Applying an Owner’s Payments to the Earliest Arrears

In the recent case of Toronto Condominium Corp 1462 v Dangubic, the condominium corporation registered a lien against an owner’s unit for recovery of legal costs incurred by the corporation in relation to “compliance letters” sent by the corporation’s legal counsel to the owner. The Court confirmed that the condominium corporation was entitled to recover these amounts as additional common expenses pursuant to indemnification provisions contained in the corporation’s Declaration and By-laws.

Continue reading “Applying an Owner’s Payments to the Earliest Arrears”

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Appeal Court Confirms Owner’s Obligation to Prove Case When Challenging Lien

In the recent decision Washington v. York Condominium Corporation No. 441, the Divisional Court confirmed that when a unit owner challenges a lien, it is the unit owner’s obligation to establish, on a balance of probabilities, that he or she was not responsible for the alleged damage.  In this case, the appellate judge set aside a lower court decision ordering a condominium corporation to return a chargeback to a unit owner.

This case concerned a plumbing blockage that affected the plaintiff owner’s unit, along with three other units, in the condominium.  The owner (and plaintiff) used his unit to prepare food for Caribbean cuisine dishes for restaurants.  Apart from the plaintiff, no other owners involved used their units in a way that produced food grease.

After discovering the blockage, the plaintiff contacted a plumber to assess the situation.  The same plumber was then hired by the property manager to clear the blockage.  The plumber’s notes revealed the caused of the blockage was from grease or hardened grease.  In addition, the plumber filmed the actual clearing of the blockage in which he states that the blockage is “grease and chicken grease”.

Based on the above information, the Board of Directors concluded that the plaintiff’s unit was the cause of the blockage, and demanded payment for costs incurred in the amount of $17,336.84.  Later, the condominium registered a lien against the plaintiff’s unit.  The plaintiff paid the above-noted amount and commenced an action claiming his unit was not the cause of the plumbing blockage.

The trial judge agreed with the plaintiff and rendered judgment in his favour.  The trial judge reasoned that, based on the totality of the evidence, the condominium failed to definitively prove that the source of the blockage was from the plaintiff’s unit.

The Divisional Court disagreed.  It confirmed that it was the plaintiff’s obligation to establish, more likely than not, that he was not the source of the plumbing blockage.  The Divisional Court also stated that the trial judge failed to consider key evidence: the audio of the above-noted video; and the reasoning of the Board of Directors to conclude the plaintiff was the source of the blockage.  The trial judge had discounted the reasoning of the Board of Directors on the basis that the members were “irresponsible” and “rather flippant” in their decision because their discussion of the subject was “laden with expletives”.  In other words, the members were excessively cursing.

The Divisional Court disagreed with the trial judge’s consideration of the evidence because it did not accord with the required degree of deference to which a Board of Directors of a condominium corporation is entitled, as outlined by the Ontario Court of Appeal.  Following the argument of our very own Christy Allen, the Ontario Court of Appeal in 3716724 Canada Inc. v. Carleton Condominium Corp. No 375 confirmed that courts should be careful not to usurp the functions of the boards of condominium corporations, especially when the Board has acted reasonably, honestly, and in good faith.

Overall, this decision serves as a reminder to condominium corporations that if an owner challenges a lien, it is the owner’s obligation – and not the condominium’s obligation – to establish that he or she was more likely than not, not the source of the alleged damage.  While the owner bears this onus of proof, the condominium is always open to lead evidence that will result in the plaintiff failing to establish his or her case.

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Collection Tips – Part 2

You registered a lien on a unit…now what? Here are some considerations to keep in mind once you are in the lien process:

1) Once the lien process has begun, condominiums should generally continue to accept all payments from the owner, however:

  • You may not wish to accept the payment if the owner purports to make a partial payment in ‘full satisfaction of all arrears’.
  • If legal counsel is involved, you may want to direct that all payments be made through the legal counsel. Alternatively, if payments are made directly to the corporation, be sure to contact legal counsel to obtain an update of the outstanding arrears (including legal costs and interest). In this way, you will always know what amount remains outstanding.

2) Ensure that the Unit ledger is kept up to date.

3) Until the arrears are paid, the owner will generally not have the benefit of a vote. [See Section 49(1) of the Condominium Act, 1998 (the “Act”).]

4) In the event that the lien is not paid off, the Corporation will need to consider whether it will enforce the lien by way of power of sale. Section 85(6) of the Act states that the lien may be enforced in the same manner as a mortgage. Accordingly, the Corporation may wish to follow the procedures outlined in the Mortgages Act and the Land Registration Reform Act for sale of the unit. In some cases, foreclosure may also be worth considering. [Note: the lien must be enforced within 10 years from the date of registration of the lien.]

