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March 25, 2020

A Practical, Sensible, Cautious and Balanced Approach to The Collection of Common Expense Arrears In Light of The Recent Order Under The Emergency Management And Civil Protection Act

 
Since our initial blog with respect to the effect of the recent order under the Emergency Management and Civil Protection Act (the “Order”) on a condominium corporation’s ability to register a certificate of lien (“COL”) for arrears of common expenses, there has been varied and divergent views from members of the condominium law bar as to whether condominium corporations should continue their usual collection procedures with respect to the issuance of Notices of Liens/pre-lien notices and the registration of COLs. 

The uncertainty created by these varied and divergent views has in turn caused uncertainty as to the competing rights of the stakeholders, namely the condominium corporation, the unit owner and a mortgagee, as well uncertainty for the management companies and the lawyers who advise these stakeholders.

As a result, we set out below, what we believe is the most practical, sensible and cautious approach which attempts to balance the competing rights of the stakeholders in the context of uncertain future judicial interpretation.

  1. If a condominium corporation has issued Notice(s) of Lien(s) (pre-lien notices) more than 10 days ago and the amount claimed has not been paid, the condominium corporations should register Certificate(s) of Lien (“COL”).
  2. If a condominium corporation has not issued a Notice of Lien/pre-lien notice with respect to the arrears of a particular unit, then the condominium corporation should issue a formal Notice of Lien/pre-lien notice and should copy the mortgagee (after a title search), even though there is no requirement to do so.
  3. If there is no payment by the expiry date in the Notice of Lien/pre-lien notice, the condominium corporation should then (1) register a COL in an attempt to preserve the condominium corporation’s lien (the validity of which may be subject to future challenge) and, (2) give formal statutory notice of the COL to the mortgagee.  The condominium corporation should consider taking no further collection steps until the Order is lifted.
  4. When the Order is lifted, to mitigate the potential of a challenge to the validity of the COL, the condominium corporation should consider whether it should repeat steps 2 and 3 above as a hedge in case the validity of the first lien is challenged. The timing of the lifting of the Order and the amounts involved, will inform the decision to do or not to do so

The purpose of this approach is to:

(a)  permit (subject to future challenge), the condominium corporation to secure the debt, which safeguards the financial viability of a condominium corporation;

(b)  take the mortgagee’s interest into account by giving early notice to the mortgagee, because a mortgagee is technically not entitled to notice of the lien until a COL is registered.  This will permit the mortgagee to deal with the outstanding arrears as soon as possible, to limit further erosion of its mortgage security;

(c)  give the defaulting unit owner some relief by taking no further collection steps until the Order lifted; and,

(d)  protect against future adverse judicial decisions.

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