Category Archives: Condominium Fees

Legal Costs in Condominium Proceedings – A Province Divided

04 Wednesday Oct 2017

Posted by in Condominium Fees, Foreclosure

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by Ksena J. Court and Francis N. J. Taman

In our blog article, Lending to Condo Owners – Risky Business?[1], we reviewed the decision of Master Schulz in Bank of Montreal v. Bala.[2]  In that decision, Master Schulz disagreed with prior decisions respecting the priority of legal fees paid by condominium corporations over mortgages.  That prior line of cases stemming from the King[3] decision states that if the bylaws permit legal fees incurred by the condominium corporation to be considered a “contribution” or “assessment”, then they will take priority over the mortgage.

Master Schulz’ ruling in Bala was appealed and the decision of Justice Feehan was released earlier this year.[4]

Justice Feehan reviewed a number of prior decisions respecting the priority positions, including the King line of cases.  It was held that the powers granted to a condominium corporation and the wording of the Condominium Property Act, (the “Act”)[5] are to be read strictly.

Section 42 of the Act provides that where a condominium corporation takes collection steps, it may recover legal expenses “from the person against whom the steps were taken”.[6]  If a caveat is registered, then it may recover “from the owner” all reasonable expenses with respect to the preparation, registration, enforcement and discharge of the caveat.

In this particular case, the condominium corporation brought an application to vary the Redemption Order granted in foreclosure proceedings brought by the Bank of Montreal.  Justice Feehan held that those legal expenses were properly payable by Bank of Montreal because that was an application brought “against” Bank of Montreal.  However, they did not become a “contribution” and did not attract statutory priority over the mortgage.

Further, any legal costs relating to the preparation, registration, enforcement and discharge of the caveat[7] are not to be equated to a “contribution” and given priority over a registered mortgage.  “Those charges remain recoverable only in personam ‘from the owner’”.[8]

We understand that a dichotomy has developed between the North and the South in the treatment of legal fees claimed by a condominium corporation.  In the Southern areas of the province, the King decision continues to be followed – ie. legal costs of the condominium corporation can gain priority over the mortgage if the bylaws permit them to be considered as a “contribution” or “assessment”.  In the North, the practice of the Court has been to disallow the condominium corporation’s claim for priority of its legal costs over the mortgage, unless the legal costs were incurred in an application specifically “against” the mortgagee.  It is likely that this dichotomy will continue to exist until such time as the issue is addressed by the Court of Appeal.

Ksena J. Court and Francis N.J. Taman practice commercial and residential foreclosure and secured and unsecured debt collection at Bishop & McKenzie LLP in Calgary, Alberta.

[1] https://albertaforeclosureblog.com/tag/foreclosure-alberta-condominium-fees-condominium-plan-no-0210034-v-king/

[2] 2015 ABQB 166 (Alta. Master) (“Bala”).

[3] Condominium Plan No. 8210034 v. King, 2012 ABQB 127 (Alta. Q.B.) (“King”); see also our blog on the King decision at https://albertaforeclosureblog.com/category/foreclosure/condominium-fees/

[4] 2017 ABQB 38 (Alta. Q.B.) (“Justice Decision”).

[5] R.S.A. 2000, c. C-22.

[6] Section 42(a) of the Act.

[7] Section 42(b) of the Act.

[8] Justice Decision at para. 82.

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Lending to Condo Owners – Risky Business?

28 Monday Sep 2015

Posted by in Condominium Fees, Foreclosure

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Ksena J. Court and Francis N.J. Taman

In our initial blog article, Not All Condo Fees Are Created Equally[1], we reviewed the decision of Master Prowse in King.[2]  In that decision, Master Prowse decided whether certain charges, such as legal costs incurred by the condominium corporation for enforcement of condominium fees, should be given priority over a mortgagee’s security interest in the condominium.  In the end, Master Prowse found that if the condominium bylaws stated that such charges constitute and form part of an “assessment” or “contribution” then they would be given priority over the mortgagee.

The unfortunate aspect of this decision is that it has, in some instances, given the condominium owner a “pot of money” to play with to the detriment of the mortgagee.  Consider the following actual fact scenario:

  • The lender holds a first mortgage against the condominium unit.
  • The security is a home equity type of collateral security, and as such it is questionable whether the lender will be able to obtain a deficiency judgment (for further discussion on this topic, refer to our blog post Are Lenders Giving Up Too Much?[3]).
  • The condominium corporation renders a special assessment for repairs to fix leaks in the condominium building envelope.
  • The condominium owner disputes the special assessment and there is extensive litigation between the condominium corporation and the condominium owner.
  • The lender is given information from the condominium owner that there is good cause to dispute the special assessment.
  • Years later the dispute between the condominium corporation and the condominium owner is resolved in favour of the condominium corporation.
  • The condominium bylaws state that the condominium corporation is entitled to solicitor and client legal costs, and the condominium corporation is awarded these costs.
  • The legal costs claimed by the condominium corporation are approximately $80,000.
  • The owner still doesn’t pay the special assessment and is therefore in breach of the mortgage.