5) If there are any unsecured arrears (arrears that are perhaps not secured by the lien, for example because they fall outside of the three month lien period), the Corporation will need to consider whether it will be pursuing these arrears by way of court process. [Note: the two year general limitation period will likely apply.]

6) Also remember that, if the Unit is rented, Section 87 of the Act allows the Corporation to direct a tenant to pay rents directly to the Corporation. This collection right applies also to unsecured arrears. This can also assist the Corporation in collecting arrears in a more timely fashion.

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Assessment of Legal Fees for Lien

We recently responded to an owner’s assessment of our legal bill in relation to a lien.

We had registered a notice of lien against the owner’s unit, on behalf of a co-tenacy association. The owner then sought to assess the legal bill (which had been included as part of the lien amount) before an assessment officer/assessor.

A lawyer’s client (in this case, the condominium corporation) has the right to arrange for assessment of the lawyer’s bill under Ontario’s Solicitors Act. The Solicitors Act also says that any party who is liable to pay a legal bill (in this case, the owner) can also arrange to have the bill assessed by an assessor.

In our case, the assessor confirmed that our legal bill was reasonable. But the assessor went on to say that the owner was not liable to pay the legal costs, and therefore assessed the legal bill at $nil.

We appealed the assessor’s decision to a judge, and the judge overturned the decision. The judge said:

  • The assessor had no authority to determine whether or not the owner was obligated to pay the legal costs. The assessor could only assess the legal bill. In other words, the assessor could only determine the reasonableness of the legal bill.
  • The assessor’s finding that the legal bill was reasonable was accepted and the bill was accordingly assessed in its full amount.

The decision in Aiello v. Nelligan O’Brien Payne can be found in Superior Court File No. 13-57411.

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Owners Share the Good and the Bad (Including Construction Liens)

Maintaining and repairing the common elements is one of the primary obligations of a condominium corporation. Condominium corporations generally retain independent contractors for this work. Unfortunately, a contractual relationship sometimes leads to a dispute. For example, the contractor may feel that the corporation is improperly holding back payment.

If such a dispute arises, one of the contractor’s collection powers is to register a lien against the property. A lien for common element work can be registered against all the condominium units. This is because all units have a shared interest in the common elements.

There are only a few court decisions that illustrate unit owners’ shared responsibility for the amount of a construction lien. One such decision is Associated Mechanical Trades Inc. v. Kurzbauer, a 2008 Ontario Superior Court decision. In this case, a condominium corporation hired a contractor to carry out work on the common elements. As a result of a contractual dispute, the contractor registered a lien against the condominium units.

Under the Construction Lien Act, in order to discharge the lien, the condominium corporation can pay into Court the amount of the lien as security, pending the Court’s decision on whether the contractor is entitled to that amount.

In Kurzbauer, the unit owner sought to pay her unit’s proportionate interest toward the security. The contractor required that the entire amount of the security be paid before the construction lien would be discharged against any individual unit. The owner brought a motion against the contractor.

The Court examined the following issue:

  • Can an individual unit owner pay his or her proportionate interest in the lien, and require the contractor to discharge the construction lien as against his or her unit only?

The contractor argued that the entire security should be paid, because the owners have an “undivided interest” in the common elements, and therefore the security could also not be divided.

The Court ultimately found in favour of the owner, relying on section 14 of the Condominium Act, 1998.  Pursuant to this section, a unit owner can discharge the portion of a lien that is registered against her unit (equivalent to the proportionate interest, not the proportionate contribution) of the unit, as set out in the Corporation’s Declaration.

The Court stated that if each unit owner paid the unit’s proportionate interest toward the security, then the lien claimant would be in no different position than if the lands were not registered as a condominium.

According to the Court, the contractor has “nothing to lose” by vacating the lien against one unit, where the unit owner pays for the unit’s share of the lien. Moreover, it is unreasonable to expect that a single owner can pay the full amount of the lien in a large condominium complex.

I note that section 14 of the Act specifically applies to encumbrances that are registered prior to the Declaration of a condominium corporation.  The Court seems to suggest in the Kurzbauer decision that the “policy” underlying section 14 applies more generally, including to liens registered by contractors after declaration.

Of course, the condominium corporation may arrange to pay for the entire amount of the security, on behalf of the ownership.  If the lien is substantial, the Corporation may need to consider funding options such as: a special assessment, borrowing, or depleting the reserve fund.  The best approach will depend on the facts of each case.

If the corporation is ultimately successful in defending the contractor’s claim, the amount paid for the security would be returned to the Corporation.

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