Chargebacks – Additions to the Common Expenses Payable for an Owner’s Unit
Although the Condominium Act, 1998 (“the Condo Act”) does not use the term “chargeback,” the Condo Act does set out a few specific situations in which condominium corporations can charge back certain costs to the common expenses payable for an owner’s unit. This is typically done when a condominium corporation has incurred costs due to an act or omission by an owner. This ensures that those costs are not passed onto the other owners who did not have any involvement in the act or omission.
In addition, condominium corporations can add costs to the common expenses payable for an owner’s unit in accordance with the condominium corporation’s declaration.
What Types of Costs Can Be Charged Back?
Condominium corporations can charge back costs to the common expenses payable for an owner’s unit that the condominium corporation has incurred under certain circumstances, including:
- Costs incurred as permitted by the Condo Act.
- Costs incurred as specified in the condominium corporation’s declaration.
Chargebacks – Additions to the Common Expenses Payable for an Owner’s Unit
1. Repairs and Maintenance Conducted by the Condominium Corporation on Behalf of the Owner
- Under section 92 (1), (2), and (3) of the Condo Act, if an owner is required to perform repairs and/or maintenance and fails to do so, the condominium corporation can complete the repairs/maintenance on their behalf. If the condominium corporation does so, the costs of the work must be added to the common expenses payable for an owner’s unit under section 92 (4) of the Condo Act.
2. Damage to the Unit
- Under section 105 (2) of the Condo Act, if an owner or individual residing in the owner’s unit causes damage to the unit, the condominium corporation shall add an amount that is the lesser of the cost of repairing the damage or the deductible limit of the insurance policy obtained by the condominium corporation to the common expenses payable for an owner’s unit.
3. Non-Compliance with Occupancy Standards By-laws
- Under section 57 (4) of the Condo Act, if a condominium corporation has an occupancy standards by-law (e.g., setting a maximum number of occupants per unit) and if an owner/occupant contravenes it, the condominium corporation can charge the owner an assessment for:
- The amount that reasonably reflects the amount by which the contravention increases the cost of maintaining the common elements and repairing them after damage; and
- The amount that reasonably reflects the amount by which the contravention increases the cost of using the utilities that form part of the common expenses.
If the condominium corporation levies an assessment against an owner for contravening the occupancy standards by-law, the costs form part of the common expenses payable for an owner’s unit under section 57 (5) of the Condo Act.
4. Non-Compliance with an Agreement Under Section 98 of the Condo Act
- Under section 98 (4) of the Condo Act, if an owner and a condominium corporation have an agreement to modify the common elements and the owner fails to comply with that agreement, a condominium corporation may add the costs, charges, interest, and expenses resulting from an owner’s failure to comply to the common expenses payable for an owner’s unit and may specify a time for payment.
5. Compliance and Enforcement
- Under section 134 (5) of the Condo Act, if a condominium corporation obtains an award of damages or costs in a court order made against an owner or occupier of a unit, the damages or costs, together with any additional actual costs to the condominium corporation in obtaining the order, will be added to the common expenses for the unit and the condominium corporation may specify a time for payment by the owner of the unit. In a recent Superior Court of Justice case Amlani v. York Condominium Corporation No. 473, 2020 ONSC 19, a condominium corporation that attempted to recover compliance and enforcement costs without a court order was not successful in recovering those costs.
In that case, the condominium corporation incurred enforcement/compliance costs in relation to an owner smoking in their unit and charged back legal costs incurred to the common expenses payable for the unit. The unit owner disputed the addition of compliance and enforcement costs to the common expenses payable for their unit.
The Superior Court of Justice wrote in paragraph 2 of the Amlani v. York Condominium Corporation No. 473, 2020 ONSC 19 decision that:
“Section 85 of the Act allows for the automatic registration of a lien in respect of common expenses. Section 134 of the Act provides that expenses in respect of compliance and enforcement expenses can only be liened with a court order. I find that the expenses at issue here fall under s. 134 of the Act. Since there was no court order authorizing a lien of those expenses, the lien is invalid and must be discharged.”
The Superior Court of Justice also wrote in paragraph 4 of the same decision that:
“All of this arose in respect of an issue to which the evidence indicates there are simple, low cost solutions. The respondent refused to discuss solutions despite the applicants’ requests to do so. In so refusing, the respondent breached its own constating documents which call for good faith negotiation of issues before taking legal steps. Here, a good faith discussion would likely have led to a resolution that met the goals of all of the condominium’s residents at a fraction of the costs reflected in the lien, let alone the cost of this litigation.”
Indemnification provisions help to protect the owners by ensuring that costs a condominium corporation incurs because of the actions or omissions of one owner are paid by that owner and are not passed on to all of the owners in the condominium corporation. Indemnification provisions will typically indicate that one party (the indemnifier) must cover certain liabilities, losses, or damages of another party (the indemnitee). A common example is when an owner is required to cover the costs of the condominium corporation’s insurance deductible due to a specific act or omission of the owner, rather than passing the insurance deductible cost to all owners. Importantly, indemnification provisions often specify that any costs that the condominium corporation incurs will be treated as additions to the common expenses payable for an owner’s unit (chargebacks).
A recent Superior Court of Justice decision, O’Regan v. Carleton Condominium Corporation 169 et al, 2021 ONSC 945 provides a good example of how the indemnification provisions in a condominium corporation’s declaration work.
