CIBC Mortgages Inc v York Condominium Corp No 385, 2016 ONSC 7343
This decision discusses when a unit owner defaults on a special payment and the timeline that the condominium corporation must follow to protect its interests. If a unit owner is required to pay additional common expenses to the corporation- resulting from a court order or various chargebacks- the corporation must immediately add the incurred amount to the unit owner’s common expenses. If a corporation looks to place a lien on the unit, the lien must be registered within three (3) months of the default occurring. When a unit owner defaults on their common expenses, there is often a line-up of other creditors looking to lien the unit owner’s assets. This decision is a warning that corporations will lose their lien interests if they wait too long.
On January 28, 2010, the Unit Owner accepted a mortgage from the Bank for $135,000. Later that year, the Condominium Corporation initiated compliance proceedings against the Unit Owner for various violations of the Condominium Act. In February 2011, the Unit Owner was court ordered to pay $15,000 in costs to the Corporation within 30 days, pursuant to section 134(5) of the Act.
The Unit Owner failed to pay costs within 30 days and the Corporation entered the amount into its general ledger; it mistakenly did not add the amount directly to the Unit Owner’s common expenses. In August 2011, the Corporation corrected the mistake by adding the cost award to the Unit Owner’s common expenses. The Corporation registered a lien on December 12, 2011. Despite the Corporation asserting a lien on the unit and initiating a statement of claim seeking possession, the Unit Owner still refused to pay the common expenses. On April 11, 2013 the Corporation won a default judgment allowing it to sell the unit. The Corporation provided a Notice of Sale to the Bank as mortgagee.
The conflict in this case occurred between the Bank and the Condominium Corporation. Both were owed money by the Unit Owner and the sale of the Unit could not satisfy both. The Corporation’s lien would normally have priority over the Bank’s interest, if the lien was registered within three months after the unit owner defaulted. However, in this case the court held that the Corporation failed to perfect its lien within three months after the March 2011 due date. The Corporation lost lien priority to the Bank.
Condominium boards and property managers have to follow strict timelines in order to protect amounts owed due to chargebacks, common expenses, or court orders. As soon as a unit owner defaults on their obligation to pay, the 3-month clock to preserve the Corporation’s lien interest starts ticking.
Immediately after receiving an invoice or account from a third-party for expenses incurred by the corporation on behalf of a unit owner, the corporation must assess whether the item is eligible for a chargeback. Corporations should refer to their declaration and by-laws to determine whether the expense is eligible, as the ability to chargeback is not always clear. It can be very helpful to have a lawyer clarify whether an expense is eligible as a chargeback.
Once it can be determined that an expense is eligible for a chargeback, the corporation should issue an immediate demand letter to the unit owner including the date for repayment along with a copy of the third-party invoice. The deadline should be short, between 15 to 30 days. If the chargeback is unpaid after the deadline specified in the demand letter, the corporation should immediately issue a notice of lien. Restated, when a chargeback arises, do not wait. Immediate demand on the unit owner is vital. Understanding a chargeback’s 3 month recovery period is tricky. If a 15-day deadline is used after receipt of the 3rd party’s invoice, with an immediate notice of lien and registration thereafter, condominiums are more likely to be protected.
Property Managers and Condominium Boards need to have proper legal and accounting procedures in place to quickly defend the Corporation’s interest against competing claims. It is not always clear whether a chargeback can result in a lien, however having a clear and timely process for placing liens will maximize the Corporation’s protection.
Written by Ben Baena, edited by Robert Mullin and Erica Gerstheimer.
The content of this article is intended to provide a general guide to the subject matter and is not legal advice. Specialist advice should be sought regarding your specific circumstance.