Common Expenses and Liens – Considerations During the COVID-19 Pandemic
The Condominium Authority of Ontario (CAO) is aware that at this time there may be condo unit owners who are facing difficulties due to COVID-19, including financial pressures that may prevent them from being able to pay their common expenses fees. As self-governing communities, condominium corporations 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 condominium corporation. Common expenses fees are used for maintaining the condominium corporation’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, condominium corporations recognize that some owners may be facing challenges paying their common expenses fees. At the same time, the board has an obligation to ensure that the condominium corporation has enough funds to operate and maintain the condominium corporation. When taken together, the condominium corporation must balance the interests of the condominium 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 expenses 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 “Condo Act”), the condominium 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 condominium corporation registers a certificate of lien. Registering the lien ensures that the condominium corporation has priority in recovering monies owed. If the lien expires, the condominium corporation loses priority amongst other parties who have an interest in recovering monies owed from the unit (e.g., a mortgagee). While the condominium 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 condominium corporation will now need to compete with other entities to recover the owed amounts.
Default Payments and Considerations for Condominium 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 condominium corporations in trying to strike a balance between protecting the interests of the condominium corporation and supporting individual owners during this difficult pandemic situation:
Step 1: Proactively Communicating with the Owner throughout
Upon default: As the condominium corporation only has 3 months to register the certificate of lien and preserve the interests of the condominium 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 expenses fees and their critical role in maintaining the condominium 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 expenses 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 condominium corporation should consider sending a reminder in the 2nd month. If the owner does not respond, or if an agreement cannot be reached, the condominium corporation should inform the owner of the steps that the condominium corporation must take to protect the interests of all owners of the condominium 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 expenses fees, the condominium corporation should advise the owner that the condominium corporation will have to move forward with registering a certificate of lien to protect the interests of all owners of the condominium corporation. The condominium corporation should tell the owner what the cost 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 condominium 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 condominium 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 condominium corporation does not have experience regarding entering into a payment plan with an owner, it is recommended that the condominium 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 condominium corporation, or if the owner is unable to make any payments towards the common expenses, the condominium 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 condominium corporation should consider registering the certificate of lien to protect the interests of all owners in the condominium 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 condominium corporation and the owner to pay the arrears, the condominium corporation will have to take action to secure its priority over other owed parties by registering a certificate of lien. The Condo Act provides the following steps to register:
A. Written Notice of Lien to the owner(s) of the unit. As indicated in Step 1 above, a condominium corporation must provide written notice to the unit owner, or owners if there is more than one owner, at least 10 days before the condominium corporation registers a certificate of lien. It is important to ensure that all the owners of the unit are properly identified and provided with written notice using the mandatory form.
Note: When providing the above notice to owner(s), the CAO also suggests owner(s) be advised of the associated legal costs/expenses of lien registration, as well as any interest charges, that the owners will be expected to pay. This will allow the owner(s) the opportunity to consider the full impact of non-payment, as compared to a payment plan for example.
B. Registering the certificate of lien. Once the 10 days have elapsed and all owners of the unit have been notified in writing, the condominium corporation may then register the certificate of lien, using the mandatory form, with the Land Registry Office against the title to the unit.
A registered certificate of lien includes the following owed amounts:
- the amounts owed under all the condominium corporation’s liens against the unit as long as they have not expired,
- the amount by which the owner defaults in paying the common expenses after the registration of the certificate, and
- all interest and reasonable legal costs/expenses that the condominium corporation incurs while collecting the amounts owed to the condominium corporation (including the costs of preparing and registering the certificate of lien).
Step 3: Once the Certificate of Lien is Registered
While many condominium corporations want to assist owners through difficult situations arising as a result of COVID-19, they must balance the overall financial needs of the condominium corporation and assess the potential risks to all owners of the condominium corporation when considering what steps to take after the certificate of lien has been registered.
Depending on the circumstances, the condominium 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 condominium 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 condominium 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 condominium 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 condominium 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 condominium corporation and possible steps and considerations for the difficult situations that may arise as a result of COVID-19. We encourage condominium 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 condominium corporations with general guidance and is neither intended to provide nor constitutes legal advice.