SHARING OF EXPENSES DISPUTES IN CONDOMINIUM PROJECTS - PART I

Edward D. (Ned) Brown

Pitblado LLP

Winnipeg, Manitoba

January, 2018

Those involved in the management or operation of condominium projects, and those who own or occupy units in same (including institutional lenders who advance funds on the security of mortgages of unit owners' interests in condominium projects) have to be aware of what happens when a unit owner (or its tenant) fails to pay the unit's share of project "common expenses", or is otherwise responsible for or causes losses and damages arising out of the owner's (or the occupant's) conduct in and about the unit.  Such losses (or expenses resulting from such conduct) may impact all of - or only one or some of - the projects' unit owners.  But the project's condominium corporation almost always ends up incurring the resulting costs, including remediation costs. 

The significance of the incurring of such costs and expenses is of particular concern because:

  1. usually, at least two or more, and frequently all, of the unit owners want the condominium corporation to remediate or repair the situation created by "difficult" or "unneighbourly" unit owners, with the consequent incurring of expenses by the condominium corporation for the benefit of the entire condominium community;
  2. the fact that such expenses, when so incurred by the condominium corporation, are generally (although not always) legally allocable to the "malfeasant" unit owner or owners, and, the fact that such expenses as so allocated will generally (but not always) be capable of forming a lien against the owner's unit (and interest in the common elements) holding priority over the owner's lender's previously advanced and perfected security against same; and
  3. in "extreme" cases, the condominium corporation may wish - or be required to - simply buy out the problem owner's interests, which thereby results in the incurring of substantial costs (or additional costs) which must be borne by the entire project community.

A pair of recent cases dealt with disputes arising out of:

  1. the manner in which a condominium corporation allocates and collects monies owed by a unit owner - the Albony Place condominium case, Saskatchewan Queen's Bench, March, 2017 (the "Albony Case");
  2. the extent to which the expression "common expenses" extends to costs and expenses which are paid for by the condominium corporation, but are not really referable to a project's common property, yet nevertheless relate to the wellbeing and quality of life of the entire condominium community - the Bank of Montreal and Manor condominium case, Alberta Queen's Bench, January, 2017 (the "Manor Case").

The judgements in these two cases must be considered in the context of applicable Alberta and Saskatchewan condominium legislation, in each case, there being variations between the wordings used in Alberta and Saskatchewan, and those used in The Manitoba Condominium Act (the "MCA").

The Alberta Manor Case

In the Manor Case, the Court had to decide a dispute between a condominium corporation (the "Corporation") and a bank (the "Bank") in which the Bank held a prior registered and advanced mortgage on an owner's (the "Owner") unit (the "Unit") and the Corporation held a lien against the same interest.

The Corporation gave notice of its lien by registering a caveat against the Unit title.  The essence of the dispute was whether or not and to what extent the Bank's mortgage security interest in the Unit took priority over the Corporation's lien claim.  The Corporation's expenses and claims were categorized as follows:

  1. under the Corporation's project insurance policy, there was a $20,000.00 deductible for loss/damages coverage which the Corporation had to pay, and additionally, the Corporation paid approximately $3,600.00 for additional (presumably non-insured) repairs, the need for which was caused by the Owner;
  2. interest on the amounts referred to in (i) above;
  3. expenses incurred in connection with the "preparation, registration and enforcement of the caveat filed to protect (the Corporation's) interests"; and
  4. "full indemnity costs" against the Owner.

Although not entirely clear in the Court's judgment, it appears that the Corporation's "full indemnity costs" means claims or costs such as:

  1. a fine for a noise violation;

 

  1. the non-payment of a witness fee for the participation by representative of the corporation's management company at a related residential tenancy hearing;

 

  1. amounts charged by the corporation to a unit owner who has reneged on the owner's initial undertaking to share the income and expenses of a "pool" renting arrangement with respect to the condominium units amongst all of the unit owners;

 

  1. a fine imposed on a unit owner who parks a minibus in the owner's assigned parking space; and

 

  1. unpaid rent owned by a unit owner for the owner's leasing (or usage of) of some portion of the condominium property's common elements from the condominium corporation.

In reviewing the applicable case law, the Court emphasized two general principles:

  1. A condominium corporation is a statutorily created legal entity and thus "derives all its powers from (the) statute". Additionally, the legislation "expressly states that a condominium corporation does not have the powers of a natural person, which are in fact bestowed on an "ordinary", commercial corporation under the Business Corporations Act; and

 

  1. It is not the role of the court to enlarge what the legislature has chosen to enact by imposing what is considers to be fair on a case-by-case basis in order to avoid inequities that might occur as a result of the enforcement of the plain meaning of the legislative provisions.

In reviewing the applicable provisions of the Alberta Condominium Act, the Court noted the following:

  1. a condominium corporation is obligated to establish a fund for the purpose of paying costs incurred for "the control, management and administration of the (condominium's) common property", for the payment of "any premiums of insurance (and those familiar with condominium developments will know that this usually includes insurance premiums applicable both the common property and at least the basic elements of the units), and, "for the discharge of any other obligation of the (condominium) corporation". The condominium corporation must then allocate responsibility for the payment of the amounts so funded (or intended to be funded) amongst the condominium unit owners, usually, in accordance with the units' respective ownership percentages. Such allocated amounts, together with interest payable by a unit owner (where the owner fails to pay its share of allocated costs when due), are considered to be unpaid "contributions", and, the amount of an unpaid contribution (together with ongoing interest until paid) constitutes, when the condominium corporation registers a caveat against the recalcitrant owner's title, a charge (or statutory lien) against the owner's ownership interest.

