Condoland is its own beast, and one giant fight that property management companies, condo managers, and condo boards often find themselves fighting is the Liens Process. Collections of funds is never an enjoyable feat, and can be especially challenging when the process must be initiated against an Owner in a building that we live and/or work in. However, it is a necessary tool for in the condominium’s toolbox - but should never be considered as a weapon in its arsenal. It's important for Boards and Property Management to understand the condo lien process, the importance of prudent enforcement, and avoidance of leveraging it as "payable punishment" against condo owners and tenants.
With legislation in Ontario preventing condos from collecting fines or any other fees that may be considered as a punishment against Owners, some Boards and Managers may turn to the collections process (via leans) as a method of punishing Owners by attempting to force them into paying unreasonable sums of money under the guise of “chargebacks” for services rendered during repairs and any resulting legal fees. But, is this always appropriate? And if so, is it always appropriately done by property management and condo boards?
Let’s explore the tool of chargebacks and liens in condos under the lens of using these methods to mobilize inappropriate intimidation and punishing behaviour against Owners.
Read on for our comprehensive guide on condo liens, and how the process should be carried out in a way that is proper and not punitive to Owners. Or, jump to a section of this quick guide:
A Quick Guide to Applying Condo Liens:
Condo Liens as Prudent Enforcement By Property Management and Condo Boards Instead of "Payable Punishment" Against Residents
Key Sections of The Act
Let's start our exploration by peering into the pages of The Act, the cornerstone of condo governance in Ontario. These sections not only shape the operational framework of condominium corporations but also underscore the rights and responsibilities of owners and boards alike.
Financial Functionality of Condos (The Condominium Act, Section 85)
At the core of condominium management lies the imperative to maintain financial stability and ensure the seamless operation of the corporation. Section 85 of The Act serves as the linchpin in this regard, granting condominium corporations the authority to collect funds necessary for the maintenance, repair, and operation of the common elements. However, it's essential to recognize the potential for misuse of this provision, as unchecked enforcement can lead to undue leverage and unfair treatment of owners.
Condo Owner Responsibilities (The Condominium Act, Section 92)
Condominium living isn’t just about convenience, but responsibilities, too - and owners bear a significant responsibility for the upkeep and maintenance of their units and the common elements. Section 92 of The Act delineates these obligations, emphasizing the owner's duty to promptly address necessary repairs and maintenance tasks. Failure to adhere to these responsibilities within a reasonable timeframe may trigger intervention by the condominium corporation, leading to potential chargebacks and lien enforcement actions.
Condominium Insurance Deductibles (The Condominium Act, Section 105)
Navigating the complexities of insurance coverage is a key aspect of condominium management, particularly concerning deductible expenses incurred due to property damage or liability claims. Section 105 of The Act empowers condominium corporations to recoup these costs from the responsible parties, whether through chargebacks or other means of cost recovery. However, it's essential to exercise prudence and fairness in the application of these provisions, ensuring that owners are not unduly burdened by disproportionate financial liabilities. It’s important to remember that owners can only be charged the lesser cost of the repairs or the insurance deductible (regardless of whether the corporation ultimately chooses to go through its insurance policy or not).
Declaration Provisions (The Condominium Act, Section 34.5)
The condominium declaration serves as a foundational document that outlines the rights, responsibilities, and obligations of owners and the corporation. Section 34.5 of The Act highlights the significance of indemnity provisions within the declaration, which may govern the allocation of financial responsibilities in cases of property damage or legal disputes. Clear and enforceable indemnity clauses provide essential guidance for condominium management, ensuring equitable treatment and accountability among all stakeholders.
An example of such an indemnity would be if, within its governing documents (usually through the Declaration or By-Laws), the corporation has a provision stating that an Owner is fully liable for all costs for any reason that is not related to the fault of the corporation.
90-Day Lien Registration Period
A cornerstone of lien enforcement procedures, the 90-day lien registration period stipulated in The Act sets a clear timeframe for condominium corporations to assert their rights in cases of non-payment or default by owners. While individual corporation by-laws may specify shorter periods for lien registration, adherence to the statutory timeframe is paramount for ensuring the legal validity and enforceability of lien actions. Proper documentation and procedural adherence during this period are essential to safeguarding the interests of both the corporation and its members.
In Summary:
Understanding these key sections of The Act is essential for navigating the intricacies of condominium management and upholding the principles of fairness, transparency, and accountability within the community. By adhering to these provisions and fostering open communication and collaboration among the ownership and the building’s leadership, condominium corporations can ensure the sustainable operations and utilization of shared resources and the promotion of harmonious living environments for all residents.
Section 85 serves as the backbone of financial functionality for condo corporations, empowering them to collect essential funds for maintenance and operation. However, it's crucial to tread carefully, as this provision can be misused when wielded without regard for fairness and transparency. Meanwhile, Section 92 shines a light on the responsibilities of owners to maintain their units, prompting reflection on what constitutes a "reasonable time" for necessary repairs and maintenance.
