Steps To Follow In Condo Liens by John Moher

As Justice Lane aptly noted in York Condominium Corporation No. 482 v. Christiansen, common expenses are the “life blood” of a condominium corporation. Without these monthly contributions from unit owners, condominium corporations cannot function. For this reason, the Condominium Act, 1998 (the “Act”) includes provisions that give condominium corporations extraordinary powers to enforce collection of common expense arrears.

Section 85 of the Act provides a condominium corporation with a lien against a defaulting owner’s unit for the unpaid amount together with all interest owing and all reasonable legal costs and reasonable expenses incurred by the condominium corporation in connection with the collection or attempted collection of the unpaid amount. The lien takes priority over the vast majority of encumbrances, including residential mortgages. Some examples where the lien does not take priority include claims of the Crown (other than by way of a mortgage) as well as real estate taxes.

It is critical that certain steps be followed in order to preserve and enforce a lien. This article will set out four basic steps for a condominium corporation to follow when faced with a unit owner in default of the obligation to pay common expenses.

Step No. 1: Informal Notice of Default

Preparing and serving a Notice of Lien to Owner (the “Notice of Lien”) takes time and costs money. It therefore makes sense to have a policy in place to attempt to reach out to the defaulting owner within a few days of default with a view to resolving the default before sending a Notice of Lien. This can be accomplished by speaking with the unit owner or sending a polite reminder letter. Reaching out to the unit owner in this fashion often succeeds in bringing the arrears into good standing at no material cost to the condominium corporation or the defaulting unit owner.

Step No. 2: Formal Notice of Default

If an informal notice does not succeed in curing the default, the next step is to deliver a Notice of Lien. The Notice of Lien must be in the prescribed form, which can be currently located on the Government of Ontario’s website at the following link:

http://files.ontariogovernment.ca/notice_of_lien_to_owner_under_subsection_85_4_of_the_condominium_act_1998.pdf

The Act also sets out the manner in which the Notice of Lien is to be served, being by personal service or by prepaid mail addressed to the owner at the address for service that appears in the record of the condominium corporation maintained pursuant to subsection 47(2) of the Act. Although the Act does not require delivery to the defaulting owner by registered mail, it is advisable to send the Notice of Lien in this manner to effectively counter a claim in any subsequent enforcement proceedings that the Notice of Lien was not received.

In terms of the amount of notice required before a Certificate of Lien is registered, the Act states that at least 10 days before the day a Certificate of Lien is registered, the condominium corporation must give written notice of the lien to the owner. The day on which notice is sent and the day on which notice is received should not be counted in computing the 10 day time period. Accordingly, the Notice of Lien should be served at least 12 days before the day on which a Certificate of Lien is registered. Care should also be taken to review the condominium corporation’s by-laws to determine if any additional notice is required when serving documents by mail. Serving a Notice of Lien should not be left to the last minute. To avoid any claim that a Notice of Lien was not delivered sufficiently in advance of a Certificate of Lien being registered, it is prudent to commence the Notice of Lien process no later than the first week of the third month of arrears.

The Notice of Lien must be served on all owners of the unit in default. Unfortunately, not all owners or their lawyers notify the condominium corporation after a purchase or sale transaction has closed or after a person has been added to title. Accordingly, in my view it is prudent practice to conduct a title search to ensure all owners of the defaulting unit are identified and served with the Notice of Lien. A title search is relatively inexpensive and can be conducted at the local land registry office or by the condominium corporation’s lawyer. The title search will also identify any encumbrances on title. In order for the lien to maintain priority over certain encumbrances, the Notice of Lien must also be sent to every encumbrancer whose encumbrance is registered against title at the encumbrancer’s last known address. The Notice of Lien can be delivered by personal service or sent by registered prepaid mail. Service by regular mail on an encumbrancer is not an effective form of service.

While the Act does not require a 10 day notice period to encumbrancers, it is wise to give encumbrancers as much notice as possible prior to registering a Certificate of Lien. Encumbrancers have an interest in maintaining the priority of the encumbrance and often will pay the amount claimed to stop further costs from being incurred by the condominium corporation. In order for the lien to maintain priority over encumbrances, the Notice of Lien must be served on or before the day on which the Certificate of Lien is registered.

It is critical that the Notice of Lien properly set out the amount of the arrears and associated interest, reasonable legal costs and reasonable expenses incurred by the condominium corporation in connection with the collection or attempted collection of the unpaid amount. If there is any question as to whether or not an amount is “lienable”, such as amounts associated with chargebacks, then the condominium corporation’s lawyer should be consulted. Failure to set out the amounts properly subject to a lien can invalidate the lien and potentially jeopardize the condominium corporation’s ability to collect the arrears and associated costs and expenses.

Step No. 3- The Certificate of Lien

If payment is not received by the deadline set out in the Notice of Lien, the next step is to prepare and register a Certificate of Lien on title to the defaulting unit. It is advisable to engage the condominium corporation’s lawyer to prepare and register this document.

A Certificate of Lien when registered covers the following:

  1. The amount owing under all of the condominium corporation’s liens against the owner’s unit that have not expired at the time of registration of the Certificate of Lien;
  2. The amount by which the owner defaults in the obligation to contribute to the common expenses after the registration of the Certificate of Lien; and
  3. All interest owing and all reasonable legal costs and reasonable expenses that the condominium corporation incurs in connection with the collection or attempted collection of the amounts described in paragraphs 1 and 2 above, including the costs of preparing and registering the Certificate of Lien and a discharge of it.

It is critical that a Certificate of Lien be registered within three months of the first default, failing which the condominium corporation loses the security of the lien for arrears older than three months. The condominium corporation can still pursue the defaulting unit owner in small claims court for unsecured arrears, however, doing so will take time and cost money that may not be recoverable from the defaulting unit owner. Any arrears older than two years will not be recoverable by virtue of the basic two year limitation period set out in the Limitations Act, 2002.

Although not explicitly required by the Act, a copy of the registered Certificate of Lien should be delivered to all owners of the defaulting unit and to any encumbrancers.

In the case of a leased unit, section 87 of the Act gives condominium corporations the power to require tenants of a unit in default to pay rent to the condominium corporation, rather than to the defaulting landlord. If a condominium corporation decides to collect rent from a tenant, it must follow the notice requirements set out in section 87 of the Act.

Step No. 4- Power of Sale

Pursuant to subsection 85(6) of the Act, a lien may be enforced in the same manner as a mortgage. This means that a condominium corporation can sell a unit to satisfy the arrears and associated costs and expenses. A detailed description of the power of sale process is beyond the scope of this article. Suffice it to say that the power of sale process involves a number of important steps and can take a significant amount of time to complete. The condominium corporation’s lawyer will play an integral role in this process.

Conclusion

The ability of a condominium corporation to lien units in default of the obligation to pay common expenses is an incredibly powerful tool. A condominium corporation is virtually guaranteed to collect all amounts properly claimed under the lien, provided the correct procedures are followed throughout the process.

Reprinted with permission of the Association of Condominium Managers of Ontario.

This article is intended to provide general information about condominium lien procedures and is not intended as legal advice. Property managers and board members should not hesitate to contact the condominium corporation’s lawyer for advice on lien procedures, especially when faced with unique situations.