Legal Issues

By Natasha Sutherland – Willis Law

A 2017 Alberta court decision has clarified condominium chargebacks

Condominium fee and assessment collection is a highly technical and complex issue. There are a number of terms which are used and defined by the courts, with different meanings to slightly different nuances within the same issue. It can be confusing to keep track of the terms and what items into what categories.

In January 2017, the Court of Queen’s Bench of Alberta released a decision affecting condominium corporations and the ability to charge expenses back to unit owners. The decision, Bank of Montreal v. Bala (Bala), reached by the Honourable Justice K.P. Feehan, was an appeal by the Bank of Montreal of a lower court ruling. It addressed
several items, including:

a) whether condominium corporations can levy a
chargeback (aka a “disproportionate condominium
contribution”) against only 1 owner;
b) whether condominium corporations can charge
back an insurance deductible as a contribution
against a negligent owner, and whether this
would have priority over the mortgage;
c) what evidence is required to demonstrate
negligence; and
d) whether legal fees related to the collection also
have priority.

It was hoped that this decision would provide some clarity to the uncertain landscape, as well as create consistency throughout the province. Unfortunately, there still remains some disagreement as to how this case should be applied; nonetheless, Justice Feehan does an excellent job of pulling together many cases which makes the decision a great resource.

Disproportionate Contributions
Currently under the Condominium Property Act, R.S.A. 2000, c-C22, a condominium corporation may levy disproportionate contributions against owners, if it is specifically permitted by the corporation’s bylaws. Disproportionate contributions are any expenses that are calculated on a basis other than unit factors, and include items such as chargebacks and insurance deductibles.

The language contained in a corporation’s bylaws permitting a disproportionate contribution must be examined on a case-by-case basis. In this particular case, the words in the bylaws were:

“as if it were a Common Expense levy upon the Owners’ Unit or Units and will be a charge upon such Unit or Units.”

These words were deemed sufficient in this circumstance.

Takeaway: Before attempting to levy a chargeback that is disproportionate to the unit factors, the board must ensure that the bylaws of the corporation contain appropriate language to allow them to do so.

Definition of Contributions
In order to determine if an insurance deductible can be considered a contribution based on the Condominium Property Act, Justice Feehan also looked at the definition of “contributions.” The Act describes contributions as a fund to cover:

“administrative expenses…for the control, management and administration of the common property, for the payment of any premiums of insurance and for the discharge
of any other obligations of the corporation.”

Justice Feehan further describes administrative expense as excluding fines, unpaid rent, penalties or sanctions imposed by the condominium corporation. However, actual out-of-pocket expenses that arise from the control, management and administration of the corporation are permitted. This includes chargebacks and insurance deductibles.

Takeaway: Actual out-of-pocket expenses incurred by the condominium corporation arising from the control, management and administration of the common property, are contributions pursuant to the definition of the Condominium Property Act.

Takeaway: Fines, penalties and other sanctions allowed by the bylaws of the corporation are not included in the definition of contributions.

Takeaway: This may change. Proposed amendments to the Condominium Property Act may affect the definition of contributions. Stay tuned to CCI articles and information sessions later in 2018!

Owner Negligence
In this particular case, the wording of the bylaw that allowed the corporation to charge back the insurance deductible against an owner required that there be negligence on the part of the owner or tenant of the unit. In his decision, Justice Feehan had to evaluate the evidence of negligence presented by the condominium corporation,
which consisted of board meeting minutes and an invoice provided by the initial emergency contractor.

As noted in the decision, the board’s meeting minutes were relatively detailed and demonstrated that the board had considered the possibility that the damage was caused by the owner or his tenant, but specified that they were awaiting a report from the plumber. The minutes from the follow-up meeting confirmed that the plumber’s report had been reviewed and that the loss was due to the actions of the tenant.

It is important to note that the plumber’s report was not included as evidence, and if the board meeting minutes had failed to provide sufficient detail regarding the cause of the damage, there would have been insufficient evidence to support a finding of negligence.

Takeaway: Where a condominium corporation is seeking to demonstrate liability for negligence or any other action in which the condominium corporation is making allegations against an owner (such as chargebacks, breach of bylaws or other fines) the board must ensure that there is adequate evidence to prove the allegation. This includes detailed board meeting minutes and the provision of any professional reports, photographs, video footage, and any other documentary support for the corporation’s allegations.

Legal Fees
The aspect of the Bala decision that remains the most controversial is the treatment of legal fees incurred for the collection of the contributions.

Justice Feehan pointed out that the Condominium Property Act has a specific provision that allows the condominium corporation to recover “all reasonable costs, including legal expenses” from “the person against whom the steps were taken.” In this case, the corporation had been forced to bring an application against the Bank of Montreal as the first-place mortgagee. Based on this provision, Justice Feehan awarded the legal costs incurred by the condominium corporation against BMO as the “person against whom steps were taken.” In doing so, he recognised the corporation’s ability to recover those amounts on a solicitor-and-client basis, again provided that the corporation’s bylaws allow for it.

The other side of this determination, however, was that the legal fees incurred by the condominium corporation are not characterised as a contribution with priority
over the prior registered mortgagee.

Instead, it was determined that the legal fees incurred by the corporation for the enforcement of their bylaws and the collection of properly levied contributions were enforceable only against an owner. In other words, the corporation can still recover legal fees against the owner, but not against the unit.

Takeaway: Legal fees have a different meaning than “solicitor-client costs” within the case law. Solicitor-clientcosts can be considered “100 cents on the dollar.”

Takeaway: A “contribution” has priority over the mortgages on title. Something that is not a contribution and instead “against the person” can be collected but will not have priority over the mortgages.

Takeaway: Legal fees are recoverable from the party against whom the condominium corporation had to take legal steps. However, legal fees are not a contribution. Therefore, legal fees do not take priority over mortgages.

Best Practices
There are several steps that should be taken by a condominium corporation to ensure that they maintain the best position possible when collecting contributions from
owners:

1) Ensure that the contribution has been properly levied.

  • There must be a board resolution to approve a special assessment;
  • There must be a board resolution approving the chargeback of actual expenses incurred by the corporation as a contribution. This can include damages or insurance deductibles. It should also reference the unit in question; and
  • The board must not caveat or characterize any fine, sanction or penalty as a condominium contribution.

2) Ensure that there is sufficient evidence to support the charge back.

  • Keep detailed board meeting minutes;
  • Request and retain assessments of the situation from the party who is the first on site to address an emergency issue;
  • Obtain expert assessments where necessary to determine the cause of an issue;
  • Obtain witness statements; and
  • Review and keep on file any security camera footage or other evidence.

3) Ensure that the bylaws of the corporation contain the necessary language.

  • The board should ensure the corporation’s bylaws allow the corporation to collect the specific expense back from an owner as if it were a contribution; and
  • When seeking to collect legal fees on a solicitor-andclient basis, that the corporation’s bylaws specifically allow for solicitor-and-client legal costs.

4) Incur the expense before attempting to recover any amount from the owner.

  • Keep detailed records of invoices and payments for use an evidence.

There still remains a level of uncertainty in terms of how the 2017 Bala decision will be applied, particularly in light of the current and proposed changes to the Condominium Property Act; however, I am hopeful that that further clarity and consistency will be provided as more of these matters are taken through the litigation system.

Natasha Sutherland,
Willis Law

This Article Was Originally Published in CCI’s Spring 2018 Magazine