Common expenses are the life blood of condo corporations and section 85 of the Condo Act allows condos to register a lien to collect unit owners’ share. This section is vital to the functioning of condominiums in Ontario, but it also gives condo corporations enormous leverage to protect innocent unit owners from having to pay a disproportionate share of costs resulting from the unreasonable conduct of any single unit owner.
The court in CCC 56 v. Chreim recently considered the significant powers authorized by section 85 of the Condo Act and the responsibilities that come with those powers.
In this case, the dispute between the unit owner and the condo stemmed from a modest $330 plumbing bill and $700 water bill invoiced to the owner as a common expense in mid-2018. By December 2018, the condo had registered a lien against the unit for outstanding common expenses, interest and legal fees.
The unit owner paid the amount stated in the notice of lien by cheque in late January 2019 but the condo told her she would have to pay an additional amount for legal expenses to obtain a discharge of the lien. The owner delivered a second cheque within a few days to cover the additional expenses, but the condo refused to remove the lien because the owner had sued its property management company in Small Claims Court a few days earlier. The condo took the position that unless the owner abandoned her claim against management, the lien would remain in place to cover the condo’s prospective costs of defending the lawsuit.
The owner was unsuccessful at Small Claims Court and the Deputy Judge awarded the condo about $4,500 in costs because the owner behaved unreasonably in refusing to accept the condo’s settlement offers. The Deputy Judge did not explicitly address the condo’s arguments about its entitlement to full costs.
In September 2021, the condo served a Notice of Sale under the lien and began enforcement proceedings.
The Superior Court was asked to determine whether the condo had a right to refuse to remove the lien after the unit owner paid all amounts owed, including anticipated legal fees for the discharge. The court held that the condo was required to discharge the lien on receipt of the unit owner’s second cheque which covered the expenses to discharge the lien. The condo did not have a right to keep the lien in place to cover the prospective costs of defending the Small Claims Court action.
A registered of lien under section 85 secures the amount owed by the unit owner at the time of registration and further amounts after registration, including interest and all reasonable legal costs and reasonable expenses incurred by the corporation to collect the unpaid amount. The lien may be enforced in the same manner as a mortgage, which means a unit owner who does not pay a lien may lose their home. Further, the amount secured by a lien is always greater than the amount at issue at registration because the lien covers the costs of discharge.
However, section 85 doesn’t give a condo carte blanche to use the lien mechanism to require payment of any legal cost or any expense. The language of section 85 “limits costs above and beyond the actual common expense deficiency to those which are both reasonable and casually connected to the collection of the common expenses deficiency”. Section 85 covers costs connected with common expense arrears collection.
The court therefore held that the condo was not allowed to keep a lien in place to defend a legal challenge to amounts already fully paid by a unit owner. The court found that the lien was maintained without justification after the owner had paid all arrears owed and that the costs of defending the Small Claims action were not costs incurred “in connection with the collection or attempted collection” of common expenses.
The court recognized that if the unit owner started the Small Claims Court action after the lien was discharged, the condo could not have registered a new lien to secure anticipated defence costs. Instead, the condo could have safeguarded its interests by defending the Small Claims Court action and then registering a lien if the unit owner didn’t pay the costs award.
The court also scrutinized the condo’s expenses that it claimed was secured under the lien. The court found that the owner had significantly overpaid for the condo’s legal expenses to register the lien, based on the fees that the condo’s lawyer actually billed the condo for the same work. The owner owed the condo nothing and had prepaid the condo’s legal expenses to discharge the lien. The condo also failed to attribute the unit owner’s payments to her account and charged interest at 12% yearly, compounded monthly. It also found the condo’s legal costs were grossly disproportionate to the initial amount at issue and concluded that the legal fees claimed by the condo were unreasonable.
The court declared the registered lien and the notice of sale invalid, dismissed the condo’s action for possession and sale of the unit, and determined that the condo was not entitled to be fully indemnified for its costs the action.
Takeaway – The lien regime under section 85 of the Condo Act is an important and useful mechanism to protect condo corporations and their unit owners from defaulting owners. But amounts secured by a condo lien cover only:
- the common expenses owed by the unit owner at the time of registration,
- the common expenses owed by the unit owner after registration, and
- all interest and all reasonable legal costs and reasonable expenses incurred by the corporation in connection with the collection or attempted collection of the unpaid amount, including the costs of registering and discharging the lien.
A condo must discharge a lien once full payment is received. Unrelated costs, including anticipated costs to defend a challenge to the lien, are not secured by the lien. There is no statutory requirement that condos keep an owner advised of the total amount secured on an ongoing basis once the lien is in place, but a condo must ensure that its costs are connected to the collection of the arrears and reasonable and must provide that information when requested if attempting to enforce the lien like a mortgage.