Apply Payments to Earliest Arrears

In debtor-creditor law, the general principle is that the creditor can decide how to apply payments received from the debtor. [Note however, that there may be an argument that the debtor has the right, in some instances, to specify how a payment from the debtor must be applied.]

In the condominium setting, dealing with an owner who is in arrears, it is normally best to apply the owner’s payments to the owner’s earliest arrears, for the following reason: The limitation periods (for collection) generally run from the date of the default. For instance,

  • Lien rights expire unless the lien is registered within three months of the default; and
  • Court claims, for recovery of unsecured arrears, generally must be started within two years from the default.

So, if an owner’s payments are applied to the earliest arrears, the “date of default” (for any outstanding amounts) will of course be more recent, and the limitation periods will therefore have later start dates.

To achieve this result, our recommendations are as follows:

  1. To avoid arguments about your rights to apply payments to the earliest arrears, include a provision in your by-laws (stating that all payments are applied to the owner’s earliest arrears).
  2. Whenever permitted, apply each payment to the earliest arrears (in each unit ledger).

When is a Director’s Resignation Effective?

We know how it can happen. At a board meeting, there is some controversial business, something is said, a decision is made that is accepted by a majority (but not all) of the board, feelings are hurt, tempers flair and someone announces that he or she is resigning. But over a period of time – an hour, a day, a week – the person who has resigned wants to withdraw the resignation. When is a resignation effective? Can a resignation be taken back or withdrawn?

In the world of Ontario for-profit corporations, section 121.(2) of the Business Corporations Act states that a resignation of a director becomes effective at the later of the time the resignation is received by the corporation and the time specified in the resignation. But there is no such provision in the Condominium Act, 1998.

This issue (when is a resignation is effective?) was recently considered by the Ontario Divisional Court in the June 28, 2012 case of Adams v. Association of Professional Engineers of Ontario.

In the Adams case, Dr. Hogan resigned as a director of the Association of Professional Engineers of Ontario (“APEO”) by an email to the APEO Council dated March 3, 2012. By further email dated March 14, 2012, Dr. Hogan purported to withdraw his resignation. On April 13, 2012, the APEO Council met and accepted Dr. Hogan’s resignation. The question was whether or not Dr. Hogan had the right to revoke his resignation (before it had been accepted by the Council). There were no relevant provisions in the APEO bylaws, nor in the Ontario Corporations Act (which governs not-for-profit corporations).

The Divisional Court held that, in the case of a not-for-profit corporation, unless there is applicable wording in the corporation’s by-laws or governing statute, once a resignation is given it cannot be withdrawn or retracted without the Board’s consent. So, Dr. Hogan’s resignation was effective on its terms, and could be withdrawn only with the consent of the APEO Council. 

It seems to me that this same reasoning might very well apply to a resignation of a condominium director.

So, be careful to think before you press the “send” button or otherwise deliver your resignation. Once delivered, you may not be able to take it back, unless the Board agrees.

Who can sign status certificates?

As with most operational questions in the condominium realm, a good place to start is to review the corporation’s by-laws. Most condominium corporations have a “comprehensive by-law” (normally By-law No. 1) covering many day-to-day procedural matters and general “housekeeping” of the corporation. A typical comprehensive by-law can appear overly lengthy, but its value is not to be underestimated. It functions as a “book of procedures,” and is the type of document that is too often overlooked, until it is needed. Among other things, such by-laws typically govern matters pertaining to notices, meetings, votes, Directors’ terms, duties of the corporation, powers of the corporation, roles of the officers, collection of common expenses…and signing authority. Often, the comprehensive by-law provides additional substance or detail respecting issues set out in the Condominium Act.

Again, one of the matters typically addressed in the comprehensive by-law is signing authority. Sometimes, the by-law includes a specific provision dealing with the execution of status certificates and other “day-to-day” documents, such as notices of lien and discharges of lien. The by-laws will also often contain language allowing the Board to determine signing authority (for a particular document or class of documents). For instance, the by-laws may provide that any person may be authorized by Board resolution to execute status certificates. It is common for the property manager to be given this type of delegated authority to sign status certificates. In addition to the by-laws, the management agreement typically speaks to the issue of authority to sign the status certificates; but of course you will want to be sure that the management agreement is consistent with your by-laws.

Some managers and boards may prefer that the manager handle the entire process of preparing and executing the status certificates. In other cases, the Board may prefer to have the status certificates signed by a Director.

Whatever approach is preferred, our recommendations are as follows:

  1. Check your by-laws, and make sure that any required Board resolution (or by-law amendment) has been passed respecting authority to sign your status certificates.
  2. Whoever signs your status certificates, make sure that you have a good system in place to ensure that the person doing the signing always has all of the corporation’s current knowledge relevant to the status certificates. This may include knowledge of all members of the corporation’s “management team”, including the Directors, Officers and Manager.

Human Rights Insurance – Is your Condominium Covered?

As you likely know, condominium corporations are subject to the Ontario Human Rights Code. However, not all condominiums have insurance coverage to protect the corporation and/or directors in the event of a human rights claim – i.e. an Application to the Human Rights Tribunal of Ontario (“HRTO”).

Human Rights Applications have been asserted against condominium corporations and directors for a variety of reasons, including:

  • Failure to accommodate (to the point of undue hardship);
  • Harassment; and
  • Discrimination (any form of unequal treatment based on one of the Protected Grounds).

Damages

If successful, an Applicant can be awarded financial compensation by way of general and special damages.

  • General damages – can financially compensate the Applicant for injury to their dignity, feelings, and self-respect, resulting from discrimination or a failure to accommodate.
  • Special damages – can include financial compensation for losses that the Applicant has suffered because of discrimination or a failure to accommodate (for example, moving costs or lost wages).

Costs

An Application, whether frivolous or not, can be costly. Generally, the HRTO does not award costs to the successful party. This means that, even if successful, the condominium corporation/directors would normally not be able to recover defence costs from the Applicant. [Note that recovery of costs MIGHT be possible under the Condominium Act or under the condominium’s governing documents, depending upon the circumstances.] 

Protection

In order to protect against the risk of a costly human rights claim, condominium corporations can review their insurance policies to determine whether they have “human rights claims coverage”. In many cases, this coverage requires a special endorsement or rider. The coverage, if obtained, often extends only to the defence costs; not to any award of damages. But this coverage is still helpful, because the defence costs can be substantial. 

Human rights claims coverage is not clearly addressed by the Condominium Act. Some condominium corporations have therefore passed by-laws requiring the corporation to obtain insurance coverage for human rights claims.

Check your by-laws and coverage to determine if your condominium is protected. If not, you may wish to reconsider.