Proper Steps in the Lien Process
Before diving head first into the intricacies of the lien process, meticulous preparation is paramount. From ensuring accurate documentation to engaging in transparent communication, property managers and board members play a pivotal role in fostering trust and accountability within the community. Effective communication, timely notifications, and judicious escalation of legal involvement are essential steps in navigating the labyrinth of lien enforcement with integrity and fairness.
First Steps, Before Liening: Prior to liening, the corporation must ensure that proper investigations are completed and incidents are well-documented, as well as double-check that the chargeback is correct and the condo has the right to lien. At this level, the problem is dealt with by the building’s leadership (Property Management and the Board), and typically does not include the involvement of legal counsel.
To start the process: Property Management should let the Owner know there will be a chargeback as soon as Property Management knows (or within a couple days thereafter), so they can prepare. Once available, chargebacks can be sent per invoice (if the invoices are spaced apart) or as a chargeback package (if multiple invoices are available at the same time). Of course, if Management expects to receive more invoices, they should let the Owner know that more are coming - communication is key, and keeping the Owner informed of what they can expect throughout this process can lay the foundation for successful and timely cost collection.
During this time, Management should maintain thorough records, including reports, statements, detailed invoices, and photos/videos of the issue. These are not only a good practice for ensuring adequate record-keeping for the Corporation, but can also be used to help the Owner understand the issue and the reason they must cover the associated costs, as well as used in the future should the Owner challenge the charge-back.
When communicating with the Owner, Management should keep a kind tone, and offer options for payment (ex, by cheque, pre-authorized payment, etc.), to make it quick and easy for the Owner to pay and the Corporation to collect. It’s often recommended to increase communications requesting payment as the lien period gets closer and a resolution becomes more urgent.
📰 Check out some Effective Communication Strategies For Condo Boards: The Importance of Clear and Transparent Communication Among Board Members, Property Management, and Residents.
However, if the Owner is unresponsive, Management should persist in trying to connect with them as soon as possible in any (appropriate) way possible, such as via emails or calls, and send the owner an arrears notice before getting legal counsel involved. At this point, it is usually still only Property Management and the Board who are aware of the issue.
As the lien deadline draws closer (usually around the 50-day overdue point), if Management wasn’t able to contact the Owner (or they haven’t paid), it may be time to consider contacting legal… which, unfortunately, starts to incur the associated fees. Beyond the solicitor’s service costs, the fee for a title registry may be required to ensure that legal is dealing with the correct unit owner (and to confirm that the unit has not changed ownership).
Last Steps, Liening: The Corporation must register the lien at the 90-day mark, and experts generally agree that there is no instance in which the Corporation should not register the lien. Registration preserves the condo’s right to collect, Boards are obligated to collect as part of their fiduciary duty to the corporation, and Property Management usually has a provision in their contracts to carry out this task as part of their duties to the client
Challenging the Lien: If an owner challenges the cost of the chargeback, it's important to ensure that the corporation has thoroughly documented the issue with written records, photographs, detailed invoices, etc.
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Board Responsibilities and Considerations
To the dedicated individuals serving on condominium boards, Stratastic extends our heartfelt appreciation for your tireless efforts. As stewards of community trust, you face the delicate task of balancing empathy with fiscal responsibility in the pursuit of equitable governance. It’s a lot to juggle, we know. Let’s look at how this complex dynamic can be best navigated within your condo community and its dynamic.
Often, Boards will often either be “trigger-ready” when it comes to liening, or very hesitant - very few are in the middle. Those that are ready to lien fast may face the risk of making mistakes about what is within their power to collect and how, while those taking the slow and empathetic approach may risk not carrying out their obligations to the condo
and community in a prudent and equitable manner.
Experts caution that Boards must remember that it is their obligation to collect arrears for the corporation; even if Property Management has a collection clause in their contract, Boards cannot hide behind those who are hired to act as their agents. Ultimately, however, the Board decides what property management should do in these situations.
What happens when a Board wants to be empathetic and work with an owner by giving them more time when the 90-day deadline is approaching? This can be tricky territory to navigate, with several possible considerations and consequences.
Often, Owners will suggest payment plans; unfortunately, this is often only proposed once it’s time to register the lien rather than ahead of time. Boards exploring the approval of such a proposal for a payment plan should consider the following:
Does it negatively affect the Corporation’s ability to register the lien within the 90-day timeline, and preserve its right to collection?
Does the payment plan have a reasonable pay-back period or deadline?
If the Owner doesn’t currently have the funds and a bank won’t extend it to them, why should the Corporation take on this risk?
It’s important to remember that the Corporation is a not-for-profit organization made up of all Owners, which ultimately means that all other Owners are extending funds as a loan to one Owner - is this fair and equitable? And if the Board is prepared to do it for one, is it ready to do it for all once precedence is set? Again, the Board has an obligation to enforce everything in a fair and equitable manner.
