When Amlani v. YCC 473 was released at the start of the year, it was the immediate frontrunner for “2020 Condo Case of the Year”. YCC 473 appealed and even in a year of fascinating cases, the Amlani decision still holds its seat at the top of that mountain.
The initial Amlani decision dealt with a common situation. In a nutshell, the board received complaints about Mr. Amlani’s smoking so they instructed their lawyers to deal with the matter. YCC 473 relied upon the indemnity provision in its declaration to charge back its legal expenses to Mr. Amlani and subsequently register a lien against Mr. Amlani’s unit to collect its legal fees.
The initial judge held that YCC 473 could not rely upon it’s the indemnity provision to charge back its legal costs for two key reasons:
1. Mr. Amlani did not commit “an act or omission to or with respect to the common elements and/or all other units” as required by the indemnity provision; and
2. YCC 473’s interpretation of its indemnity provision contravened section 134 (5) of the Condo Act as the costs it claimed related to compliance and enforcement costs without being embodied in a court order.
Section 134 (5) of the Condo Act allows a corporation to add its enforcement costs to an owner’s common expenses if a court awards the corporation its damages or costs in bringing a compliance application. Section 134(5) does not itself authorize a lien for legal fees incurred prior to the compliance application: to register a valid lien for legal fees, the court must first award these fees. However, many condominiums rely on their indemnity provisions as a “catch-all” provision to permit a corporation to add certain costs to an owner’s ledger resulting from their acts or omissions, often without requiring a court order.
The Amlani decision sparked considerable debate amongst condominium lawyers. Some of our esteemed peers argue that you cannot rely on an indemnity provision to charge back legal compliance and enforcement costs without first obtaining a court order. Others took the position that Amlani was a fact-specific decision that turned on the specific wording of YCC 473’s indemnity provision; they argued the Amlani decision does not stand for the proposition that a court order must be obtained before any pre-litigation legal compliance and enforcement costs can be charged back.
The Divisional Court recently set the record straight: condos cannot rely on their indemnity provisions to enable a lien to be registered against a unit to charge back compliance and enforcement costs without a court order. This does not mean a condo can’t recover its pre-litigation compliance and enforcement costs – condos can seek these costs in an s. 134 (5) order but registering a lien for these costs before the order is obtained is improper.
Enforcement costs cannot be charged back without a court order
On appeal, the Divisional Court affirmed there was no “act or omission with respect to the common elements” that would engage the particular indemnity provision in YCC 473’s declaration. YCC 473 further argued that its indemnity provision allowed it “to simply charge back any and all costs incurred in its attempt to secure compliance, without the requirement to first obtain a compliance order”. The Court rejected this argument, holding:
Section 7(5) of the Act provides that a declaration cannot be inconsistent with the Act. The application judge found, the interpretation of Article XI advanced by the Corporation contravenes s. 134 (5) of the Act because the costs it claimed related to compliance and enforcement costs and were not embodied in a court order. An interpretation that contravenes a statutory provision, he found, is, by definition, unreasonable. The legal accounts for which the corporation claimed indemnity described the services as relating to the “enforcement of the Corporation’s Declaration and Rules” and not as relating to the protection of any common elements.
The practice of charging owners legal fees for demand letters and to enforce compliance, absent a court order is not specifically permitted by the Condo Act. However, we do not interpret this decision to mean that indemnity provisions are entirely unenforceable. There remains important and enforceable applications for indemnity provisions but registering a lien to charge back enforcement costs is not it.
Distinction between “Enforcement/Compliance Costs” and “Acts or omissions to the common elements”
Suppose Mr. Amlani did commit an act or omission that damaged the common elements and YCC 473 incurred costs to repair the damage entirely unrelated to its legal costs to obtain a compliance order against Mr. Amlani: could YCC 473 charge this back to him? We believe it could and to interpret otherwise would render all indemnity provisions across the province meaningless and inconsequential.
A distinction should be made between legal costs associated with a compliance application under section 134 and costs to indemnify the corporation for other expenses where a compliance application is unnecessary; the latter costs should be charged back without requiring a compliance application.
As an example, an owner might leave a significant hole in a hallway wall while moving their bedframe into their unit. Further enforcement or a compliance application may be unnecessary; here the only issue is how the condo will recover the cost to repair the damage. This is where the indemnity provision should apply. An appropriately worded indemnity provision should operate as a legitimate mechanism for a condo to recover costs it incurs to repair damage. The Amlani decisions cannot stand for the proposition that the condo must pursue a compliance application before recovering all costs to repair the damage.
The Amlani decisions add a wrinkle to the interplay between indemnification provisions, compliance demand legal fees, chargebacks and a condo’s lien rights. We anticipate this decision will continue to be fiercely debated but the overarching lesson from Amlani is undeniable: condos must act reasonably when dealing with owners.
Caution should be exercised before making any demands for indemnity – if there is any uncertainty, the best practice is to consult your lawyers.