Over the past couple of days, we have received numerous inquiries about how condominium corporations should deal with requests from owners to delay paying the monthly common expenses. The requests from owners are due to the uncertainty and financial stress caused by COVID-19.
The statutory provisions regarding condominium liens never contemplated the situation that we are all currently facing. Unfortunately, this means that condominium corporations must still act to preserve their rights if common expenses are not paid on time. In other words, condominium owners still need to pay their condominium fees, and condominium corporations are still legally required to register liens within the legislative time frame if fees are not paid.
In these difficult times, it is easy to forget that condominium fees paid by owners are used to support the day-to-day operations of the condominium corporation, which includes:
- Paying for utility costs to keep water and hydro in supply;
- Paying for insurance premiums to ensure continued coverage; and
- Paying the salaries of all workers (including employees and contractors) employed by the Corporation.
If condominium fees are not collected, condominium corporations cannot pay the bills, and other third parties (such as workers) are directly impacted.
We are now hearing that the government (federal or provincial) will be implementing measures to provide financial assistance, but this assistance may not arrive be soon enough for some in urgent need, or may not be sufficient to quell the financial burden.
This leaves condominium corporations in an unenviable position of needing to fulfill their statutory obligations, continue to pay their bills, but also consider the circumstances of unit owners, some of whom may be under serious financial obligations during this difficult time.
In our view, based on our experience in the industry, most condominium corporations in Eastern Ontario will not be in a position to offer financial relief to owners who encounter financial difficulty in the coming weeks. However, in light of the world’s current, exceptional, circumstances, we have attempted to put together options that may be available for some condominium corporations to assist owners currently in difficult financial situations due to COVID-19:
- If the condominium has a contingency or accumulated surplus funds in the operating account, the Board can consider a one-month holiday on common expense payments. This option may not be practical for all condominiums, as the holiday on fees must extend to all owners. Therefore, the surplus must be sufficient to all for a full month’s worth of expenses without the incoming monthly payment.
- A special payment plan (including a reasonable interest component) could be negotiated as between the condominium corporation and individual unit owners who would otherwise fall into default. [In our view, payment plans can be entered into between a condominium corporation and a unit owner without registering a lien if the lien deadline has not expired, the agreement is executed prior to the expiration of the deadline, and the owner makes payments in accordance with the payment plan]. It is important to remember, of course, that all owners must be treated equally. Therefore, if this option is available to one owner, the Board will have to consider that all owners may make such a request.
- In appropriate cases, the Board of Directors could, with the assistance of the condominium’s property manager, prepare a revised budget (which might result in a temporary reduction in condo fees, a one-month condo fee holiday (as discussed above), and/or something similar). Again, any such revised budget or plan must still permit the condominium corporation to meet its immediate financial obligations.
- A condominium corporation could consider borrowing money to make up any cashflow shortfall. In order to do so, the Corporation must pass a borrowing by-law, which will require a meeting of owners. [See our previous posts on methods for proceeding with owners’ meetings via electronic means during the COVID-19 crisis].
- The Board of Directors could consider a temporary (monthly) delay in making contributions to the reserve fund. In our view, a condominium corporation (for cash flow reasons) can always consider delaying reserve fund contributions (for a given fiscal year) until the end of the year. But in these special times, it is our view that further delays might in some cases be acceptable. The condominium corporation must be mindful of the possibility that such “delayed reserve fund contributions” (including related lost interest) might knock the reserve fund off track, which might need mentioning in Paragraph 12 of the status certificates. Before undertaking this approach, we recommend that the Board of Directors consult with its engineers and legal counsel to ensure that the condominium corporation will meets it annual reserve fund contribution obligations.
Ultimately, it will be up to the Board at each condominium to make a decision that is most appropriate for their community’s specific circumstances – if options are available. This is not a decision which can be put to the owners of a condominium corporation. If a Board of Directors chooses to exercise such options, the Board will need to make such a decision at a duly called meeting of the Board (see our previous blogs on electronic meetings and board decisions during these extenuating circumstances), and will need to send a written communication to all owners.
Again, some of these options may have implications for your status certificates (particularly Paragraph 12). Therefore, we urge boards to keep status certificates in mind as these decisions are made. Nonetheless, we hope that some of these options might be helpful during this difficult time. [We are of course always available to assist our clients with status certificate wording upon request.]
These options do not, however, override a condominium corporation’s statutory obligations. Therefore, condominium corporations must ensure that regardless of whatever arrangements are made, action be taken to preserve any lien rights (when an owner falls into default) as may be required.
Stay tuned to Condo Law News to keep up to date on the latest developments in condominium law!