York Condominium Corporation No. 482 v. Christiansen April 3, 2003

In this case, Christiansen owned many units in the condominium.  Some of the units were in arrears for common expense payments.  Some were not.  The court was asked to consider the following questions:

• Can a condominium corporation place a lien against one of the owner’s units for recovery of arrears relating to another of the owner’s units?
• Can the condominium corporation collect rents from one of the owner’s units and apply those rents to arrears relating to another of the owner’s units?

The court’s decision was as follows:

1. A condominium corporation cannot lien one unit for arrears related to another unit.  The lien right is a special form of security that can be applied only to the unit in default.
2. On the other hand, the condominium corporation has the right to attach the rents from any of the owner’s units, and to apply those rents to arrears relating to the owner’s other units.

In arriving at this decision, the court specifically considered the rights and interests of mortgagees.  The court said that the lien rights are clearly confined, under the terms of the Act, to the unit in default – and the court said that this properly protects the mortgagee.  However, the court said that the language of Section 87 of Ontario’s Condominium Act does not similarly restrict or confine the corporation’s rights respecting collection of rents.

The court agreed with the following statement: “It is important to understand the centrality of the common expenses in the operation of the condominium corporation for the benefit of all of the owners” (and also the mortgagees).  The court accordingly saw no reason to place restrictions or limitations upon the corporation’s rights respecting collection of the rents. The court said:

“The attornment (of rents) is much less drastic and intrusive into the rights of the mortgagee (as compared to lien rights).  It does not affect the mortgagee’s security.  It does not carry with it the possibility that an accumulation of the debts of the other units may wipe out the equity and leave the mortgagee with a deficit.  There are not the same reasons to confine the right to the very unit in respect of which the owner is in default as exists in the case of the lien.  Given the statutory priority of the common expenses over the mortgage, there is every reason to read the section so as to enable the corporation to recover what is due to it.”

The court accordingly decided that the corporation had the right to attach the rents “regardless of whether any arrears existed in respect of a particular unit, so long as there were arrears owing by that owner in respect of any unit”.

The court also said that the corporation was not bound to apply the rents to the debt owing on the unit which generated the rent (if there were arrears owing with respect to that unit).  The court said that the general rule is that “the earliest debt is paid first”, unless the owner has clearly allocated the payment to a particular debt.  The court said that collected rents cannot be allocated in this manner (because they are not payments made directly by the owner).  Therefore, the condominium corporation properly applied the rents to the oldest debts from any of the owner’s units.

Finally, the Court held that excessive amounts shown on the liens did not serve to invalidate the liens.

[Editorial Note:

This decision comes as powerful news to condominium corporations looking to collect against owners who own multiple units in the condominium.  It seems to me, however, that this decision may be a source of concern to condominium mortgagees.  The bottom line for mortgagees is that arrears accumulating against any number of other units may eliminate the rents on the secured unit as a source of recovery for the mortgagee.  It seems to me that this may be important new information to be considered by condominium mortgagees at the time of the lending commitment.]