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Understand why registering liens is critical to the health of your condo corporation
The Common Expenses Fee (CEFs) collected from condominium owners manage the costs of maintaining your condominium’s common elements.
When owners fail to pay their CEFs, it can make a huge impact on the effective management of the property. Therefore, even during crisis like COVID-19, condominium management must continue to collect fees and register liens accordingly.
Although you can consider allowing some leniency in the collection of CEFs due to the pandemic, it is not advisable. Understanding the impact of the virus on the economy is key. And so is your responsibility not to put your reserve fund at risk. Avoid failing to follow the CEF policies under the Condominium Act.
Condominium Lien Right
When owners default on their CEFs, you have the right to register liens against them. The lien is placed against the owner’s unit for the unpaid amount. Additionally, this should include any interest along with legal costs you might incur in trying to collect the unpaid fees.
The problem with allowing leniency even during the coronavirus crisis is that lien rights expire if not filed in a timely manner. So if your condo corporation or management team fails to register liens, you could lose your window to do so.
You have three months to register the certificate from the date of the initial default. Your only option once the lien expires is to take the owner to small claims court to collect the arrears. Therefore, timely fee collection is especially important as is following the proper steps in the lien process.
Following the Right Steps for CEF Liens and Registration
It is always advisable to ensure you have a policy for dealing with unpaid CEFs in your condo declaration and bylaws so owners understand the process. These steps should include:
- Sending owners immediate notice within 24 to 48 hours of the first late payment
- Sending notice for the first 30 day missed payment informing the owner a notice of lien will be sent should payment not be received within 24 to 48 hours
- Interest is charged after the first 30 days in accordance with the condo bylaws
- Notice of Lien (Form 14) to the owner and mortgage lender
- Register liens
This allows you to cover all your bases when registering a lien. However, you can get even more specific with the process you choose to put in place.
Notice of Lien to Owners
If the initial letter does not get results, a Notice of Lien to Owner must be sent. Also known as a “Form 14”, the notice form provides the details of the late payments and a new deadline for payment. By law, you are required to give the owner at least 10 days from the date of the notice to make their payment. If the owner does not meet the deadline, you can then proceed to register lien against their unit.
How to Register Liens
A Certificate of Lien covers the amount owing on defaulted CEFs as well as all interest owing, legal costs incurred and “reasonable expenses” your condominium corporation incurs in an attempt to collect the fees. Because it is a legal process, you should hire a lawyer to manage registration. You should also include a title search to confirm the correct ownership of the unit. These legal fees can be added to the lien.
As mentioned, you only have three months to register the Certificate of Lien based on the date of the first defaulted payment. If you miss this window, you will have to sue the owner instead. This is costly and often means you won’t end up recovering the fees. There is also a two-year limit for taking an owner to court.
Selling Condos and Owner Bankruptcy
The certificate is a must because if an owner in arrears tries to sell their unit, the status certificate will indicate the arrears and associated costs. These will show up as a lien. This means you are guaranteed the money at closing. In fact, even in the case of an owner claiming bankruptcy, a condo corporation has precedence over almost all creditors including mortgage lenders.
Leased Units in Arrears
Registering liens also helps in the case of unpaid fees for leased units in accordance with section 87 of the Condominium Act which states:
“If an owner who has leased a unit defaults in the obligation to contribute to the common expenses payable for the owner’s unit, the corporation may, by written notice to the lessee, require the lessee to pay to the corporation the lesser of the amount of the default and the amount of the rent due under the lease. 1998, c. 19, s. 87 (1); 2015, c. 28, Sched. 1, s. 80 (1).as long as you follow the proper notice requirements.”
This allows you to go directly to the tenant in order to collect the unpaid CEFs.
Mortgage Lenders Notice and Liens
Mortgage lenders do not hold priority over liens in the case of a condo sale or a condo owner declaring bankruptcy. That’s why you should send a copy of Form 14 to the mortgage lender. Many lenders, to avoid seeing a Certificate of Lien pop up during sales procedures will often decide to pay arrears. They do so on behalf of their clients in order to avoid the registration of a lien.
Other Reasons to Register Liens
Per the Condominium Act, your corporation might also have to collect money from owners that caused damage to common areas due to negligence. Under Section 92, the owner is responsible for any damages they cause such as flooding into the hallway due to an overflow. The unit owner would also be responsible to cover the condo’s insurance deductible in the case of a claim, according to Section 105 of the act.
In the case where the unit owner is not in compliance with condo bylaws, liens can be applied to the condo unit.
Although it is tempting to be more compassionate during these challenging times, the uncertainty of the crisis must be your first consideration. By ensuring collection procedures are followed as usual, you are protecting all unit owners, their property and the value of their investments.
If you would like assistance in managing your property through these difficult times, the team at CPO Management is here to help. Reach out to us today.