Chargebacks for Enforcement Costs – A Further Piece of the Puzzle

There is a further “piece of the puzzle” in the ongoing struggle surrounding the rights (or not) of condominium corporations to charge back for enforcement costs. The further piece of the puzzle is the appeal decision in the case of Amlani v.  York Condominium Corporation No. 473.

Enforcement of the Condominium Act (the Act) and the corporation’s Declaration, By-laws and Rules is a fundamental role of each condominium corporation in Ontario. It is in fact a statutory obligation that is expressed in Section 17 (3) of the Act. But when a condominium corporation reasonably incurs costs (such as legal costs) in taking enforcement steps in relation to an offending owner, occupant or invitee of a unit, can the condominium corporation add those costs to the owner’s common expenses without first going to Court?

Unfortunately for Ontario condominium corporations, the Amlani case – particularly the appeal decision – seems to say that “enforcement chargebacks” might not be possible without first obtaining a Court order.

As described in our previous blog, the Amlani case involved a dispute between a condominium corporation and an owner who was a smoker. The condominium corporation received complaints about second-hand smoke from the owner’s unit and took enforcement steps against the owner. The condominium corporation then sought to recover the enforcement costs (legal costs for demand letters, mediation, etc.) by adding those amounts to the owner’s common expenses and registering a lien against the owner’s unit. The Court held that the owner had been fully cooperative and that the condominium corporation’s actions towards the owner had been unreasonable and oppressive (on the facts of the particular case). The Court held that the lien was invalid; and this finding was upheld on appeal.

Most importantly, the Courts in the Amlani case (both the lower Court and the Appeal Court) held that the condominium corporation had no right to charge back the related legal costs under the “indemnification” provision contained in YCC 473’s Declaration because the enforcement costs did not fall within the wording of the indemnification provision.

The Courts went on to say that condominium corporations can only charge back enforcement costs if this is authorized by Court Order under Section 134 of the Act. This aspect of the decision is obviously much more problematic for Ontario condominium corporations. In my respectful view, it was a disappointing and unnecessary aspect of the decision. Indemnification provisions (in condominium Declarations) are tremendously important cost-saving provisions (both for non-compliant as well as innocent condominium owners). Without such provisions, condominium corporations could be forced to pursue expensive court processes, in every case, in order to recover their costs from a non-compliant owner. In my view, that isn’t in anyone’s interest.

Given the unique facts of the Amlani case, and given the Court’s finding that the costs (in that case) didn’t fall within the indemnification provision, and given previous decisions upholding enforcement chargebacks under indemnification provisions, I think there is still room to argue that enforcement chargebacks are possible, without a Court Order, as long as the wording of the indemnification provision properly covers the particular costs.

But there is no question that the Amlani case raises serious doubts about this.

Fortunately, the effect of the Amlani case should hopefully be temporary.

A pending amendment to Section 7(4) of the Act will specifically confirm that condominium Declarations may contain a statement specifying the common expenses of the corporation and the circumstances that may result in the addition of any amount to the contribution to the common expenses payable for the owner’s unit to indemnify or compensate the corporation for (…) an actual loss, as is prescribed, that the corporation has incurred in the performance of the corporation’s objects and duties (…)

Pending amendments to Section 84 of the Act (and related new Regulations) will also set out procedures whereby owners will be given notice of any chargeback and an opportunity to challenge the chargeback. It is expected that the Condominium Authority Tribunal (CAT) will handle such challenges.

In addition, amendments to Regulation 179/17 (that will be effective as of October 1, 2020) will broaden the CAT’s jurisdiction to include disputes related to a condominium corporation’s Declaration, By-laws or Rules that:

• prohibit, restrict, or otherwise govern pets, animals, parking vehicles or storage in a unit, the common elements, or the assets, if any, of the corporation; and
• govern the indemnification or compensation of the corporation, an owner, or a mortgagee in relation to the above-noted disputes.

So, the legal validity of chargebacks (for enforcement costs), without a prior Court Order, should soon be confirmed, along with legislated mechanisms by which owners will be able to challenge such chargebacks. I only hope that the additional costs incurred by condominium corporations (to respond to such challenges) will also be recoverable!

I conclude this blog by repeating my two key “takeaways” in relation to enforcement costs:

First, condominium corporations need to be acting fairly and reasonably (and the costs claimed under any alleged right of indemnification must in turn be reasonable). Otherwise, a condominium corporation can’t hope to be successful or to recover its related costs.

Second, as we’ve previously reported, condominium corporations need to be checking the wording of their indemnification provisions (in their Declarations) – and seeking to improve the wording (by amending the Declaration) where appropriate and where possible. We now know that the words “to or with respect to the common elements and/or all other units” (found in many indemnification provisions) may be problematic in some cases. And we also know that coming amendments to the Act will confirm the validity and importance of indemnification provisions.

In the meantime, we can all wait with interest for the next piece of the puzzle!