Who Should Pay the Costs Incurred by the Corporation in an Application for Compliance?

One of our clients recently had issues with an owner that made an addition to the common elements without authorization from the Condominium Corporation.  In this case, the owner installed an air conditioner on the common elements.  The air conditioner was not installed in an approved location.  As a result, the Corporation tried numerous times to have the owner relocate the air conditioner without success.

Continue reading “Who Should Pay the Costs Incurred by the Corporation in an Application for Compliance?”

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Important Court Decision About Recovering Costs From Owners

In the Wexler case, the owner brought a claim against the condominium corporation in Small Claims Court for total damages of $2,525.14 for alleged harassment, for recovery of costs for clean-up of pigeon droppings (charged to the owner by the corporation), and for recovery of costs for legal advice obtained by the owner.  After a three-day trial, the owner’s claims were dismissed.  That left the question of responsibility for the costs (of the Court proceeding).

The Small Claims Court ordered the owner to pay the condominium corporation’s legal costs – in the amount of $20,000.  This was based, at least in part, on the “indemnification” provision in the condominium corporation’s declaration.  Because of that indemnification provision, and also because the Small Claims Court felt that the owner had unnecessarily prolonged the trial, the Court held that the owner should be obligated to pay more than the usual costs ordered in a Small Claims Court matter.  [The Rules of Court state that the losing party is (usually) obligated to pay a maximum of 15% of the amount claimed, as costs to the winning party.]  But again, the Small Claims Court said that the owner was obligated to pay higher than usual costs in this case.

The decision of the Small Claims Court included the following:

I recognize that the plaintiff was not prepared for trial and that she was disorganized; this directly contributed to unnecessarily prolonging the trial. As such, and because her action was dismissed and because the condominium corporation has a Declaration, By-Laws and Rules providing for full indemnity, and especially because it would be unfair that the unit owners should bear all the costs of this litigation when the condominium corporation is unnecessarily sued, I allow costs in the amount of $20,000, inclusive of HST and disbursements. 

 The owner appealed and was successful on appeal.  On appeal, the Divisional Court said that the indemnification provision, in the condominium corporation’s declaration, did not apply.   Based on the wording of the indemnification provision, the Divisional Court said that the provision “is not applicable as there has been no loss, costs, damage, injury or liability suffered or incurred with respect to the common elements and/or all other units caused by an act or omission by Ms. Wexler”.

 I don’t disagree with the above reasoning of the Divisional Court.  But here’s my concern:

What will this mean for condominium corporations seeking to collect OTHER costs or OTHER expenses – quite apart from Court costs – and seeking to add those amounts to an owner’s common expenses when those costs or expenses have been caused by an act or omission of the owner or by an occupant of the owner’s unit?

 Many condominium declarations contain an indemnification provision similar to the provision considered by the Court in the Wexler case.  So, based on the Wexler decision, those provisions will only apply to losses, costs, damages, injuries, liability etc. suffered or incurred (and caused by an act or omission of the owner or an occupant of the unit) “with respect to the common elements and/or all other units”.

The problem is:  Some costs (caused by an owner or occupant) might not be covered.

And we know from other Court decisions (and from amendments to the Condominium Act) that these sorts of chargeback or indemnification provisions likely need to be in the declaration (in order to allow a condominium corporation to add such amounts to the owner’s common expenses).  [Such a provision in the by-laws or rules may not be sufficient.]

Here’s the bottom line:  Condominium corporations should consider amending their declarations to replace these imperfect, inadequate indemnification provisions – for the sake of all of the innocent owners in the condominium.

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Costs – When An Owner Sues The Condominium Corporation And Loses

There have been some recent cases where condominium owners have sued the condominium corporation in Small Claims Court – and lost. See for example the following: Wexler v. CCC 28 (currently under Appeal), Wu v. CCC 383 and Pearson v. Carleton Condominium Corporation No. 178.

When a condominium corporation successfully defends an owner’s claim, should the condominium corporation be entitled to a “special cost award”? Or should the usual cost principles apply? Note that the Courts have previously said that a condominium corporation may be entitled to full costs (under Section 85 of the Condominium Act) whenever a dispute relates to collection of common expenses. In this blog, I’m referring to disputes related to other matters.

For instance, in Small Claims Court, the successful party is generally entitled (at most) to be awarded costs equal to 15% of the amount of the claim. The winning party is only entitled to additional costs if the losing party has been guilty of misconduct that prolonged the litigation or otherwise added to the costs.

But should there be an exception in the condominium setting – where the court combatants are a condominium corporation and an owner? In such cases, should a successful condominium corporation be entitled to a “higher-than-normal cost award”?

From a review of the above decisions, the answer seems to be: maybe. But only if the particular condominium’s governing documents contain a clear provision allowing for such. And the usual indemnification provisions (contained in many declarations) may not be sufficient.

In the Wexler case, the Deputy Judge of the Small Claims Court stated that the condominium corporation was entitled to a higher-than-normal cost award:

“…because [the owner’s] claim was dismissed and because the condominium corporation has a Declaration, By-laws and Rules providing for full indemnity, and especially because it would be unfair that the [other] unit owners should bear all the costs of this litigation when the condominium corporation is unnecessarily sued.”

However, the owner (Ms Wexler) has been granted leave to appeal. And the Superior Court decision granting leave includes the following statement:

“It is my view that the decision referenced by the Applicant (Pearson (Litigation Guardian of) v. Carleton Condominium Corporation No. 178, 2012 ONSC 3300 (Canlii)) demonstrates a difference in principles chosen to guide discretion.”

Justice P.E. Roger goes on to say:

“Further, I find that there is good reason to doubt the correctness of the Deputy Judge’s decision and that the appeal raises matters of general importance.”

So, we still don’t have clear answers to the above questions.

