the owner failed to appear at the February 14 hearing, a number of restraining orders were directed at the owner. The legal costs of the proceeding were fixed at $15,000 and ordered to be paid by the owner. The court made these costs payable within 30 days.
For all sort of reasons, the corporation appears not to have acted on this order upon the expiry of the 30-day period. It also did not register a lien within 3 months.
On August 3 (nearly 5 months after the deadline to pay), the corporation added the legal fees incurred in the compliance matter against the owner’s ledger. Two weeks later, it wrote to the owner demanding payment of the $15,000 ordered in costs, in addition to some $29,000 of “additional actual cost” incurred in the context of the compliance proceeding (pursuant to section 134(5) of the Condominium Act). Having not received the requested payment, the corporation sent a notice of lien on November 10 and registered the lien on December 12 (nearly 9 months after the court-imposed deadline to pay). It eventually proceeded to a power of sale of the unit.
The unit eventually sold but there were insufficient funds to pay both the corporation and the mortgagee. The judge had to rule on whether the lien was registered in time. If it was, the corporation would keep the funds. If the lien was registered too late, the mortgagee would have priority.
The court concluded that section 85 of the Condominium Act creates a statutory lien in favour of condominiums when an owner is in default of payment of his or her “common expenses”, whether such expenses are the “traditional” monthly common expenses (the “condo fees”) or whether they are comprised of legal costs or “actual costs” claimed in the context of a compliance application.
The court reiterated that the lien right is not unlimited. Indeed, the lien must be registered within 3 months of the default. This relatively short time frame to secure the corporation’s priority is aimed at balancing the interests of the various stakeholders, including the owner, the corporation and the mortgagee.
According to the judge, the common-sense meaning of “default” is when a payment is due but not made. In this case, the payment was due at the expiry of the 30-day period imposed by the order. That is when the 3-month period started to run; not when the corporation paid its lawyer, nor when the corporation added the costs to the owner’s ledger. To permit these latter event to trigger the 3-month period would allow condominium corporations to indefinitely extend the time to register their lien.
- While it may be self-evident for many, the “common expenses” which can be protected by a lien also include legal fees incurred in the context of a compliance matter;
- The corporation must act quickly and register its lien within 3 months or risk losing its priority;
- The corporation should calculate the 3 months from when the default first occurred (ie. the first date on which the payment is due and not paid); and,
- The corporation should consider adding these amounts to the owner’s ledger immediately. Arrears will be easier to spot if they are on the ledger.