Part 2 Lien and Power of Sale

Condominium Liens and Power of Sale: What Happens After a Lien Is Registered?

So a lien has been registered.  Now what happens when a lien does not result in payment?

The power of sale proceeding is one of the most effective collection tools available to a condominium corporation when an owner fails to pay common expenses. However, it is important to understand that it is neither quick nor straightforward. Even in an uncontested matter, the process can take a year or more before the corporation is in a position to obtain possession and sell the unit.

The Purpose of the Process

The goal of the power of sale proceeding is not just to sell units. Rather, the process is designed to provide owners with multiple opportunities to resolve arrears before the corporation takes further enforcement steps. At every stage, an owner retains the ability to pay the outstanding amounts and bring the matter to an end.

The First Step: The Demand Letter

After a lien has been registered, many corporations will wait several months before commencing a power of sale proceeding. This allows the owner and any mortgagee an opportunity to address the arrears before significant additional costs are incurred.

If payment is not made, the first step is a demand letter. The objective is to determine whether the matter can be resolved without the need for court proceedings. At this stage, owners are often given an opportunity to propose a payment arrangement such as a payment plan. In many cases, a reasonable payment plan can be a faster and more cost-effective solution than proceeding through the courts.

The Notice of Sale Under Lien

If the arrears remain unresolved, the next step is the issuance of a Notice of Sale Under Lien. This notice must be served on all registered owners, mortgagees, spouses, and other parties with a registered interest in the property.

Once served, the notice triggers a statutory 45-day redemption period. During this time, the owner can stop the process by paying the amounts (namely the arrears, interests and costs) required to redeem the unit. Because of the legal significance of the notice, strict compliance with the legislative requirements is essential. Errors in the notice (including incorrect calculation of the amounts owed) can jeopardize the proceeding and lead to unnecessary delay and expense.

Seeking Vacant Possession

Once the redemption period has expired, the corporation may demand vacant possession of the unit. This is effectively a final opportunity for the owner to voluntarily surrender possession before court proceedings become necessary. This is the last step prior to commencing the Court claim process (which will add significant additional costs).

Where the owner fails to make payment or to relinquish possession, the corporation may commence a court action seeking both vacant possession and judgment for the arrears, (more detail will be outlined in Part 3 of this Blog series).

Costs of Power of Sale

Under section 85(3) of the Condominium Act, 1998, the Corporation is entitled to recover all reasonable legal costs and interest as part of the lien. This section of the Act is a powerful mechanism to allow the Corporation the ability to collect its costs associated with enforcement of lien. Because these are statutory collection rights, these amounts are generally not subject to the same level of scrutiny as applies to chargebacks for enforcement costs (as set out in the Amlani and Chiarelli cases).

In Carleton Condominium Corporation No. 396 v. Burdet, 2015 ONSC 1361 the Court addressed years of unpaid common expenses and special assessments that had left the corporation in significant financial distress and necessitated additional special assessments for compliant owners. In the Burdet case the Court awarded the condominium corporation $790,914.63 in legal fees and disbursements under section 85(3) of the Condominium Act, 1998, finding the costs to be reasonable and recoverable despite exceeding the amount of the arrears themselves. The Court carefully considered proportionality and the unique circumstances of the case before concluding that the fees were justified. This shows how powerful section 85(3) cost recovery can potentially be depending on the unique circumstances of the case.

Key Takeaway

The early stages of the power of sale proceeding are focused on creating opportunities for payment and resolution. Although the process can ultimately lead to the sale of a unit, the initial objective is to encourage compliance while also ensuring the corporation acts reasonably and fairly throughout the process.

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