A recent Divisional Court decision, Amlani v. YCC 473, 2020 ONSC 5090, confirmed that there are two separate ways to register a condo lien depending on whether the amount is related to common expenses (or “condo fees”), or related to compliance and enforcement expenses.
A condo lien may be registered without a court order when the condo corporation seeks to recover unpaid condo fees. However, condo corporations are generally required to obtain a court order to register a lien when seeking to recover legal fees and expenses incurred for compliance and enforcement matters.
Background
The condo owner, a smoker for 56 years, purchased the unit after confirming that smoking was allowed in the building.
A few years later, the neighbour complained about the smell of smoke but the issue was resolved after the condo corporation sealed certain openings at its own cost.
When new complaints about the smell of smoke came up again a few years later, the owner attempted to resolve the issue by limiting his smoking to an enclosed sunroom (with an air filter installed). The condo corporation was not satisfied and had its lawyer send a letter demanding that the owner stop smoking because it was a “danger and a nuisance” even though there was no rule against smoking.
The owner actively attempted to resolve the issue by: (1) requesting a meeting to discuss a resolution; (2) offering to hire an engineer, at his cost, to report on how the problem could be solved; (3) asking for details of the complaints to enable a professional to design a solution; (4) retaining an engineer to propose a cost-effective solution; and (5) ultimately, vacating the unit and leasing to a tenant with a no smoking clause. However, the condo corporation continued to escalate the matter with compliance and demand letters.
The condo corporation claimed over $25,000 in legal fees (most of it incurred after the owner moved out), registered a lien on the unit without a court order, and commenced power of sale proceedings. The owner was forced to retain counsel to bring an application to stop the sale of the condo and to invalidate the lien.
Court Decision
The Divisional Court affirmed the application judge’s decision that the condo corporation could not charge back legal fees to the owner, without first obtaining a court order, in this case.
There are two separate pathways to register a condo lien under the Condominium Act, 1998 (the “Act”):
- Section 85 of the Act allows a condo corporation to register a lien against the unit for unpaid common expenses, interest, legal fees and expenses incurred in collecting the unpaid common expenses. Common expenses (or “condo fees”) are essential for the condo corporation to function and operate, by funding essential maintenance and services. For this reason, the Act provides for an automatic lien against the defaulting unit without obtaining a court order.
- Section 134 of the Act allows a condo corporation to recover damages, costs and actual expenses related to enforcing compliance with the governing documents, but the condo corporation must first obtain an order from the Ontario Superior Court of Justice.
As a result, condo corporations are required to obtain a court order to register a lien when seeking to recover legal fees and expenses incurred for compliance and enforcement matters. The Divisional Court agreed with the application judge’s reasoning, as follows:
It is one thing to allow the corporation to enforce, by way of lien, common expenses that are applicable to all unit holders and that a majority of unitholders have approved. It is entirely another to allow a condominium corporation the unfettered, unilateral right to impose whatever costs it wants on a unitholder, refer to them as common expenses and thereby acquire the right to sell the unitholder’s apartment.
The Divisional Court also agreed with the application judge’s decision that the condo corporation could not rely upon its indemnity provision to register a lien without first obtaining a court order. The indemnity provision applied to costs arising from acts or omissions of the owner “with respect to the common elements and/or all other units”. The indemnity provision did not apply to this case because it did not involve the “common elements”, e.g. the land or the building. Furthermore, the indemnity provision attempted to change section 134 of the Act, and any such interpretation cannot stand when it contravenes the Act.
What You Need to Know
Condo corporations have routinely sought to register condo liens for compliance expenses, without first obtaining a court order, through the use of indemnification provisions in the condo declarations. Condo corporations should now obtain legal advice in respect to whether it may properly continue to register condo liens related to compliance matters without a court order. It remains to be seen whether a differently worded indemnity provision, and under different circumstances, may permit a condo corporation to charge back legal fees without a court order.
Furthermore, this case serves as a reminder to condo corporations to act in a reasonable manner when addressing unit owner compliance with condo rules and by-laws. The Divisional Court agreed that elevated costs were appropriate because “the entire proceeding could have been avoided had the condo corporation acted reasonably”, and “parties who ignore cost-effective solutions in favour of litigation must pay the price if they fail in litigation”.
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