The economic impacts of Covid-19 have Condo Boards asking “Can we give unit owners a break on their common expenses?”
Unit owners are required by section 84 of the Condominium Act, 1998 (the “Act”) to pay their common expenses. At the most basic level, a Condo needs enough money coming in to pay its utility bills (lights, heat, cooling, water) repair and maintain the common elements, and to pay its suppliers. Collecting common expenses, putting a portion into the reserve fund, and enforcing liens are duties of a Condo and its Board, required by the Act and a Condo’s Declaration and By-Laws.
There are three main ways a Condo could give unit owners a break on their common expenses:
- Hold off on taking collection steps when someone can’t pay but keep the lien rights current;
- Change the Condo’s budget to either (a) lower payments for a few months (and make up the short fall in later months); or (b) cut it going forward; or
- Sign “Deferral Agreements” with unit owners who can’t pay to collect money later.
Collection Steps: A Condo could delay collecting missed payments, letting arrears build up longer than normal but registering a lien within three months of the “default” (the first missed payment) as required by Section 85 of the Act. If a Condo receives a late payment it has the option to apply the money to the oldest arrears which would allow the unit owner more time to pay all of the outstanding money before a lien is registered. This so called “rolling default” keeps the arrears within the three month window to lien, however care has to be taken to: (a) ensure that all of the money owed can still be collected by a lien; and (b) that the payment hasn’t been “allocated” nullifying a rolling default. Note that there is debate about whether the provincial government’s “limitations extension” applies to condo liens and it is not clear (at the time of writing) if it does apply. In our view, a Condo should continue to follow the three month liens deadline out of both an abundance of caution and in order to discharge a Condo’s (and a Board’s) duties.
Budget Changes: A Board could revise the Condo’s budget to temporarily reduce fees so that the common expense fees due in the coming month(s) are lower than originally set, however the Condo may have to collect higher fees in later months to make up for the short-fall. A Board could also cut the budget for the year if there are line items to cut (and they may not be) thus lowering fees going forward. Before this is done, a Condo’s General Operating By-Law needs to be carefully reviewed to see what conditions there may be for the budget and payment process, such as requiring “equal monthly payments”. We advise against cutting Reserve Fund Contributions because the Act (and each Condo’s documents) is clear that part the common expenses must go into the Reserve Fund.
Deferral Agreements: Some Condos are signing “Deferral Agreements” with unit owners that cover deferral payment(s), a plan to make up the missed payments, the Condo’s collection steps it will take if deferred payments are not made. We view these agreements as potentially problematic because they set up a “first to ask” system that will not be equal for all unit owners, whether or not the agreements comply with the Act is not a settled mater, and they must be carefully drafted by legal counsel.
Keep In Mind: For any type of common expense relief Condos must keep in mind:
- Does the Condo have an operating surplus or can the Condo can operate on less income?
- The Board has to follow the Act and the Condo’s documents;
- All unit owners expect (and must) receive equal treatment from their Condo;
- There is administrative work for property managers and potential legal costs; and
- Any budget and/or common expense fee changes must be noted in status certificates.
It’s an uncertain time and we’ll navigate it together with everyone in our industry, please get in touch if you have any questions.