The Condominium Authority of Ontario (CAO) is aware that at this time there may be condominium unit owners who are facing difficulties due to COVID-19, including financial pressures that may prevent them from being able to pay their common expense fees. As self-governing communities, condo boards have the challenging task of balancing the collective owners’ interests and an individual unit owner’s particular circumstance. Considering this, the CAO has developed the following materials to assist condo communities in Ontario in trying to strike a balance during the COVID-19 pandemic.
Common expenses represent the financial obligation that is shared among all owners and are therefore crucial in ensuring the effective operation and maintenance of a condo corporation. Common expense fees are used for maintaining the condo’s common elements such as the parking garage, lobby, elevators, walkways and exterior grounds, as well as important services such as cleaning, building maintenance and condo management services. In these difficult times, condo corporations recognize that some owners may be facing challenges paying their common expense fees. At the same time, the board has an obligation to ensure that the condo corporation has enough funds to operate and maintain the corporation. When taken together, the condo corporation must balance the interests of the condo corporation as a whole and the general ownership, while also taking into consideration the financial situation of the specific owner.
Default payments and liens
If a unit owner fails to pay their common expense fees on time, they are considered to have defaulted in their contributions to the common expenses. If this were to happen, according to section 85 of the Condominium Act, 1998 (the “Act”), the condo corporation automatically has a lien against the unit as of the date of the default. The lien resulting from the default of the payment to the common expenses will expire after 3 months unless the condo corporation registers a certificate of lien. Registering the lien ensures that the condo corporation has priority in recovering monies owed. If the lien expires, the condo corporation loses priority amongst other parties who have an interest in recovering monies owed from the unit (e.g., a mortgagee). While the condo corporation can still try to recover the arrears through other legal proceedings without registering a certificate of lien, this will be a more expensive and lengthy process as the condo corporation will now need to compete with other entities to recover the owed amounts.
Default payments and considerations for condo corporations
In the event that an owner defaults on their contribution to the common expenses, the CAO has developed the following 3 step process to assist condo corporations in trying to strike a balance between protecting the interests of the condo corporation and supporting individual owners during this difficult pandemic situation:
Step 1: Proactively Communicating with the Owner throughout
Upon default: As the condo corporation only has 3 months to register the certificate of lien and preserve the interests of the corporation, the board should communicate immediately with any owner who defaults on their contribution to the common expenses. The board should communicate early about the importance of common expense fees and their critical role in maintaining the corporation’s operations. Also, the board should consider advising the owner of potential relief mechanisms, such as mortgage payment deferrals or payment plans, that may provide the owner with the economic assistance to allow them to continue paying the common expense fees and any arrears.
Within the 2nd month after the default: If the first attempt to communicate with the owner has not been successful, the condo corporation should consider sending a reminder in the 2nd month. If the owner does not respond, or if an agreement cannot be reached, the condo corporation should inform the owner of the steps that the corporation must take to protect the interests of all owners of the corporation (i.e., register a certificate of lien).
If the owner has been engaging with the condo board, but is still unable to make any payments towards the common expense fees, the condo corporation should advise the owner that the corporation will have to move forward with registering a certificate of lien to protect the interests of all owners of the corporation. The corporation should tell the owner what the expense of doing so will be and whether and how it will be charged to the owner, such as any applicable interest charges and legal fees.
Note, if the corporation and the owner can reach an agreement in writing on a payment plan, then the 3 month lien period can be extended as the 3 month period begins once the unit is in arrears. For example, if a condo corporation agrees that payment is now due by May 1st and the owner does not make the agreed upon payment on that date, the 3 month lien period will begin to run from May 2nd. If the corporation does not have experience regarding entering into a payment plan with an owner, it is recommended that the corporation seek legal advice before doing so.
Within the 3rd month after the default: If the owner is not responsive to the communications sent by the condo corporation, or if the owner is unable to make any payments towards the common expenses, the corporation will need to issue the Notice of Lien to the owner in the mandatory form at least 10 days before the day a certificate of lien is to be registered. If payment has not been received within 10 days of issuing the Notice of Lien, the condo corporation should consider registering the certificate of lien to protect the interests of all owners in the condo corporation.
Step 2: Registering a Certificate of Lien
If the owner is unable to pay the arrears, or if an agreement cannot be reached between the condo corporation and the owner to pay the arrears, the condo corporation will have to take action to secure its priority over other owed parties by registering a certificate of lien. The Act provides the following steps to register:
A registered certificate of lien includes the following owed amounts:
Step 3: Once the Certificate of Lien is Registered
While many corporations want to assist owners through difficult situations arising as a result of COVID-19, they must balance the overall financial needs of the condo corporation and assess the potential risks to all owners of the corporation when considering what steps to take after the certificate of lien has been registered.
Depending on the circumstances, the condo corporation may be able to delay enforcing the lien (i.e., power of sale) which will allow the unit owner time to pay the outstanding amounts covered by the lien. Following the registration of the certificate of lien, the corporation can initiate the power of sale process as early as 15 days later, however, it is common practice to wait at least 2 or 3 months before doing so. In the current context, the condo corporation may consider communicating with the condo owner(s) regarding their specific circumstance, and possibly allowing for a longer period of time to pay, with associated conditions, that is clearly communicated in writing. Note that the enforcement of the lien is subject to a 10 year limitation period, this means that the condo corporation can determine whether it may be feasible to defer some of the payments or enter into a payment plan after the certificate of lien has been registered.
It is important to note that a certificate of lien can be discharged once all amounts covered by the lien have been paid and the discharge of the certificate of lien has been registered with the Land Registry Office by the condo corporation using the mandatory form .
The CAO recognizes that these are challenging times, involving financial and legal considerations. These steps have been developed to help inform owners and other condo community members of the importance of common expenses in maintaining a financially sound condo corporation and possible steps and considerations for the difficult situations that may arise as a result of COVID-19. We encourage condo corporations to seek financial and legal advice, as needed, to assist them in managing these matters as the above information is only meant to provide condo corporations with general guidance and is neither intended to provide nor constitutes legal advice.