We published a piece last May recommending that condominium corporations enact policies to collect common expenses in an orderly, systematic way. Unfortunately, we continue to see condo boards deliberately delaying the commencement of power of sale proceedings on liened units. Such delay brings added cost, wasted board time, greater hardship on unit owners in trouble and cash flow disruptions.
Aside from poorly-informed boards of self-managed condos, a major cause of problem collections is management agreements requiring the board to instruct management to commence power of sale proceedings on liened units. Whatever the reason behind such clauses, none is compelling and the concept is hopelessly flawed. We say:
1. Debts that aren’t cleared shortly after a certificate of lien is registered are not typically collected without further action being taken. Delays in the power of sale process seldom lead to collections.
2. Boards undertaking the decision as to whether, when and how debts are collected needlessly burden themselves with the misfortunes of their neighbours in financial trouble, which often leads to poor choices that ultimately hurt the corporation.
3. While delaying lien enforcement may be intended to help unit owners, it actually creates the opposite effect by allowing owners to sink deeper into debt or encouraging owners to use the board’s indecision to help finance a debtor’s lifestyle.
4. The corporation’s financial position and cashflow may be adversely affected by delays in collection. Allowing a $500 receivable to morph into over $4,000 over a few months is hard to conceal and is hardly a sign of good financial stewardship.
5. Boards involving themselves in the minutiae of such daily operational matters on a case-by-case basis is classic micro-management, which is a slippery slope that seldom ends well.
6. Wasting time at board meetings debating and choosing when to enforce liens is a disservice to the directors and the unit owners at large. It is a bad value proposition since professional managers should be handling these aspects as part of a well-oiled machine, freeing up time and resources to serve residents.
Considering these factors, management agreements requiring direct board involvement in the debt collection process ultimately do more harm than good and there is no good reason why condo directors should involve themselves in decisions to enforce condo liens in any given case.
Such arrangements are easily undone, either by eliminating the requirement when renewing or revising the contract or, in the meantime, passing a board resolution delegating this decision-making to management in all cases. Delegation makes good sense considering that management is typically entrusted with choosing when to commence the lien process, so management is often best-qualified to get advice from counsel and choose when to enforce liens once registered. The board, on the other hand, is in the worst position to choose and should probably prefer to avoid the job of deciding their neighbours’ fate.
None of this is to say that boards have no role in debt collection. As we said last May, condo boards should establish collections policies to suit the needs of their communities and establish fair and predictable processes for their managers and lawyers to carry out. These policies eliminate the need for board intervention in individual cases and remove directors from the uncomfortable position of making decisions on a case by case basis to force the sale of a neighbour’s unit.