In this instance, the amount of the special assessment essentially eats up any equity there is in the property.  If the legal costs also take priority over the mortgage, the lender is in a significant deficiency position.  But for the condominium owner’s actions of disputing the special assessment, the lender would not have been in such a deficiency position.

Since King, the Court of Queen’s Bench has approved its rationale of looking to the bylaws to determine priorities in two Justice level decisions, Rajakaruna[4] and Seehra[5].  Is this fair to the lender to be put into a deficiency position where it may have no ability to obtain a deficiency judgment against the condominium owner, or even if it could, collect on such deficiency judgment from the owner?  Is it fair that the condominium owner gets to use the property’s equity to fight a losing battle?

In the most recent decision, Bank of Montreal v. Bala[6], Master Schulz disagrees with the approach in King, Rajakaruna and Seehra.  Rather, Master Schulz finds that the Francis principle[7] of interpretation applies.

The Francis principle states that the condominium corporation does not have the same powers of a natural person.  Nor does it have the same powers as a corporation incorporated under the Business Corporations Act.  A condominium corporation is a creature of statute and as such only has the powers that it is given under the Condominium Property Act (the “CPA”).  If the CPA doesn’t state that an act can be done, the condominium corporation can’t give itself powers to do such an act in the bylaws.

Section 42(a) of the CPA states that a condominium corporation can collect solicitor and client costs from the condominium owner.  However, this is a collection remedy only against the condominium owner as a person, not against the condominium unit itself.  Section 42(b) of the CPA gives the condominium corporation the right to collect certain legal expenses against the condominium unit, but these are legal expenses incurred only for the preparation, registration, enforcement and discharge of a caveat for condominium arrears.  According to Master Schulz, this does not give the condominium corporation a blanket power to be able to collect all legal costs incurred by deeming them to be an “assessment” or “contribution” under the bylaws.

In the fact scenario above, if the condominium corporation had registered a caveat for the special assessment, arguably the legal costs incurred by the condominium corporation related to the enforcement of that caveat.  This would put the condominium corporation in a priority position over the lender for its legal costs.

Whether it be the Court interpreting the bylaws or applying the strict wording of the CPA, lenders should be aware that they face a significant risk in lending to condominium owners.  Lenders’ equity in the property can be eroded by the condominium owner entering into a dispute with the condominium corporation, with the lender essentially indirectly financing the dispute.  Lenders may wish to consider lobbying for changes to be made to the CPA in order to ensure that they have priority over legal costs incurred by the condominium corporation.

Ksena J. Court and Francis N.J. Taman practice commercial and residential foreclosure and secured and unsecured debt collection at Bishop & McKenzie LLP in Calgary, Alberta.

[1] https://albertaforeclosureblog.com/category/foreclosure/condominium-fees/

[2] Condominium Plan No. 8210034 v. King, 2012 ABQB 127 (Alta. Q.B.) (“King”).

[3] https://albertaforeclosureblog.com/2015/03/16/are-lenders-giving-up-too-much/

[4] Bank of Montreal v. Rajakaruna, 2014 ABQB 415 (Alta.Q.B.) (“Rajakaruna”).

[5] Condominium Plan No. 0526233 v. Seehra, 2014 ABQB 588 (Alta. Q.B.) (“Seehra”)

[6] 2015 ABQB 166 (Alta. Master).

[7] Taken from Francis v. Condominium Plan No. 8222909, 2003 ABCA 234 (Alta. C.A.) (“Francis”).

Not all condo fees are created equally

13 Wednesday Feb 2013

Posted by in Condominium Fees, Foreclosure

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Ksena J. Court and Francis N.J. Taman

Condominium fees are often comprised of more than just the regular monthly assessments or special assessments.  Where there has been a default by the owner in payment, condominium corporations will usually charge the owner fees for NSF charges, writing a demand letter, as well as for the legal and other costs for taking collection steps or registering a caveat against the condominium title.  Typically lenders presumed that the condominium corporation has priority over their registered mortgage for these expenses due to the provisions of the Condominium Property Act.[1]  If the owner was not paying, lenders would often simply make payment of the amount requested by the condominium corporation and add the amount as a claimable expense under the registered mortgage.  A recent decision issued from the Court of Queen’s Bench has made it clear that not all fees or charges rendered by a condominium corporation will be secured against the title to the condominium nor will they take priority over a registered mortgage.

