Owners should avoid liens because they are costly

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What is a lien? A lien is a legal document sent to owners who have failed to pay what they owe the corporation for arrears in common elements. What can this include?

  • First, arrears in monthly condo fees;
  • second, when an owner fails, after due notice, to carry out necessary maintenance and repairs that are owners’ responsibility, the corporation has to step in and do this maintenance and repairs in order to prevent deterioration of corporation assets, or injury, or danger of damage to other units. The resulting sum of money, if not paid, constitutes an arrear in common elements, provided the owner was notified and given reasonable time to attend to the issue;
  • third, insurance deductibles as a result of damage to common elements or another unit may also fall in this category, depending on by-laws or declaration. (Click here for Standard Unit By-Law; also click here for Insurance)
  • fourth, certain legal fees. But see below.

The Proper Procedure for Liens

Here is an example of how the most common type of lien is processed in Ontario:

Owners Tomtoms have not paid their condo fee for the month of August—all cheques are due on the 1st of the month. A few days later, the manager phones the Tomtoms to remind them. Still, they do not pay the September month either so, on September 10, the manager sends them a reminder note to their address of residence. Nothing happens.

By September 21, the management company sends them a letter advising that a lien could be registered against their suite and what the financial consequences will be. Still, the Tomtoms do not pay for October either. That’s 3 months of unpaid condo fees.

At that point, the condo lawyer has to issue a Notice of Lien—and there are legal fees attached to this notice. The lien is registered 10 days later if the owners have not yet complied. Had the lawyer or the management waited longer, the lien would not cover the first month that was skipped. In other words, a lien has to be registered before the period of 3 months expires if the condo is to recover all arrears.

Only three months of arrears are covered by a registered lien in Ontario. This is the reason why management companies have to be vigilant concerning the timing of arrears.

Now, let’s assume that the Tomtoms pay after the lien has been registered. What do they have to pay?

  • The arrears in common element fees
  • Interest on the arrears
  • Legal fees

Let’s also assume that three months later, the Tomtoms begin defaulting again. The process has to start all over again and a new lien has to be issued. But this time, management does not have to wait 3 months: Another lien can be issued after a warning during the first month of default.

When owners who are in arrears are in the midst of selling their unit, the status certificate will indicate the arrears and all amounts due as well as the lien. Upon closing, either the seller or the buyer will have to pay: A condo corporation always has precedence over most other creditors, including mortgage lenders.

The same process would happen in a case of owner’s bankruptcy: The condo corporation will have precedence over most other creditors, with a few exceptions, such as property taxes.

It is advisable to send a copy of a lien to institutions or persons who provide the mortgage as these institutions may pay all arrears in order to prevent the next steps from occurring.

What Liens Cannot Cover

Liens cannot cover:

  • fees that a board or a manager artibrarily charge and that are not contained in the Declaration, by-law, or rule;
  • "punishment" fees that boards/managers arbitrarily charge when someone (generally someone they don't like) breaks a rule;
  • rental fees for lockers, etc.
  • added fees for owners who pay by cheques or post-dated cheques rather than by pre-authorized payment;
  • for letters that lawyers send to frighten owners who question boards' lack of follow-up on problems

In additon, liens cannot be registered against a suite within the first month of arrears. Nor can liens be registered without prior warning. And these warnings should first come from the manager or the board in order to save in legal costs.

There is a great deal of abuse of liens--as reported in so many letters received. Please click here for Abuse of Legal Letters and Liens.