 

  1. amounts which are owed by a unit owner to the condominium corporation but which are not "contributions" are not capable of being "liened" against an owner's title, but are recoverable from the owner as an (unsecured) debt claim.
  2. contribution amounts become due and payable by the owner, upon (and apparently, only upon) the condominium corporation passing a resolution to that effect.  One can thus assume that an amount owed by an owner to the condominium corporation which is not a "contribution" will become due and payable when determined by applicable law (ie, it is not necessary for the corporation to pass a resolution).
  3. amounts which are "contributions", that is, amounts to be allocated to owners with respect to the "fund" referred to in paragraph (A) above, are to be allocated in accordance with the respective ownership percentages attached to each unit, but if the corporation's by-laws so provide, such amounts can be allocated to unit owners on a basis other than referable to unit ownership percentages.
  4. upon registering a caveat for unpaid contributions against an owner's title, the (statutory) lien thereby arising has the same priority, from the date of filing as a registered real property mortgage.
  5. where an owner's contribution is due but unpaid, a mortgagee of the owner's unit may pay the contribution and "add that amount (so paid) to the amount owing to the mortgagee under the mortgage".  Although the statute doesn't specifically say so, it appears that the Court believed that any amount so added to a mortgage would hold the same priority as the rest of the indebtedness secured by the mortgage.

With the foregoing in mind, and having reviewed the Corporation's By-laws and resolutions, the Court concluded that:

  1. the claims and expenses described in clauses (i) and (ii) above were "lienable" amounts, and the Corporation's entitlement to same as so "liened" held priority over the Bank's mortgage (and the Bank's rights and interests flowing from that mortgage); and
  2. the expenses and claims referred to in clauses (iii) and (iv) above were not lienable claims and thus did not hold priority over the Bank's mortgage, but such amounts were recoverable by the Corporation on an in personum basis.

Clearly, when attempting to determine how and to what extent - and in which manner - a condominium corporation's costs and expenses are to be collected (and enforced) against unit owners, it is necessary to review and consider the relevant provisions of each of:

  1. the condominium legislation of the jurisdiction in which the condominium project is located;
  2. the condominium project's condominium declaration;
  3. the condominium corporation's (general, governing) By-laws; and
  4. resolutions passed by the condominium corporation's board of directors.

The Saskatchewan Albony Case

In the Saskatchewan Albony Case, all concerned, including the Court, acknowledged that the proposed arrangement for the sharing of contributions by the owners was reasonable.  Some of the expenses would be allocated to the owners of the basis of their respective unit percentages, and since the unit percentages reflected the relative size (and perhaps "quality") of the owners' units, the intent was that the larger and more valuable units would bear a higher proportion of the project's costs.  Other expenses/contributions related to matters which benefitted all of the units, more or less equally, and these were to be allocated on an equal basis.  Thus the proposed arrangement for sharing of costs was fair from virtually any objective perspective.

The proposal to amend the Corporation's By-laws was voted on utilizing the unit percentages (ie, an owner whose unit percentage was, say, 2%, would have two votes, and another owner whose unit percentage was only 1%, would have only one vote).  Based on the said voting system, more than 75% of the total unit factors voted for the amendment.  However, pursuant to a Regulation made under the Saskatchewan Condominium Act, it was provided that a condominium corporation would not be entitled to amend its by-laws "to include a scheme of apportionment unless written consent to that scheme had been obtained from at least 75% of the owners".  The Court noted that if the voting had been based on the number of owners voting (ie, one vote per owner per condominium unit owned), the proposed amendment would have been sanctioned by only 63.63% (of the owners).

The Court considered the aforementioned legislation (and its aforementioned Regulation) and the By-laws of the Corporation (no mention is made of a review of the condominium declaration but presumably, if there was one and it was relevant, the Court would have taken its contents into account).  The Court's conclusion was that the vote conducted on the proposed amendment was invalid.  This was due to the unambiguous wording contained in the aforementioned Regulation, namely, that a vote on amending the By-laws to alter the "default position" specified for the apportionment of the project costs (one vote attaching to each unit) was not followed.  The Corporation could have changed the apportionment scheme, but it would have had to have obtained at least 75% of the unit votes to do so, such votes being determined on a one vote per unit basis.  The result might be "unreasonable", but it is up to the legislature to make the required changes.

In the Albony Case, the Court had to decide a dispute between a condominium corporation and some of its members, as to whether or not the Corporation could amend its By-laws to change the apportionment/allocation scheme for the collection of contributions from unit owners.

In the Manor Case, the Court had to decide a dispute as to which expenditures made (or to be made) by a condominium corporation were lienable "contributions", and which of such expenses were "mere" contract debts which were not securable by a lien.

The next segment of this essay will deal with the situation in Manitoba.  Stay tuned!