In that case, the condominium corporation had incurred costs in repairing the condominium corporation’s common elements which had been damaged as a result of a fire that originated in the owner’s unit due to the owner departing the unit and leaving eggs cooking on the stove. The condominium corporation charged back the repair costs for smoke damage (in accordance with the condominium corporation’s indemnification clause), however the owner disputed those charges before the court.
The Superior Court of Justice concluded that:
- Common expenses are defined in section 1 of the Condo Act as the expenses related to the performance of the objects and duties of a condominium corporation and all expenses specified as common expenses in the Condo Act, in the regulations or in a declaration;
- Pursuant to section 7 (4) (a) of the Condo Act, a condominium corporation’s declaration may contain a statement specifying the common expenses of the condominium corporation;
- The condominium corporation’s declaration included an indemnification provision that specified that owners must reimburse the condominium corporation for any costs the condominium corporation incurred as a result of the acts or omissions of the owner or other residents and related costs to repair the common elements; and
- The condominium corporation is accordingly entitled to charge the unit owner for the cost of the repair work and to charge back those costs.
1. Before charging back a cost there should be proactive and ongoing communications with the owner who is acting in a manner that may result in costs for the condominium corporation. Speaking with the owner early may quickly and easily resolve the issue. Otherwise, several attempts should be made to alert the owner of the issue either by email or written letter or notice delivered to the owner.
2. Once communication has been established, try to work together with the owner to solve the issue by:
- Identifying the specific issue or behaviour;
- Identifying the specific provisions of the Condo Act or the condominium corporation’s governing documents that they are violating; and
- Giving the owner reasonable options to resolve the issue.
3. Depending on the nature of the issue, it may take some time to resolve. If your condominium corporation’s governing documents outline a specific timeframe for resolving such an issue, this should be the amount of time you give the owner. If the governing documents do not specify a timeframe, you should give the owner or occupant a reasonable amount of time to resolve the issue.
4. Clearly state what the condominium corporation’s next steps will be if the issue continues. It is a common practice for condominium corporations to issue three written requests to resolve the issue and include a clear indication in the third request that the next step will be legal action.
5. Keep track of these efforts and interactions with the owner.
6. Consider the above steps to resolve the issue early and at a low cost. If a chargeback becomes a necessary step, the chargeback should come as no surprise to the owner.
As indicated above, condominium corporations that wish to charge back costs can only do so for the following reasons:
1. The costs relate to one of the five categories of costs that condominium corporations are permitted to add to the common expenses under the Condo Act:
- Repairs and Maintenance Conducted by the Condominium Corporation on Behalf of the Owner [see section 92 (3) and (4)];
- Damage to the Unit [see section 105 (2)];
- Occupancy Standard By-laws [see section 57(4) and (5)];
- Failure to Comply with a Section 98 Agreement [see section 98 (4)]; and
- If the costs relate to enforcing compliance with the Condo Act or with the condominium corporation’s declaration, by-laws, or rules and the condominium corporation has an order from the Superior Court of Justice [see section 134 (1) and (5)].
2. The condominium corporation has an indemnification provision in its declaration that permits it to add them.
When dealing with potential issues that may result in a cost that would ultimately be charged back to the owner, condominium corporations should always consider low-cost collaborative solutions rather than immediate legal letters or legal action. The approach to resolving an issue will depend on the specifics of the issue, but it is important that condominium corporations make a reasonable effort to resolve an issue before resorting to other approaches which may be costly and burdensome for both owners and the condominium corporation.
If after consulting with your condo board/condo manager you believe that the chargeback is inappropriate or not permissible under the Condo Act, you may wish to consider the following:
- The Condominium Authority Tribunal (CAT) may be a useful resource to help resolve conflicts involving chargebacks. Both owners and condominium corporations can file an application with the CAT for the resolution of a dispute about indemnification or compensation in relation to a pets, parking, vehicle or storage issue.
- Example Scenario: A condominium corporation has incurred costs in seeking compliance by an owner with the condominium corporation’s rules regarding pets. The condominium corporation claims that the owner owes the condominium corporation an amount under the condominium corporation’s indemnification provision. In this case, both the condominium corporation and the owner could file an application with the CAT regarding those costs (e.g., the owner could file an application disputing the amounts, and the condominium corporation seeking an order requiring them to be paid).
- Alternatively, if the dispute does not fall within the CAT’s jurisdiction, you may wish to seek legal advice.
Generally speaking, a lien is a legal right or claim against a person’s property by a creditor/entity to whom they owe money. If a debtor (i.e., the owner) does not pay the amounts that are the subject of a lien (common expenses), then the creditor (i.e., the condominium corporation) may be able to seize the asset (i.e., the condo unit) that is the subject of the lien and sell it so they can recoup the amounts they are owed. Liens are commonly placed against property and real estate so that creditors can ensure that they are able to collect the amounts owed to them.
The automatic lien resulting from the default of the payment to the common expenses will expire after three months unless the condominium corporation registers a certificate of lien. Registering the lien ensures that the condominium corporation has priority in recovering money owed. If the lien expires, the condominium corporation loses priority amongst other parties who have an interest in recovering the money owed from the unit (e.g., a mortgagee).
Please note: A condominium corporation placing a lien against your unit is a very serious matter. If you do not pay the full amount you owe, including any chargebacks, after receiving a Notice of Lien, a condominium corporation may, after following the proper process, sell your unit to recoup the amount owed.