TSCC 1908 v. Stefco - Litigation That Hurts Us!

On December 13, 2013, the Ontario Superior Court of Justice released its decision in TSCC 1908 v. Stefco. To suggest only that “the condo lost” is an understatement. The decision represents a loss to the condominium community as a whole and serves to take away yet another remedy that was previously fought for and gained by another condominium. In my view, this dispute should never have gone to court.

The facts are not spectacular: Stefco purchases from the Declarant, but never pays any common expenses. There is a separate dispute between TSCC 1908 and its Declarant regarding turnover and the constitution of the Board, in regards to which TSCC 1908 is successful; however, by the time the financials are put in order, the condominium corporation is long out of time to secure all common expense arrears under a Condominium Lien against Stefco.

TSCC 1908 brings a compliance application against Stefco for failure to pay common expenses (breach of Section 85 of the Condominium Act, 1998) with the intent of obtaining an order that would “re-secure” the arrears vis-à-vis Stefco’s units. This argument was not novel. In 2004 our firm obtained, to my knowledge, the first order permitting a condominium corporation to do this very thing.[1]

Stefco does not challenge the fact of the arrears. The central issue is a question of priority as between TSCC 1908 and the Business Development Bank of Canada – Stefco’s mortgagee.[2]

This is really a question of who is the “most innocent” party. In this case, it is between the condominium corporation and Stefco’s mortgagee. The mortgagee had nothing to do with creating the arrears, nothing to do with any of the litigation, and nothing to do with any of the additional costs that might have been incurred as a result. By contrast, the arrears became unsecured purely as a result of the condominium corporation not doing what it ought to have done – i.e. lien the unit within the 3 month window.[3] The mortgagee had done nothing to create or perpetuate this issue, yet without the lien process being undertaken within the required timelines had no opportunity to mitigate the amount secured by the condominium. By contrast, if the order were to be granted re-prioritizing the condominium corporation’s lien, the mortgagee’s interests, quite obviously, would be negatively impacted.

This issue arose in Knight. Rather than litigate the point, we assessed our BATNA (best alternative to a negotiated agreement). If we went to court over the issue of priority, we were not comfortable with the chances of success. By contrast, when assessing the alternative, we found that there was sufficient equity in the unit to cover the mortgage as well as all common expenses and legal costs incurred. Rather than fight, we negotiated an agreement with the mortgagee. The result was a winning situation for our client and novel and beneficial case law.

My frustration with the Stefco decision is that it effectively negates the advancements achieved in Knight. Any condominium corporation going forward will now have the added task of distinguishing Stefco.

Lessons learned:

1. In seeking to recover common expense arrears, timing is key. If you have any questions about best practices with common expense collections, talk to us about this quickly.
2. Turnover will have repercussions for the condominium corporation. Make certain that it proceeds quickly and efficiently.
3. Don’t be shy about looking to past directors who may have caused the loss.[4]

[1] See YCC 298 v. Knight [2004] O.J. No. 6051

[2] Remember that a Condominium Lien, when properly registered, has “super-priority” over a previously registered mortgage.

[3] One really has to wonder why the condominium corporation did not look inwards, to the Declarant appointed board members, and even its own director and officer liability insurance.

[4] See also Boily v. Carleton Condominium Corporation 145, 2013 ONSC 1467 (CanLII) 

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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