The collection of common expense arrears is one of the most important duties that a Board of Directors of a condominium corporation undertakes. When common expenses are not paid and collected, the corporation can experience serious cash flow problems. This can make meeting the corporation's financial obligations difficult. It is therefore very important for the Board to keep on top of those unit owners who are in arrears.
As most common expenses are paid to the condominium corporation's property management company, the Board should request a monthly report from the property manager. The Board must be aware of the total amount of arrears at any given time.
The following steps are recommended to enable a condominium corporation to enforce payment of common expenses:
- A unit owner who has failed to pay his or her common expense arrears should be given notice in writing within ten days or sooner after the first default has occurred. The notice should advise of the default and request that a cheque be delivered to the condominium corporation or property manager within a 24- or 48-hour time period;
- If the owner does not respond, the corporation should send a second letter advising that failure to pay will result in the corporation having a lien registered against the unit for the unpaid common expenses in addition to legal fees and any other costs incurred to collect the outstanding expenses. This notice should be copied to the owner's mortgagee. Often a mortgagee will pay outstanding common expense arrears for an owner and add the amount paid to the owner's mortgage debt;
- Section 85 of the Condominium Act, 1998 gives the condominium corporation the power to register a certificate of lien on title to the condominium unit. When registered, the certificate of lien covers liens arising up to three months prior to its registration. Therefore, in order to maintain priority over any mortgages registered on title, the certificate of lien must be registered within three months of the first default.
- If the lien has not been registered within three months, the corporation is still able to collect arrears that accrued more than three months before registration. However, the corporation must resort to regular collection methods such as a small claims court action in order to collect arrears that accrued more than three months prior to registration.
- If the arrears are still not paid after two months of default, the condominium corporation should notify its solicitor that it would like a certificate of lien registered within the three-month period from the initial default;
- Once the solicitor has been given his or her instructions, the solicitor will conduct a title search to accurately determine the mortgagees on title to the property. Section 86(3) of the Condo Act requires that on or before a certificate of lien is registered, written notice be given to all who have registered an encumbrance against the property. If this notice is not given, the lien loses its priority over the encumbrance until such time as notice is given;
- In addition to the condominium corporation having a lien for unpaid common expenses, it is also entitled to collect all interest owing and all reasonable legal costs and reasonable expenses that the corporation has incurred in connection with the collection or attempted collection, of the outstanding common expenses, including the costs of preparing and registering the certificate of lien and its discharge. Accordingly, because the condominium corporation will not be aware of the legal costs and disbursements that are owing at any given time, it is important that any enquiries from the unit owner as to amounts owing to avoid registration of the lien should be directed to your solicitor. Your solicitor will ensure that an accurate calculation of the total amount outstanding, including interest, legal fees and disbursements, is provided to the unit owner so that the condominium corporation collects all funds owing to it;
- If the unit owner has not paid his or her outstanding common expenses by the end of the third month of default, the corporation's solicitor will register the certificate of lien. Notice of the registration of the lien should then be given to both the unit owner and all mortgagees. The notice should specify the total amount owed in order to discharge the lien; and
- The notice should also state that if the unit owner or the mortgagee does not pay the outstanding amount within a specified time period, collection of all amounts owing will be undertaken. The Condo Act gives the condominium corporation the authority to enforce its lien in the same manner as a mortgage. This means that the Board has the option of foreclosure or power of sale to enforce payment of the full amount owed. If the above procedure is followed, the condominium corporation will ensure the efficient and effective collection of common expense arrears.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.