Best Practices Condominium Collections February 2014 Update

As part of encouraging condominium corporations to operate with best practices, we recommended that the Board of Directors (“Board”) periodically examine their collection practices to react to Court decisions. This is an update to previously circulated materials and is a series of recommendations, not legal advice for any specific condominium corporation. The best practices will evolve with additional court cases or changes occur in the legislation.

A key to this process is to demonstrate that a Board puts their mind to the fact that foreclosure on a Unit is a potential outcome of the collection process. The ability to initiate a foreclosure is a powerful remedy and granted to condominium corporations under the Condominium Property Act, R.S.A. 2000 c. C-22. As a result, it is proper that a Board undertake the necessary procedural steps when exercising this option. This is best demonstrated by considering resolutions at Board meetings and then documenting the decision in the minutes of the Board meetings.

Bring these recommendations to your next Board meeting and consider them with your fellow Board members, and encourage them to occur on a go forward basis.
Recommended steps are:

1) Management and the Board review the condominium corporation’s Bylaws re: interest, penalties, and timeline before a caveat can be issued;

2) The condominium corporation or property manager send a letter to those owners in arrears demanding payment and indicating that if payment is not received, the matter will be sent to legal counsel for collection.

3) If payment not received, then debate and pass a board resolution giving specific attention to collection process. If the Bylaws permit it, the Board may also wish to accelerate payment of the remaining condominium fees for the remainder of the fiscal year.

4) The board must document in their minutes the decision to file caveats and collect the arrears.

5) A caveat is prepared and filed. A letter is sent from legal demanding payment.

6) If payment not received, then proceed to enforce the caveat. This may include the filing of a Statement of Claim to commence the foreclosure process. Other options include notifying mortgage holders registered on title and also providing notice to tenants to direct payment of rent to the condominium corporation to be applied against outstanding arrears.

Notes from the case law and legal analysis:

• Caveats for arrears of condominium fees, special assessments, interest and rental deposits will have priority over first mortgages. Be certain that resolutions assessing condominium fees, special assessments, and rental deposits are properly passed and recorded in board meeting minutes. (Note: This is occasionally overlooked)
• Unit chargebacks such as: pest control, utilities, unit repairs, locksmiths, fines, etc. may have priority depending upon the Bylaws. There is conflicting case law.
• Unlike other pests, bed bug charges are not necessarily a charge back which can be tied to a specific unit. Often the source of the bed bugs cannot be identified. Merely because a unit reports bed bugs does not make that Unit the source of the bed bugs. Consult a bed bug expert for a definitive opinion.
• If charging back an expense to a unit, be certain to pass a board resolution and record in the minutes doing so. Cite the Bylaw which entitles the board to charge back the cost to the Unit. The enforceability of the chargeback is adversely affected if there is lack of evidence of the costs or lack of evidence of the Board decision to charge the cost back to a specific unit.
• Fines may support a caveat depending upon the Bylaws, but will not have priority over first mortgages. Note that commencing foreclosure over outstanding fines is not good practice and is discouraged. Consider small claims Court to collect outstanding fines as a more appropriate alternative.
• Whether the Corporation’s legal fees, or a cost by the property manager fees (if any) for preparing and registering the caveat for collection will also have priority depends upon the Bylaws. There is a conflict in the case law on this point as well.

Suggested language for the Board resolutions are:

a) The Board resolves to file a caveat for unpaid condominium fees and contributions. Interest will be charged on unpaid fees and contributions at the rate of _____% pursuant to Bylaw _____. Legal proceedings to enforce the caveat including foreclosure and selling of the unit are authorized. The units are:
Unit ___
Unit ___
Unit ___
b) The Board resolves that unit(s) _______ shall have payment of their condominium fees accelerated for the remaining fiscal year pursuant to Bylaw ____. The amount owing as of __________, 2013 is therefore $_____________.

c) The Board resolves to charge back the ___________________ costs, in the amount of $_______________ to Unit _______ as a contribution due and owing to the condominium corporation pursuant to Bylaw _______________.

Willis Law is a boutique law firm providing comprehensive services to the condominium industry, including bylaw revisions, collection of arrears, construction deficiencies, disaster advice and governance opinions amongst other areas. Should your corporation require legal assistance, please contact us or visit our website at www.willislaw.ca.
Hugh Willis – Willis Law (780) 809 1888; (780) 809 1889 (fax); hwillis@willislaw.ca

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