But we’ll have another piece of the puzzle when the Wexler appeal is decided.

Have more questions about cost awards and litigation? Contact our Condominium Law Group today.

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Collecting Costs from Owners

When an owner (or the owner’s tenant) causes the condominium corporation to incur costs, two questions arise:

  1. Does the condominium corporation have the right to collect those costs from the owner?
  2. Can the costs be added to the owner’s common expenses?

The Condominium Act contains some specific provisions about recovery of costs from owners. For instance:

  • If a condominium corporation is required to take enforcement proceedings against an owner and/or the owner’s tenant, the condominium corporation may be entitled to recover all reasonable costs incurred by the condominium corporation in the Court process. And the corporation will normally have the right to add those costs to the owner’s common expenses. [See Section 134 (5) of the Condominium Act.]
  • Under Section 92 of the Act, if a condominium corporation carries out maintenance or repairs on behalf of an owner, the related costs can be added to the owner’s common expenses.
  • Under Section 105 of the Act, owners may be responsible for the corporation’s insurance deductible in certain circumstances. If so, the amount is added to the owner’s common expenses.

But what about other costs caused by an owner or the owner’s tenant that are not related to a court process? This could include legal costs (for warning or demand letters), extra management costs (for special enforcement efforts), engineering costs (for special investigations) or any other costs incurred by a corporation as a result of an act or omission of an owner or the owner’s tenant.

The corporation’s right to recover those types of costs – and to add those costs to the owner’s common expenses – can often depend upon an “indemnification” provision in the corporation’s declaration, by-laws or rules.

Note as well that, in order to add such costs to an owner’s common expenses, the amendments to the Condominium Act require that the indemnification provision (specifically stating that such costs are added to the owner’s common expenses) be in the declaration.

So, all of this leads to the following questions:

a)      Does your declaration contain an indemnification provision?

b)      Is that indemnification provision well-worded?

c)      If the answer to (a) or (b) is “no”, should you perhaps be considering an amendment to your declaration (with consents from owners of 80% of the units) to add an indemnification provision to your declaration? Or maybe improve the wording of a current provision?

NOTE: Without such a provision in your declaration, when the amendments to the Condominium Act come into force, you may have to look for other ways to collect amounts owed by owners…such as a claim against the owner and/or tenant in Small Claims Court. Depending upon the specific facts, this may be a far less efficient alternative.

To read more on condominium arrears, take a look at our previous blog post.

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Yet Another Case of a Limited Recovery of Enforcement Costs

In a Toronto condominium this past September, complaints were received about the smell of tobacco smoke permeating into units surrounding Unit 115. This unit was occupied by two new tenants pursuant to a lease that prohibited smoking. The smells and complaints occurred shortly after the tenants moved in.

The evidence before the court in Toronto Standard Condominium Corporation No. 2032 v Boudair, et al. was that the Condominium Corporation notified the unit owner of the complaints received approximately three weeks into the lease, and the unit owner then advised the tenants and instructed them not to smoke in the unit. However, further complaints were received by the Condominium Corporation, and the owner continued to communicate with the tenants about their ongoing breach of the smoking prohibitions.

The Condominium Corporation then sent a demand letter to the unit owner on November 4, 2015, requesting compliance with the rules and regulations. The unit owner forwarded the Corporation’s letter to the tenants with a note that if the tenants did not act properly and stop smoking, or vacant the unit, they would be responsible for all expenses incurred.

Despite this, further complaints were received by the Condominium Corporation, and an application was commenced on November 27, 2015. Once the application record was served on the owner, he also served a notice to terminate the lease, and secured the earliest available date (February 2016) with the Landlord and Tenant Board to terminate the tenancy.

The parties agreed before the Court in January 2016 to a compliance order under s. 134 of the Condominium Act, 1998, enforcing compliance with the rules, an order prohibiting the tenants from smoking in the unit, and an order terminating the lease pursuant to s. 134(4) of the Act. They then returned to Court to argue the issue of costs.

The Condominium Corporation was seeking costs against the owner and the occupants on a substantial indemnity basis of $32,976.94, or on a partial indemnity basis of $25,125.00.

The Court exercised its discretion and made a partial indemnity costs award of $10,000 in favour of the Condominium, payable only by the tenants, not the unit owner. The Court also awarded costs against the tenants to the unit owner.

In making the decision that the owner did not have to pay any costs, the Court determined that the unit owner did take all reasonable steps in that he “did not sit by and do nothing”. He made considerable efforts to obtain compliance, he threatened the tenants with termination, he was very active once he learned of the existence of the complaints, and pursuing an early termination of the lease was a prudent course of action.

In exercising its discretion and awarding only $10,000 in costs to the Condominium Corporation, the Court stated:

I do not believe that all of the costs sought by the applicant and Dong should lay at the feet of the tenants. I have already found that the applicant jumped the “smoking gun” by moving straight for a compliance order under section 131 of the Act without working with and assisting Dong with his efforts. Prior to the issuance of this application, the tenants were already in negotiations with Dong to move out of the unit and were moving towards that goal.”

“… Overall, the Court is required to consider what is “fair and reasonable” in fixing costs, and it is to do so with a view to balance and compensation of the successful party with the goal of fostering access to justice

This case is another example of the Court’s exercise of its discretion in awarding costs, shifting further away from the Condominium Corporation’s statutory and contractual indemnification protections in compliance proceedings.

While the initial position may be full indemnity in accordance with these protections, these decisions rely on case-specific facts that, in the Court’s view, justify a reduction of the scale and quantum of awards. The reasons cited often point a finger at the Condominium Corporation for having not done enough to find a resolution, or because a Board made what was likely one or more innocuous choices at the time, which, despite obtaining the compliance order, then backfire on the issue of costs.

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