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Virtually every organization attempting to collect money that it is owed will run into collection problems. And, at one time or another, that organization may look, with coveted eyes, towards the Banks. Banks, when they loan monies, generally have extensive security packages in place, which, in addition to promissory notes and general security agreements, often include mortgages against real estate. As it relates to the collection of common expenses, Condominium Corporations have no such worries. In fact, it is the Banks that look covertly towards the security that a Condominium Corporation can put in place with respect to common expense arrears.

Under the Condominium Act, all owners are required to contribute to the common expenses in the proportions specified in the Condominium’s Declaration. This obligation is absolute and, irrespective of any claim that the owner may have against the Condominium Corporation, no set-off is available.

Further, if the owner defaults in the obligation to contribute to the common expense, the Corporation can place a lien against the owner’s unit and this lien not only covers the unpaid common expenses, but also any interest owing and all reasonable legal fees incurred by the Corporation related to the collection of the amounts owing.

However, this security is time sensitive and the lien must be registered on title to the owner’s unit within three months of the first default. Once registered, the lien will cover any future common expenses, interest or reasonable legal fees that may arise.

In addition to the registration being time sensitive, the Condominium Corporation is also required, in order for the registration of a lien to be valid, to give the owner at least ten days notice that it intends to register a lien against title to the unit if all arrears are not paid. The notice need not be delivered personally and it is sufficient if it is sent by regular mail addressed to the owner at the address for service that appears in the records of the Condominium Corporation.

Once in place, the lien may be enforced in the same manner as a mortgage, allowing the Condominium Corporation to sell the unit if the common expenses are not paid.

The best part of a condominium lien, and the one that the Bank covets, is the fact that a lien, once registered, takes precedence over any residential mortgage registered against the unit and this is irrespective of the timing of the registration of the mortgage.

This priority not only applies to mortgages but also applies to any registered or even unregistered encumbrances, irrespective of when the encumbrance arose.

The condominium lien must only take a back seat to the claim of the Crown, other than a Crown registered mortgage, and a claim for taxes or assessments levied under the Municipal Act, the Education Act, and some additional statutes which virtually never arise.

This priority over encumbrances applies to residential condominiums and does not apply to commercial condominiums.

As a result of this priority, it has been the practice of mortgagees to pay the arrears and add it to the mortgage in order to assume control of any power of sale proceedings.

In return for payment of the arrears, the mortgagee would request that the lien be discharged. This is not a problem if all of the arrears have priority. However, in those situations where arrears had arisen more than three months before the registration of the lien, I have taken the position that I will not give a discharge of the lien but merely an acknowledgement that those historical arrears do not have priority over the mortgage. This ensures that I still can initiate my own power of sale proceedings and guarantee that the unit cannot be sold by the owner without the “non-priority” arrears being paid.

Condo liens. It’s better than money in the Bank.

Brian M. Jenkins is a partner with the law firm of Keyser Mason Ball, LLP. He practices in the area of commercial litigation and condominium law. He can be reached by email at jenkins@kmblaw.com or at 905.276.0409.

The comments in this newsletter are of a general nature and are not designed to replace professional advice in specific situations. If you would like extra copies of this newsletter, or you know of anyone who would be interested in joining our mailing list, please contact Cheryl Woolcott at (905) 276-9111.