Condominium Fee Collection – A Case for Consistency
As someone who has seen a bunch of estoppel packages in my professional career, I am often surprised by the amount of arrears that many condominium board will allow a unit owners to carry for extended time periods. I have seen arrears against individual units that get to $30,000 and beyond, and evidence in the minutes that they are still hesitant to take any sort of collection activity against the unit owner. A consistent and rigid collection approach has a number of benefits for directors that are responsible for the financials of their condominium corporation.
There are good reasons for boards to mechanically apply a lien against a property before 3 months of arrears have accumulated.
Keeping Priority: The Act allows for the lien to be in priority to a registered mortgage for 3 months of arrears, and any accumulated fees subsequent to registration against the title. If a property does not have enough equity to pay out the mortgage and the condo fees, the board wants to ensure that they get paid out first.
Cash flow Management: Arrears that grow and grow can create cashflow problems for boards. Timely collection and penalties for late payments will signal to owners that they should be paying their assessments in a timely fashion. Coupled with interest bylaws, there will be a strong disincentive to having owners avoid paying their condo fees.
These liens will often trigger the payment of the arrears by mortgage companies. The mortgage companies may pay the arrears, and add all of the costs back to the principal of the owner’s mortgage. Again, final result being that the arrears are paid.
No cost (sort of): There will be a cost to the owner. The owners can make them responsible for the payment of the legal fees and registration costs of the lien through the bylaws and the Act.
The board may need to cover the cost of the lien registration upfront, or at least in a timely fashion following its registration. If doing the work yourself, you will be responsible for at least the amount owing to land titles for registration, and any searches necessary to complete. However, when these fees are paid, the board can consider including them as part of their assessment, and charging interest on them like the remainder of the fees.
I appreciate that this is a bit of work generating proposition for me and other lawyers, but I would suggest that you talk to your lawyer about getting a registration system organized for these liens. We can do a search, identify the right parties to provide notice to, and register the lien.
Once the lien is registered, that is not the end of the collection process. It can make some sense at that point to let the arrears accumulate if no one is willing to pay them, but you need to ensure you are getting the right advice to protect the corporation long term. There are a number of options to collect, but many of them have a cost to them, and not all of those costs will be recoverable. Accordingly, it is a good idea to set a high rate of interest to fund any of the necessary collection activities for the property.
