Collecting Condominium Arrears – Some Tips

A condominium corporation’s right to lien for common expenses expires three months after the owner’s default. And the courts have now said that this lien right generally cannot be “resurrected” after the three-month limitation period has expired. But condominium corporations may wish to consider a strategy to maximize the corporation’s lien rights.

One good strategy is to apply all common expense payments (made by the owner) to the owner’s earliest arrears. This has the effect of making any remaining arrears “as recent as possible”, thereby delaying the three-month lien period.

This strategy is permitted in most cases, unless the condominium corporation has agreed to apply the payments in another manner. The general rule in law is that a creditor has the right to apply the debtor’s payments to whatever debts the creditor deems appropriate; again, unless the creditor has in some way agreed otherwise.

In order to avoid, or at least minimize, arguments about the right of the condominium corporation to apply an owner’s payments to the owner’s earliest arrears, I recommend two steps:

  1. Add a provision to the corporation’s by-laws specifically stating that all common expense payments will be applied to the owner’s earliest arrears. This avoids arguments about whether or not the corporation has agreed to apply payments in that manner.
  2. When preparing each unit ledger, be sure that the owner’s payments are in fact applied to the earliest arrears (and are shown as such on the ledger).

To read more about arrears in common expense payments, see our previous blog post.