In Condominium Plan No. 0210034 v. King,[2] Master Prowse examined five cases in which the condominium corporation levied charges for items such as collection expenses, unpaid parking fees, and NSF fees, in addition to the regular monthly and special assessments and interest on those overdue assessments.  Generally, there is nothing prohibiting a condominium corporation from enacting bylaws that allow for it to charge these types of expenses and to have those expenses assessed against a particular defaulting owner or the owner’s unit.  After all, the condominium corporation is there to administer the common property and part of this administration is taking steps to collect on those unpaid expenses.  However, whether those expenses have priority over a registered mortgage or whether the condominium corporation is even entitled to a security interest against the condominium unit is a whole other issue.

The Condominium Property Act clearly creates a statutory charge in favour of the condominium corporation for unpaid “assessments”. [3]   It also creates a statutory charge for interest on overdue “assessments”, which has a priority over other registrations on title.[4]  The key is to determine whether those other charges are included in the definition of an “assessment” or deemed to be an “assessment” under the condominium bylaws.

By way of example, below is a portion of two very similar bylaws that were considered by Master Prowse:

Example 1:  “Any infraction or violation of or default under these By-laws on the part of an owner, his servants, agents, licensees, invitees or tenants that has not been corrected, remedied or cured within ten (10) days of having received written notification from the Corporation to do so, may be corrected, remedied or cured by the Corporation and any costs or expenses incurred or expended by the Corporation including costs as between a solicitor and his own client, in correcting, remedying or curing such infraction, violation or default shall be charged to such owner and shall be added to and become part of the assessment of such owner for the month next following the date when such costs or expenses are expended or incurred (but not necessarily paid) by the Corporation and shall become due and payable on the date of payment of such monthly assessment and shall bear interest both before and after judgment at the Interest Rate until paid.”

Example 2:  “The Corporation shall and does have a lien and charge upon and against the estate or interest of the Owner for any unpaid assessment, installment or payment (including interest on arrears) due to the Corporation in respect to his Unit, which lien shall be a first paramount lien against such estate or interest, subject only to the rights of any municipal or local authority in respect of unpaid realty taxes, assessments or levies of any kind against the Unit title or interest of such Owner, but subject also to the provisions of the Act and the Land Titles Act of Alberta…The lien or charge shall be deemed to be an equitable mortgage, payable on demand, and can be enforced either as a debt, or in the same manner as a legal mortgage registered against the Unit.  The Corporation shall be entitled to be paid by the defaulting Owner the costs (including without limitation legal costs on a solicitor and his own client basis) incurred in preparing and registering the caveat and realizing upon and enforcing the charge caveated, recovering the arrears and in discharging the caveat; and shall not be obliged to discharge any caveat until all arrears of the Owner (including interest and all such costs) are fully paid.” 

With respect to the first example, Master Prowse found that the collection costs were included as an “assessment” and therefore took priority over the registered mortgage.  In the second example, Master Prowse came to the opposite conclusion.  The distinguishing factor is what we lawyers like to call “magic words”, namely “shall be added to and become part of the assessment of such owner”.

Expenses that don’t have the magic words attached to them in the bylaws, may still be subject to a contractual security interest agreed to in the bylaws.  This security interest would entitle the condominium corporation to register a caveat against the condominium unit for those charges, but the condominium corporation would rank below any prior registrations against the title.  Absent this security interest, the condominium corporation may still charge the expenses, but it will only be collectable against the owner as an unsecured debt.

The moral of the story is that in instances where the condominium corporation is claiming a charge for anything other than a regular monthly assessment, a special assessment, or interest, the bylaws should be carefully reviewed by lenders to ensure that they are not overpaying the condominium corporation.  We suspect, however, that many condominium corporations will be reviewing their bylaws and amending them so that these other charges are included as an “assessment” and their super priority maintained.

Ksena J. Court and Francis N.J. Taman practice commercial and residential foreclosure, and secured and unsecured debt collection at Bishop & McKenzie LLP in Calgary, Alberta.

[2] 2012 ABQB 127 (Alta. Master).

[3] Supra note 1 at s. 39(8).

[4] Supra note 1 at s. 41.