COVID-19 Bulletin No. 4: Collections
Updated on March 18, 2020 at 11:30 a.m.
As the Land Registry Office and banks remain open at the time of writing, the Law Society of Ontario has suggested that real estate transactions should close as scheduled. However, in the event that a party becomes unable to close for a reason relating to COVID-19, lawyers have been encouraged to cooperate with each other, while preserving their client’s interests (i.e. agree to extend closing rather than force the other party into default).
The Condominium Lien is not a penalty and the process is not one that can be waived or deferred. It is a tool to preserve the interests of a community. It is also a tool that impacts the interests of other third parties, such as mortgagees. While recent reports suggest that Canada’s six major banks may allow customers to defer mortgage payments, this does not change the banks' interest or ability to collect on the mortgage.
Common expenses do not reflect the payment of interest on money borrowed. Common expenses reflect the cash-flow of a community, which remains vital. The Condominium Lien, like a registered mortgage, represents a public record of the debt and establishes an interest in being able to collect it. It remains that liens must be registered within 3 months of arrears originating.
Friday, March 20, 2020 is this month's deadline to issue the Notices of Lien (formerly called Form 14 notices), the only required notice that a condominium corporation must issue to a unit owner who has not paid their common expenses before a Condominium Lien can be registered to secure payment. It currently remains essential for condominiums to meet this deadline to secure payment of unpaid common expenses. At this point also, unpaid common expenses would have originated months before the current crisis emerged locally.
If a condominium does not register a lien within the 3-month window, it risks losing and/or compromising its lien right and, more importantly, the “super-priority” of the Condominium Lien over almost all other registered encumbrances. This means that any unit owner who did not make payment of common expenses in January of this year will find their unit liened by the end of March if their condominium is engaging in best practices to protect the interests of all unit owners.
Amidst the chaos and uncertainty of recent days, including many going into self-isolation and businesses closing, there is much concern surrounding the financial impact of the pandemic. Collection measures that need to be taken against units that have unpaid common expenses are not personal and can be difficult, but they still need to be followed - with compassion and respecting the interests of all parties that are impacted.
While recent reports suggest that Canada’s six major banks may allow customers to defer mortgage payments, this does not impact the legal interests of condominium corporations. It remains that liens need to be registered within 3 months of arrears originating or condominiums will lose their priority for payment.
Management companies processing and collecting monthly common expenses may wish to consider making alternate arrangements for receiving payment if on-site offices are currently closed or their employees are otherwise working from home. It remains the responsibility of unit owners to make payment of common expenses at this time.
That being said, collecting unpaid common expenses during a time that our society is experiencing a crisis is challenging. What can be done by condominiums and the managers servicing them to minimize the impact on units owners facing liens for unpaid common expenses?
- Reduce or waive interest. Many condominium by-laws prescribe high interest rates (18% or 24% is not uncommon) as a deterrent for non-payment. Boards can opt to waive this interest to reduce the financial consequences of failing to pay common expenses.
- Increase/strengthen warnings. Many condominiums issue warning letters as a courtesy to warn owners who have not paid common expenses of the consequences of having a lien registered against their unit. If mortgagee information is available, we recommend sending these warning letters to the mortgagee as well. If banks are willing to pay arrears before a lien is registered, lien registration costs can be avoided. The banks, unlike a condominium corporation, are in the position to extend credit.
- Move away from aggressive lien protocols. The 3-month window to register a lien represents the latest that a condominium can register a lien. In the past, some condominium corporations may have adopted a shorter window (perhaps to address a persistent problem of late payments). Where a condominium corporation has adopted this more aggressive protocol, consider temporarily abandoning these practices to give owners in arrears as much time as possible to make payment, without sacrificing the condominium corporation’s own interests.
- Discount administrative/legal fees. All reasonable legal costs and reasonable expenses incurred in attempting to collect unpaid common expenses can be secured under a Condominium Lien. It is not uncommon for administrative charges to be associated with issuing courtesy reminder letters (in an effort to avoid incurring the larger costs associated with lien registration), and/or coordinating a file to be sent to the corporation’s legal counsel. One way to ease the financial burden of unit owners in arrears is to reduce these fees to encourage payment.
- Once a lien is registered, delay advancing the file. It is important for condominiums to register a lien within 3 months of common expenses arrears originating, but they need not aggressively pursue next steps. For short-term reprieve, condominiums could instruct their lawyers to delay advancing a collection file after registering a lien. This secures the condominiums position while offering owners additional time to make payment. In the longer term, this will only shift the cash flow burden to those owners who are able to make payment of common expenses when due but does offer some short term relief.
Where proper collection protocols are followed, there is no reason why a condominium corporation will not collect 100% of the unpaid common expenses - which is in the interest of all unit owners. It can equally be said that proper collection protocols virtually guarantee collection of 100% of all legal costs and late payment interest; however, these same protocols can also be used to create some flexibility in what is otherwise a very difficult time.
Please contact us at firstname.lastname@example.org or toll-free at 866.446.0811 if you need any further information or if you would like assistance. We must receive instructions to issue a Notice of Lien by 11am on March 20th in order to meet Friday’s issuance deadline.
All of the information contained in this article is of a general nature for informational purposes only, and is not intended to represent the definitive opinion of the firm of Elia Associates on any particular matter. Although every effort is made to ensure that the information contained in this newsletter is accurate and up-to-date, the reader should not act upon it without obtaining appropriate professional advice and assistance.
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