Deferring Condo Fees During the COVID-19 Crisis
by John McDougall, Dionne Levesque, and Stuart Gray of SVR Lawyers
Whether or not a condominium can, or should, agree to a unit owner’s request to defer condo fees during the COVID-19 crisis is a question that we have already been asked a few times and expect to get asked a lot more of over the coming weeks and months. When considering this question there are several issues to take into account.
Firstly, while there have been changes to some rules (such as the Rules of Court) to deal with the virus and how it is affecting the judicial system, as yet there has not been any announcement or direction from Service Alberta on condominiums and COVID-19 generally. We will be monitoring this on a day to day, week to week basis to see if it changes, because it could.
Secondly, Boards need to be careful with what words are used to describe the actions they are taking. “Defer”, “postpone”, “waive”, “payment plan” etc. all have different meanings; Boards need to be crystal clear about what message they send to their owners.
Thirdly, if the Board is considering some sort of relief, it should not be necessary to show that an owner actually has the virus to somehow obtain that relief. There are likely to be more owners who are adversely affected financially by the virus (i.e. by not receiving income because they lost their jobs, or cannot work due to childcare requirements), than those who actually have the virus. Further, as only those who are quite sick are being tested, many people who may have COVID-19 will not get a confirmed diagnosis. Therefore, any modifications to condominium procedures should take into account those impacted by COVID-19 rather than only those who are confirmed to have it.
In our opinion, boards should not “waive” ANY condominium fees in response to a request for relief from an owner with COVID-19 issues. The costs of the condominium will remain constant regardless of the virus, and the condominium needs to pay those costs. The condominium pays those costs by collecting condominium fees. If too many owners stop paying, the condominium will not be able to meet its expenses and may ultimately fail. In fact, Boards need to keep a careful eye on budgets, as an increase in a number of people working from home could increase operating costs (i.e. high utility bills, more frequent waste collection). Each condominium will be different and each Board will have to deal with each request of an owner separately. These are challenging times and certainly some owners should be given the ability to “defer” or “postpone” partial or full payment of the fees they owe for a period of time. We cannot say what percentage of owners that should be, or for what period of time – that will be for Boards to determine on a case-by-case basis taking into account the condominium’s demographic, and the financial situation of both the owner(s) and the condominium.
Condominiums should consider not enforcing the nonpayment of fees in the same way as may have been done historically. This could mean doing the minimum to preserve the condominium’s rights to collect the fees, such as filing a caveat for unpaid fees, but not necessarily proceeding as swiftly to aggressive enforcement measures. Again, this would have to be done by Boards on a case-by-case basis. An owner who was previously a dependable payer but lost his/her job may get a different approach than a chronic nonpayer who is still working. Further, any policy put in place by a board on this issue should be both “interim” and “flexible”. A final factor to consider when thinking about collection is the effect the court closure will have. At this time, the courts are only hearing emergency matters, and, while proceedings may be commenced, a condominium may be unable to secure a court order even if they wanted one.
Also, if the condominium has a loan with a bank, any change in the collection policy of fees will have to be agreed to by the bank before implementing same for the condominium. Otherwise the condominium may be in breach of its agreement with the bank and the bank would have the ability to enforce its security.
A final issue to consider is whether condominiums could tap into their reserve fund on an interim basis to cover operating costs that are not being covered due to non-payment of fees. If a condominium ran into significant financial trouble, it may not make sense for them to go into bankruptcy when they have substantial funds in their reserve fund. However, as this is a breach of the Condominium Property Act, we CANNOT recommend this course of action. Of course, if money was taken, or borrowed from a reserve fund account, which again we do NOT recommend, all money taken from the reserve fund would have to be repaid at a later date. Furthermore, a Board has to be cognizant of how this might affect the re-sale value of the units as any bank or mortgage company looking to lend may not do so if the reserve fund has been depleted.
A Board may also consider deferring contributions to its reserve fund if necessary to help pay operating costs. This option also carries with it some of the same considerations as above.
If a Board is considering borrowing from the reserve fund, owners should attempt to exhaust other measures first. There are various government relief programs and other payment deferral options available for owners, such as deferral of mortgages, taxes, student loans and utilities. The Board should also consider reviewing the budget and finances and determining whether there are contingency funds from which it can draw. Boards must be cognizant that reserve funds are in place to protect the long term health and function of the building. If a major unexpected repair arises and there are no or little reserve funds available, the condominium could find itself in an precarious position.
The COVID-19 crisis is an unprecedented situation and will require condominiums to consider new and different measures to ensure the financial security of the condominium is to be maintained, while simultaneously accounting for the needs of their owners. We will strive to keep you updated with any developments in this area over the course of the crisis.