Chargebacks for Enforcement Costs – What Now?

Suppose some tenants in the condominium repeatedly park in visitors parking (in contravention of your Rules). And as a result, there is often insufficient parking for visitors. Or suppose a tenant causes excessive noise or other disturbance. As a result, you may send letters to the offending tenants (and their landlords) asking that the violations please cease. You may explain that – if the violations continue – you’ll have no choice but to refer the matter to the condominium corporation’s legal counsel for further enforcement efforts. You may go on to say that the owner and tenant may be jointly liable for resulting legal costs….and that those costs may be added to the owner’s common expenses.

Suppose the violations continue, and you refer the matter to legal counsel, resulting in hundreds and perhaps thousands of dollars in legal expense (for letters, responses, explanations, objections to the legal validity of the Rules, demands for special exceptions, etc.) Can you in fact recover those legal costs by adding them to the owner’s common expenses (without having to go to Court for an order allowing you to recover those costs)?

The recent decision in the case of Amlani v. YCC 473 has unquestionably “muddied the waters” for condominium corporations seeking to recover enforcement costs from non-compliant owners (by way of chargebacks against the owners’ common expenses). As we’ve said in our recent blog on the Amlani case, it’s our view that such chargebacks are still legally acceptable with a properly worded “indemnification” provision in the Declaration and of course as long as the condominium corporation’s enforcement efforts are reasonable.

Anticipated amendments to the Condominium Act (the “Act”) should also serve to clarify these chargeback issues. In particular:

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 (…)

So, indemnification provisions in Declarations will be more specifically mandated (although they have existed, and been enforced by the Courts, for decades).

My own view is that chargeback rights should apply to every condominium in Ontario, with or without any indemnification provision in the Declaration. Shouldn’t the obligation to indemnify (for expenses incurred as a result of violations by the owner or tenant or resident of the unit or their invitees) apply to every condominium owner in Ontario?

Those musings aside: What we know (for now) is that in many cases a key requirement appears to be a properly worded indemnification provision in the Declaration! Without such a provision, it might still be possible to collect enforcement costs; but collection may require a much less practical collection method (like Court process).

If you don’t yet have a properly worded indemnification provision in your Declaration – one that clearly applies to costs (such as legal costs) incurred to enforce the Act, Declaration, By-laws and Rules – we strongly recommend that you try to amend the Declaration (to introduce such a provision). We know that, in some cases, this won’t be easy (because you will need written consent from the owners of 80% of the units!) But we believe that most of your owners (who avoid violations) will see the benefits of such a provision!

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.

So, in other words, the legal validity of chargebacks (for enforcement costs) should soon be confirmed, along with a legislated mechanism 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!

Anyway, the bottom line is that the waters may soon become a little clearer – at least in terms of chargebacks!

Stay tuned to Condo Law News to keep up to date on the latest developments in condominium law!