COVID-19

March 20, 2020 Published by CCI National - By Elia Associates

COVID-19 Bulletin No. 4 Part 2: Collections

Since our Bulletin of March 18th concerning the collection of common expenses, many ideas have been circulated around how the process for collecting unpaid common expenses should be addressed. It remains; however, that condominiums must register liens within 3 months of unpaid common expenses originating.

Since our Bulletin of March 18th concerning the collection of common expenses, many ideas have been circulated around how the process for collecting unpaid common expenses should be addressed. It remains; however, that condominiums must register liens within 3 months of unpaid common expenses originating.
 
It is also worth considering that, for any units that require liening this month, the arrears arose before the COVID-19 pandemic struck locally.  COVID-19 is the “new normal”.  We have no idea how long it will last.  Hope for the best, but plan for the worst.  Our office protocol looks at the “new normal” as a marathon - not a sprint.  We are looking forward at least 18 months.  A condominium’s limited resources can be used to assist those now, whose arrears arose before the crisis, or can be used sparingly - to see what financial challenges the future brings.
 
A possible solution would be to extend the current 3 month window to 6 months.  However, what do we do at the end of the 6 month window if nothing has changed?  The largest challenge is that this extension is only possible with a change in Law - a condominium cannot contract with a unit owner alone to make this happen.  There are other consequences.

Besides the obvious challenge that parties cannot agree to contract out of the Condominium Act, 1998, the question to be asked is:  “Who actually are the parties affected by a Condominium Lien?” 

The answer is anyone:  The condominium corporation, the unit owner who has not paid, all other unit owners who have paid, the bank that gave the mortgage on the unit, the estranged spouse who might have registered a matrimonial interest against the unit (Ching v. CCC 203), the auditor who must opine on the financial statements, the owner who is looking to sell a unit and the purchaser looking to purchase.  The parties who might be affected could go on.
 
Ignoring for a moment that we cannot contract out of the Act, unless all impacted parties sign on to a creative agreement to extend the 3 month window to register a lien, then a condominium corporation that today is trying to act compassionately to assist one owner, will find itself facing a more difficult problem down the road if that particular owner is unable to pay or chooses not to.  Without a change in the law, the lien rights are impacted regardless of the agreement.  The super-priority given to the Condominium Lien can be lost.  What happens when the condominium corporation really needs the money in the future, and it is faced with difficulty trying to collect?
 
If common expenses are written off as uncollectible, everyone loses.
 
Another approach – one that has received some media attention – is the thought of re-jigging the year’s budget to skip one or more months of common expenses, by either relying on a past surplus or by spreading out that skipped months common expenses over a series of increased monthly payments later in the year.  Yes, such surpluses sometimes exist for use against unexpected expenditures and yes we are experiencing a pretty significant issue right now.  Which takes us back to our first question of how long will this “new normal” last.  Should we gamble now, or save it for later?
 
If the pandemic has the financial impact many are anticipating and if the law remains as it is for lien registration, would it not to wait and see what demands are placed on the community, rather than taking a short term “fee holiday” today, while expecting owners to pay higher amounts later? 
 
Right now, everyone is anxious and fearful of the unknown.  It remains, however, that the vast majority of owners facing collection proceedings for unpaid common expenses have not yet fallen into their situation directly because of the recent local impact of COVID-19.  The reality is that most owners impacted by the crisis that has emerged locally have not yet fallen into arrears.  There is also risk in the fact that a deferred payment is not forgiveness of an amount due.  Ultimately, payment will need to be made – condominiums will suffer in their non-profit operations otherwise and need to be thoughtful in that respect for the interest of all owners within their community.  One approach could be to try to reduce the actual cost of budgeted expenses, such as not opening pools or other amenities that come with carrying costs.
 
While we maintain that compassion and a delicate approach is required with collections proceedings at all times, and especially in current times, it is important to think through the timing of the financial impact of COVID-19 as it relates to the collection process.  Take a little time to really assess how the situation develops and how your community is impacted over rushed decisions that might ignore the long term.

All of the information contained in this article is of a general nature for informational purposes only, and is not intended to represent the definitive opinion of the firm of Elia Associates on any particular matter. Although every effort is made to ensure that the information contained in this newsletter is accurate and up-to-date, the reader should not act upon it without obtaining appropriate professional advice and assistance.