Legal

June 22, 2022 Published by Golden Horseshoe Chapter - By Maria Durdan, Richard Elia

Pot of Gold (Chargebacks) – Pre and Post Amlani

From the Volume 12, Summer 2022 issue of the CCI GHC Condo News Magazine

Based on a live streamed webcast on March 22, 2022 with panelists Michelle Joy and Stephanie Sutherland and moderated by Maria Durdan. https://cci-ghc.ca/events/2022/03/22/pot-of-gold-chargebacks

Bad facts make bad law.

Rarely is this adage so clearly depicted as in the 2020 decision of Amlani v. YCC 473. The case centred around an attempt by YCC 473 to recover legal compliance costs based solely on an indemnification provision in its Declaration. The catch though, was that the indemnification provision did not speak to the recovery of legal compliance costs – it related to property damage. The court recognized this. The court also pointed out that the legal costs in question were incurred after the cause of the “nuisance” (unit owner smoking) had voluntarily removed himself the condominium.

In the end, the facts making up the decision are not as important as how the actions of the condominium corporation were received by the court:

“In my view, it is worthwhile to send a message to both condominium corporations and condominium residents that there are often easy, cost-effective solutions that are far preferable to litigation. Parties who ignore cost-effective solutions in favour of litigation must pay the price if they fail in the litigation.”

“Under the business judgement rule, the Board is presumed to act in good faith. However, the Board’s refusal to meet, refusal to negotiate, retaining an expert to determine if Mr. Amlani’s unit could be hermetically sealed rather than to determine if the problem could be diminished to the point of no longer bothering the neighbours and its behaviour in walking out of the mediation for another appointment even though the Corporation unilaterally selected the mediation dated lead me to conclude that the Corporation and its Board were not acting in good faith.”

The question of bad law in this case arises over the courts statement that legal costs incurred in enforcing compliance can only be recovered via a court order, and the application of section 134(5) of the Condominium Act, 1998 (the “Act”). Section 134(5) of the Act allows a condominium corporation to recover “any additional actual costs to the corporation in obtaining the order” and provides that these are “added to the common expenses for the unit”; however, it does not state that this is the only way that a condominium can secure a demand for costs using a condominium lien.

Earlier cases expressly permitted costs to be recovered via a lien provided the correct and applicable indemnity provision could be found in the Declaration. Consider NNCC 6 v. Temedio (2017 - Ontario Superior Court) where the Corporation incurred legal costs in dealing with an excessive noise situation, or Italiano v. TSCC 1507 (2008 – Ontario Superior Court) where a cost award in arbitration was upheld based on the wording of an indemnity clause in the Declaration. Neither of these decisions were considered by the court in its analysis of Amlani.

Further, decisions subsequent to Amlani that relied on indemnification provisions in condominium corporations’ Declarations to recover via a condominium lien, may also be considered to be flawed in their analysis. Consider O’Regan v. CCC 169 (2021 – Ontario Superior Court) and TSCC 1724 v. Evdassin (2021 – Ontario Superior Court). In O’Regan, the court dealt with a lien registered to recover an insurance deductible (section 105(2) of the Act), but justified the lien using the indemnity provision in the Declaration (and without mentioning section 105(2) of the Act). In Evdassin, the court upheld the use of the indemnification clause in the Declaration as authority to lien…but did not specifically reference or distinguish Amlani.

It all becomes very confusing.

Our thoughts are that a condominium corporation can charge back certain amounts and secure payment through the condominium lien process as follows:

1.If you can find authority in the Act:

a.Section 57 – Occupancy Standards

b.Section 85 – Failure to pay common expenses / special assessments

c.Section 92 – Maintenance or Repair carried out for Owner

d.Section 98 – Alteration to Common Elements

e.Section 105 – Insurance Deductible

f.Section 134 – Court Application – Compliance

2.Notwithstanding the confusion created through Amlani, you should be on solid ground by relying on an applicable and correctly worded indemnity provision in your Declaration. Note that there is no consistency with respect to:

a.whether a Declaration has any indemnity; and

b.the wording of an indemnity provision.

3.Subject to a proposed change to the Act, if you rely on an insurance deductible recovery provision in a by-law.

If you are uncertain whether a particular cost can be charged back and secured by way of a condominium lien, ask for a legal opinion up-front – proactively. The cost of the opinion may not be recoverable; however, you may save considerable legal costs by avoiding a possible (costly) dispute.

Consider having your Declaration reviewed by your legal counsel to determine what the indemnity language (if any) entitles the Corporation to recover and lien for.

Consider augmenting your indemnity provisions:

1.Property damage;

2.Insurance Deductible Recovery (on a strict liability basis) – There is a proposal to require this provision to be enshrined in the Declaration, requiring 90% approval of unit owners. It can be amended currently with 80% approval;

3.Compliance costs (legal, management, etcetera) incurred to effect compliance with the Act, Declaration, By-laws and Rules, including costs incurred before a court, tribunal, arbitration or mediation; and

4.Successful Defense costs.

Best Practices from Management (Top 10!):

1.If you expect to charge back something to an owner, but don’t have specific information/invoices, send a preliminary letter outlining facts, dates, possibility of responsibility, and authority;

2.When sending a demand for indemnity, include a deadline for payment that coincides with regular monthly common expense payments (usually the 1st of the month). Include detail concerning the amount to the paid, copy of invoice, why the amount is being charged back, authority for the chargeback, timeline to make payment, consequences if payment is not forthcoming;

3.Don’t make the time to pay too short, this goes to reasonableness;

4.Do not entertain payment plans as an alternative to registering a lien as they may take you outside the time to register a lien;

5.If you are uncertain about the condominium corporation’s ability to charge back and lien, get an opinion from legal counsel;

6.Send “courtesy” reminders for outstanding amounts;

7.Update the Status Certificate – even if you don’t know details of a definitive amount or have a copy of the invoice;

8.Be proactive – update the Corporation’s indemnities (in the Declaration);

9.Remember and respect that not everything can be charged back; and

10.Budget for a legal dispute or maintain a healthy operating surplus.

Q&A:

1.Can you charge back additional management costs:

a.Check your management agreement to see if the management company can charge additional costs (this is expected for time needed for litigation support or large construction projects);

b.Ensure that the condominium corporation has been charged and has paid the extra amount;

c.Check the indemnity language in your Declaration;

d.NOTE: Section 104(5) “together with any additional actual costs to the corporation in obtaining the order” leaves the door open to recovering litigation support costs on a compliance application.

2.What is Statutory Authority in relation to chargebacks and lien rights?

a.Statutory Authority relates to authority found within the Act (e.g. Section 92 or 105);

b.Non-Statutory Authority relates to authority found elsewhere (e.g. Declaration Indemnity provisions).