Royal Bank of Canada v. Metropolitan Toronto Condominium Corporation No. 1226 (Ontario Superior Court)

The condominium corporation had registered a lien for unpaid arrears.  The lien included interest at the rate of 18% (presumably in accordance with the corporation’s by-laws), legal costs and an administration fee of $175.  The mortgage was also in default.   

After the lien was registered, 

• the corporation commenced power of sale proceedings;
• the corporation launched an action for possession of the unit (as is typically required in the power of sale process);
• the unit owners brought a motion for, amongst other things, an extension of time to file their Statement of Defence and for an assessment of the corporation’s legal expenses for registering the Certificate of Action and issuing the Statement of Claim. [The court noted that the materials supporting the motion filed by the owners (representing themselves) were “voluminous”.];
• the condominium corporation filed responding materials (in relation to the owners’ motion); and
• the motion was scheduled to be heard on August 6, 2010. 

In the meantime, the mortgagee asked the condominium corporation for a discharge statement in relation to the lien.  The discharge statement was provided on July 20, 2010, indicating that the total owing on the lien was $15,071.75 (provided payment was received on that day).  The mortgagee made payment of the $15,071.75 on July 26, 2012.  At the same time, the mortgagee indicated that it would be paying all ongoing common expenses for the unit. 

Despite the mortgagee’s payment, the condominium corporation declined to discharge the lien because the corporation was expecting to (and ultimately did) incur additional costs in order to respond to the owner’s motion in the corporation’s action for possession.  There was subsequent dialogue between the owner and the condominium corporation in which the corporation made offers to settle the action and the motion; but no settlement had been reached and those proceedings were still unresolved. 

The mortgagee had subsequently taken possession of the unit and had entered into an agreement for the sale of the unit.  That sale transaction had not yet closed.  However, the mortgagee needed to transfer the unit to the purchaser free and clear of the lien, and accordingly applied to Court for an order discharging the lien.  The Court ordered that the lien be discharged.  The Court held as follows: 

• Upon receiving the mortgagee’s payment of $15,071.75, along with the mortgagee’s commitment to pay ongoing common expenses, the condominium corporation should have discharged the lien and discontinued its court action against the owners (whereupon the cost consequences of the discontinuance could have been resolved with the owner and the mortgagee). 

• The condominium corporation was not entitled to recover all of the costs subsequently incurred to deal with the corporation’s action and the owner’s motion.  The Court said that the expenses incurred by the condominium corporation “in dealing with a motion for amongst other things, an assessment of their fees by the former owners, and the pursuit of a claim for possession are not the proper subject of a lien pursuant to s. 85 of the Act.”

• The Court also ordered that the legal expenses claimed on behalf of the condominium corporation, and paid by the mortgagee, were to be assessed.  [Note that the mortgagee had also made a further payment on July 28, 2012, in the amount of $12,651.16.] 

[Editorial Notes: 

1. The Court was clearly angry with the condominium corporation for refusing to discharge the lien after it had been paid up to date on July 26, 2010.  The Court was also unhappy with the condominium corporation for failing to discontinue its separate action against the owners.  The Court said that the condominium corporation could not lien for recovery of the costs related to those other proceedings.  However, it’s my view that this aspect of the decision is specific to the facts of this case.  In my view, an action for possession and for judgment on the covenant is a normal step in the collection process (assuming the corporation is not paid); and the related costs should generally be recoverable by lien under Section 85 of the Act. [In this case, the problem was that the corporation WAS paid up to date as at July 26, 2010 – so the lien had to be discharged at that time (and the Court said that further collection efforts were then unnecessary).]  It also seems to me that the costs incurred on an assessment of the corporation’s legal expenses are part of the “reasonable expenses incurred by the corporation in connection with the collection or attempted collection of the unpaid amount” and accordingly might similarly be recovered by lien.  However, I think that these amounts could be recovered by lien only if: 

a)       the legal expenses are approved on the assessment; and

b)      the unit has not been transferred (with a clear status certificate) – and is therefore still subject to lien in relation to the particular default.

2.      The Court was also critical of the invoices rendered by the corporation’s law firm in this case.  However, it seems to me that those criticisms are non-binding comments, since the Court also ordered that the amounts paid by the mortgagee be separately assessed.