But, let’s say there is a reason or circumstance that the Board considers valid enough to make an exception - is there a way to do it that provides consideration to both the Corporation and the Owner?
If the Board wants to agree to a payment plan, one suggestion is that they should still register the lien but not enforce it as long as the owner complies with the payment plan that the parties agreed upon. It’s important to secure the right to lien for the Corporation to avoid further and larger costs down the line, should the Board need to use its ability to collect funds. This option also gives the Owner some time to find the funds, though it does pass the costs that afford this time onto the collective Ownership within the Corporation.
Challenges and Considerations in Dispute Resolution re: Condo Liens and Chargebacks
Ah, the intricacies of chargeback disputes – a trying challenge for even the most seasoned condominium managers. Yet, with a commitment to meticulous documentation and a willingness to engage in constructive dialogue, resolution becomes not only achievable but an opportunity for growth and collaboration. Transparency, integrity, and a bit of empathy form the bedrock of effective dispute resolution, paving the way for sustainable community harmony. But, of course, we know it’s not always quite that easy…
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What Happens if you Forget to Register a Condo Lien?
What happens when Property Management forgets to register a lien, for any reason, and the amount remains owing? We’ve seen this happen plenty of times, and there are two options that are often used.
Rolling Debt Forward (Option 1): rolling debt forward (use the most recent common expense payment to pay off the oldest arrears) keeps the debt “fresh” and within the three-month timeframe that the condo has to lien.
Small Claims Court (Option 2): Small claims court can be used when the corporation has lost the right to secure the debt under a lien, but still has the right of action for an unpaid debt - though this is more costly (but also allows up to 2 years for the collection of unpaid funds, starting from when the debt or default occurred).
Can Small Claims Court be Used for Missed Condo Lien Deadlines?
It’s important to keep in mind that Small Claims Court isn’t quick, nor cheap (contrary to popular opinion), and requires careful evaluation. Boards are always advised to consider the Corporation’s best interest and reminded that they shouldn’t throw good money after bad… which may be the case with most matters that may fall within the jurisdiction of Small Claims Court if the Corporation failed to maintain its ability to use liens as a collection tool.
Small claims court is more expensive because the solicitor is engaged in more processes and material exchanges: drafting claims, defending, attending a settlement trial, and ultimately a trial (if the claim proceeds that far). Full costs are also unlikely to be awarded (usually 30% or less) so Boards must ask themselves if the expense is worth it. And, even if the Corporation is right, it may still lose - so, again, Boards must really consider if going to Small Claims Court is worth it. If the conditions seem to be worth the expense and Boards choose to go down this route, they should be open to negotiating a settlement, as this may be the corporation’s best outcome for recovery.
Abusing Condo Liens, Chargebacks, and Cost-Collection as a Punitive Measure for Punishing Owners
When used incorrectly, the tool meant to ensure collections can be weaponized in a manner that gives the corporation enormous leverage. This puts Owners in a frustrating situation, as even if they are correct to challenge the lien, they still have to have that fight… which is exhausting (personally and possibly financially), and unfortunate.
It’s important for Property Management and the Board to remember that condos may only charge back incurred costs - not fines, fees, or penalties or anything intended to punish the Owner for an action. In fact, the province of Ontario only allows corporations to charge back for costs that are actually incurred and enforceable pursuant to the Condominium Act and the condo’s governing documents (especially the Declaration).
A recent case (Carleton Condominium Corporation No. 56 v. Cherim; Ontario Superior Court, 2022) is particularly of note, where the court denied the corporation tens of thousands of dollars of legal costs, finding that costs were not due to unreasonable actions of the owner (and owner was right to challenge them), but weaponized collections of condominium to intimidate owner into abandoning the lawsuit. The court held that the corporation made a decision to run up a large bill for legal fees that was unreasonable in defense of a modest claim; therefore, the condo had used its collections process to intimidate and punish the Owner.
This case should serve as a warning to all Managers and Boards who may consider taking a similar route - it’s not only unfair, but ultimately, not worth it as courts will see when a process is meant to be punitive rather than prudent - and leave the Corporation to foot the bill for bad decision-making.
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As we now better understand the lien process and how it can be used both prudently and as punishment, let us reflect on the profound responsibility that comes with condominium governance for both Boards and Property Management alike. It’s important to remember the community of owners that we serve, and to ensure that all decisions are made in line with the best interest of the Corporation.
Through transparency, integrity, and a steadfast commitment to fairness, we can navigate the complexities of lien enforcement with professionalism and prudency. May our collective endeavors in the condominium industry be marked by wisdom, compassion, and unwavering commitment to community well-being.
Together, let us strive to uphold the values of community, accountability, and mutual respect that define the essence of condominium living.
-Stratastic Inc.
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