By Jeff Lack, BAcc, CGA – Accounting Supervisor
From WB Condo Connection – Volume 1, Issue 1
There is often confusion regarding the procedures required, and the time lapse involved in commencing lien proceedings against units in arrears. This is further complicated when the lien policy is not 3 months as recommended (but not required) by the Condominium Act of Ontario (the “Act”). In order to simplify the understanding of the steps involved, all lien procedures, regardless of the policy, should have similar timing working backwards from the date that the lien is to be placed.
Most condominiums follow a 3-month lien policy in accordance with the Act. The Act states that a lien must be legally registered prior to the arrears becoming 3-months old in order to secure the balance owing. If an arrears balance passes the 3- month limit, it is no longer “lienable” (the corporation losses its right to register a lien on the unit for any amounts over 3-months). However, the Act does not require the 3-month policy to be used – many corporations choose a shorter policy.
In order to properly register a lien, certain legal procedures must be followed. If these procedures are not followed accurately and in a timely fashion, the lien may not be enforceable in court. It is the timing of these procedures that often causes the most confusion.
For all lien policies, the timing is as follows (working backwards from the date the lien is to be placed):
Lawyers generally appreciate 2-3 working days notice to prepare the lien, search for title, register the lien and mail documents to the owner. Taking into account any weekend or holiday that may fall near the end of the month, the Certificate of Lien (Form 6) should be sent to the corporate lawyer approximately 5 days in advance.
Prior to the Certificate of Lien, owners must be given reasonable notice that a lien is going to be registered. As such, a Notice of Lien (Form 14) is sent to the owner giving them 10 days notice (as required by the Act) to pay their arrears.
Some time must be set aside for the internal procedures required to prepare and mail the Notice of Lien, whether done by the corporate lawyer or the management company.
As such, the entire process can take up to 20 days. WB’s current policy is to send Notice of Liens on or about the 10th of each month, in order to have the liens registered by the end of the month. As such, for any lien policy that a corporation chooses, a Notice of Lien must be sent approximately 18-20 days prior the lien policy specified. For example:
- 90-day lien policy – Notice of Lien sent when approximately 70 days in arrears (i.e. January 1st fees not paid by March 10th).
- 60-day lien policy – Notice of Lien should be sent when 40 days in arrears (i.e. January 1st fees not paid by February 10th).
- 30-day lien policy – Notice of Lien sent when 10 days in arrears (i.e. January 1st fees not paid by January 10th).
Many Boards of Directors mistakenly think that a 30- day lien policy means that a Notice of Lien will be sent if the fees are not paid within 30 days – this is incorrect as it is a “Lien” policy, not a “Notice of Lien” policy. In order for a lien to be registered at 30-days, a Notice of Lien must be sent when the arrears are at 10-days.
Beyond the Lien
What happens if an owner doesn’t pay after being liened? For units that are not owner-occupied, Section 87 of the Act allows the corporation to collect any rental payments directly from tenants until such time as all of the common expense arrears are paid off. This can result in a quick and relatively easy solution to clear up arrears on leased units.
Beyond this potential solution, the Act states that a “lien may be enforced in the same manner as a mortgage” (Section 85(6)). This means that the corporation can eventually commence Power of Sale proceedings in order to sell the unit and collect the arrears from the proceeds. However, this process involves several legal steps, from filing a Statement of Claim, allowing the owner time to defend the claim, filing the required documents for a Court Sheriff to evict the occupants, obtaining possession of the unit, allowing for the specified redemption period (a last chance for the owner to pay the arrears) and finally listing the unit for sale. This lengthy process can take anywhere from 6 months to a year, not including the time it takes the unit to sell and should be directed by the corporation’s solicitor as a result of the legal filings and proceedings involved.
What about Bankruptcies?
As the condo corporation is a potential creditor in personal bankruptcy filings, the Trustee in Bankruptcy is required to inform the management company of any filing so that a Proof of Claim can be submitted. Over the past several months, we have noted a sharp increase in the number of Personal Bankruptcy filings being received in our office. This trend has been confirmed by the Office of the Superintendent of Bankruptcy Canada who announced that bankruptcy filings in the 12-month period ending January 2009 were up 15.8 per cent compared to the previous 12 months and there were over 50% more filings in December 2008 than in the same month in 2007. With the economic downturn continuing into the first quarter of 2009, as evidenced by employment insurance filings which are now 23 per cent higher than the level in February 2008, we can only expect to see a further increase in bankruptcy filings. So what impact does this have on the condo corporation?
In short, there is little impact as a result of an owner filing for personal bankruptcy. Liens are registered against units (the real estate) as opposed to individuals (the person). As such, filing for personal bankruptcy does not allow the owner to protect their condo arrears from the corporation (the creditor) as the Act treats Common Expense arrears in the same manner as a mortgage (Section 85(6)) allowing the corporation to fully collect all arrears upon liquidation of the property.