CONDOCENTRIC: The Collection Process

Collecting common expenses represents the financial life-blood of a condominium corporation – the cash-flow, without which, a condominium corporation cannot carry out its duties.

All too often, our office is contacted by a unit owner who has not paid his/her common expense expenses, demanding answers to questions such as:  Why am I being singled out?  Why is the Board, property manger and even fellow owners, commencing formal collection proceedings?  Are people trying to sell my unit?  Why should I be responsible for interest and legal costs in addition to the common expense payments?  Why is the whole process so unfair?  

Also, all too often, our office hears many varied reasons as to why the formal collection process was permitted to be delayed to the point where there are unsecured arrears – and is then asked to explain why the collection process may not be 100% effective.

Two questions to keep in mind are:

• What gives any unit owner the right to shift the financial burden of paying common expenses to the condominium corporation and, by extension, onto the shoulders of his/her neighbours; and
•  Why would a condominium corporation knowingly compromise a highly effective collection process?

The Condominium Act, 1998 (the “Act”) provides condominium corporations with a very straightforward, but highly technical, means to secure payment of common expense arrears, so as to protect unit owners from having to shoulder the additional burden caused when an unit owner neglects to contribute his/her apportioned share.  If properly carried out, the common expense collection process should result in the condominium corporation collecting ALL common expense arrears, ALL legal costs, and ALL late payment interest.  

To vary the collection process, on compassionate grounds or otherwise, is to potentially compromise the position of the condominium corporation, and all other unit owners.

The legal process begins with the issuance of a Form 14 – Notice of Lien.  This notice is the only notice legally required to be provided to a unit owner prior to a lien being registered, and its format is prescribed in the Regulations passed pursuant to the Act.  To protect the condominium corporation, it is essential for Form 14s to be issued in a timely manner and without error.  Once the deadline provided in the Form 14 elapses, a condominium corporation may then proceed to notify encumbrancers and register a Certificate of Lien on title to a unit.  The lien secures payment of common expenses that came due up to three months prior to its registration, in addition to those that come due thereafter.

It is only with the registration of the Certificate of Lien that the condominium corporation’s position crystallizes.

There are several important elements of the common expense collection process that we encourage condominium corporations to employ to best secure their position:

• Timing.  To secure recovery of arrears, condominium corporations should not allow arrears to exist beyond the beginning of the third month before commencing formal collection proceedings regardless of the situation that presents itself, as allowing the same could compromise the interests of the condominium corporation.
• Consistency.   The process should be followed as a matter of routine for all units in arrears.  Ideally, the process should be automatic, and should not require board level involvement to be initiated.  No argument can be made of an unfair process if a condominium corporation proceeds in the same manner against all units that accumulate arrears regardless of who the owner is.  
• Integrity.  Instructions should be clear, consistent and concise.  Care and consideration must be given as to who commences and has carriage of the formal collection process to ensure that a condominium corporation’s position is secure and not subsequently compromised.  
• Communication.  For a collection file to proceed without complication, a condominium corporation must speak with one voice.  It has been our experience that when multiple representatives of a condominium corporation get involved in collection proceedings, the matter becomes complicated and its resolution inefficient.  For example, if a file has been turned over to the condominium corporation’s solicitor, all inquiries and payments by unit owners to property management should be directed to the solicitor.  

Using effective collection protocols, any condominium corporation is able to secure its position by complying with the process prescribed by the Act.  The collection protocols initiated by our firm allow condominium corporations and property managers to obtain immediate feedback on the status of any collection proceeding, without being involved in the day to day management of the collection process.  By directing all inquiries and payments to our office, property managers and directors are able to stay on top of the file, avoid getting involved in the politics of the situation and focus their time and efforts on the other legitimate business of the condominium corporation.  

We recently successfully defended a condominium corporation from a claim by a unit owner that a lien was improperly placed against his unit.  As it is our practice to implement the principles outlined above, we were able to meet the threshold established by the court and remove any doubt as to the sufficiency of our collection process.

Please contact us to find out more about effective common expense collection protocols.

From “Common Elements” Winter 2006

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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