Allocation Of Common Expense Payments By Condominium Corporations

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http://www.condoreporter.com/wp-content/uploads/2013/05/blue_sky_building-200x200.jpgMost condominium owners pay their monthly common expenses by way of pre-authorized payments. The question that frequently arises is whether these payments can be allocated by the condominium corporation to other unpaid amounts owing by the owner, such as chargebacks. The Ontario Supreme Court recently considered this question in the case of Durham Condominium Corporation No. 56 v. Stryk.

In this case, the owner had set up a pre-authorized payment plan for her common expense payments. In addition to falling behind in the payment of several monthly common expense payments, the owner also was indebted to the Corporation for two chargebacks. One was for plumbing services relating to a leak which the Corporation claimed emanated from the owner’s unit, and the other related to damage caused by the owner to the common element garage door. A lien was then registered against the unit, a notice of sale was issued and the Corporation subsequently commenced an action for possession of the unit. By this time, the Corporation claimed that the total amount owing was in excess of $42,000. This included arrears of common expenses, the two chargebacks, legal costs relating to the lien and the sale proceedings, plus interest.

As the chargeback for the garage door occurred in 2008, the owner claimed that the time to claim the lien had expired. The Corporation ‘s position was that “payments are applied to the oldest debt so that the three month time to register a lien keeps moving ahead. Therefore, each time a payment was received, the default date moved ahead a further thirty days.”

The court agreed with the condominium corporation, and quoting from another  case (YCC 482 v. Christiansen) stated: “It would be contrary to the scheme of the Act to prefer the interest of the owner in ridding itself of the  lien to the interest of the corporation in getting paid. The corporation is free to allocate these funds in its interest, not in the debtor’s own interest.”

This case  is reassuring for condominium corporations as it upheld the practice of most condominium corporations: allocating common expense payments to the oldest indebtedness, including chargebacks.

This case also considered some other issues. The owner claimed that she had never received copies of the condominium by-laws, rules and declaration and thus, was not aware that chargebacks could be collected as common expenses.  However, as the corporation presented the court with the  acknowledgment of receipt of the condominium documents signed by the owner, the court did not have to make any ruling as to what would be the ramifications in relation to the chargebacks if the owner had not received the condo documents.

With respect to the chargeback for plumbing costs, there was some dispute between the parties as to  the source of the water leak. As the plumbing bill was for approximately $220, the judge determined that the amount was not ”significant enough to warrant  the expenditure of public resource for a trial” and determined that the Corporation would have to absorb this cost.

At some point after registration of the lien, the corporation refused to accept any common expense payments from the owner to  ensure that no settlement was construed. The court determined that the corporation did not have the right to refuse the common expense payments when tendered and thus, did not have the right to charge interest on those amounts.

The right to lien the unit is a powerful remedy that protects other owners from the financial ramifications of a defaulting owner. While regular monthly condo fees are clearly lienable, condominium corporations should be checking their declaration and by-laws, in consultation with legal counsel, to confirm what other amounts/chargebacks can be secured by a lien.

There are a number of useful “take-away”  lessons case in this case:

1. Condominium corporations can apply common expense payments to oldest arrears.

2. A condominium corporation cannot refuse to take subsequent payments even if unit owner is in arrears and the unit has been liened.

3. Always check the condominium documents to see if there is an ability to chargeback.

4. Even if  the owner is not aware of the corporation’s ability to chargeback, he/she will still be responsible.

5. Don’t go to court over small-ticket items – it’s not worth the trouble.

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