CONDOCENTRIC: Ask The Pros - Common Expense Collections and Offensive Odours

Question:

I serve on a Board of Directors of three members. We used to be a self-managed complex, but found that it became too strenuous to deal with neighbours. We turned everything over to a management company to resolve all the problems that we were having. During our self-management era we adopted a policy of charging a late fee for all those owners who were handing in their cheques late. Many owners refuse the idea of post-dated cheques. At first we charged $5.00, but we soon found that owners were taking advantage of the nominal late payment fee and were racking up maintenance payments. We adjusted the late fee to $20.00 in an effort to get people to pay on time. Plenty of notice was given each time a new policy, or change to policy, was being made. This policy was maintained even with the new management company as directed by the Board. The extra income has been found to be very helpful with covering unexpected costs and minor repairs. Lately, a few owners are claiming that the Board has no legal right to enforce a late fee policy. The question is “Does a Board have the right to levy a late payment fee on to owners who are not paying on time and or who are having cheques returned NSF?

ANSWER:

How common expenses are collected is determined both by reference to the Condominium Act and to the particular condominium corporation’s by-laws.  In addition to collecting the actual common expenses, the Condominium Act provides that all interest owing, and all reasonable legal costs and reasonable expenses that the condominium corporation incurs in connection with the collection or attempted collection of the arrears are also collectible.

The actual process governing the assessment and collection of contributions to the common expenses may be established by by-law.  Most condominium corporations should already have provisions to this effect within the general operating by-law (usually By-law No. 1) addressing issues such as how common expenses are to be paid (e.g. post-dated cheques, pre-authorized payments, etc…), as well as the interest rate to be applied on arrears. 

Notwithstanding low prevailing bank lending rates, interest rates applied to common expense arrears are increasingly being set at between 18% and 24%.  The logic for high rates of interest is that the condominium corporation cannot loan money.  Unit owners are obligated to pay common expenses as provided for in the condominium corporation’s by-laws.  If the rate of interest is too low, there is incentive, for example, for a unit owner to give priority to pay off other debt.

While a condominium corporation may consider levying a charge for processing NSF cheques or other reasons, these costs ought to be incurred by the condominium corporation as a “reasonable cost incurred in the collection or attempted collection of the arrears”.  For example, it could be argued that an additional charge by property management to the condominium corporation for dealing with NSF cheques could fall under this heading.  There should be no additional “income” to the condominium corporation. 

It would be prudent to have your by-laws reviewed to determine exactly what can be done as part of the collection process.  Many condominium corporations are carrying out a by-law review in order to bring their by-laws into line with the new Condominium Act.  If this has not yet been done, consider revising your collection provisions to deal, insofar as possible, with the late payment concerns.

With regard to chronic late payers, or owners who continue to refuse to provide post-dated cheques, speak to you legal counsel with a view to setting up a satisfactory paper trail to justify formal collection proceedings being undertaken immediately, without waiting for three months of common expenses to accumulate.

From “Condominium Manager (CM ACMO) Magazine” Spring 2004 p.57

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.

www.elia.org

© Elia Associates Professional Corporation, All Rights Reserved.