Condo living is unpredictable and there’s always something new…yet I write about chargebacks, indemnity clauses and Amlani all too often. The law is settled: condos cannot charge back enforcement-related costs – specifically legal letters – without a court order, despite how any indemnification provisions are drafted. As the CAT and Courts have reaffirmed:
It is one thing to allow the corporation to enforce, by way of lien, common expenses that are applicable to all unit holders and that a majority of unitholders have approved. It is entirely another to allow a condominium corporation the unfettered, unilateral right to impose whatever costs it wants on a unitholder, refer to them as common expenses and thereby acquire the right to sell the unitholder’s apartment.
YCC 50 v. Overholt is the most recent decision to address this point. This case has the classic hallmarks of a simple rule enforcement matter escalating wildly out of proportion:
- YCC 50 received a smoking complaint against Overholt but did not investigate the complaints, let alone verify them;
- YCC 50’s property manager sent a warning notice to Overholt, but the complaints continued. Still, YCC 50 did not investigate nor verify the complaints;
- So YCC 50 sics its lawyers on Overholt. The lawyers sent a threatening letter (in the CAT’s words) to Overholt claiming she violated the no-smoking provisions and there was no exemption for her unit;
- Turns out that Overholt’s unit was exempt from the no-smoking provisions as a legacy unit before the no-smoking provisions took effect; and
- $611 was charged back to Overholt’s unit to cover the legal letter. When Overholt did not pay, a lien was registered. Another $1,330 was added to her unit for lien-related costs – more than double what was originally demanded – for a total of $2,926.
But YCC 50’s campaign doesn’t end there. It brought a CAT application to obtain Overholt’s compliance and confirm its entitlement to its costs, only to resoundingly lose on both issues. The CAT recognized that Overholt was properly grandfathered and not in breach of the no-smoking provisions. As for the lien, the CAT cited the wonderful passage from above and ordered YCC 50 reverse its legal/lien-related charges. For the final nail in the coffin, the CAT ordered YCC 50 pay Overholt $2,000 in costs. Time and time again, we stress the importance of acting reasonably.
For all my criticisms of this legal letter-to-lien practice I call the “Chargeback Card”, I see the obvious appeal in the approach. Why go through the expensive and time-consuming legal route to get a compliance order when a condo can smack unruly owners with chargebacks which, if unpaid, a lien and could cause the owner losing their unit via power of sale? Usually owners begrudgingly comply, pay the chargeback and move on with their life. And while these owners could sue to recover the chargeback, most are unwilling to spend more time, money and stress to stroke this flame – notably, a condo can rely on collective common expenses to finance the litigation while the aggrieved owner is fighting their battle out-of-pocket. The Chargeback Card accomplishes its objectives, albeit improperly: the Superior Court recently affirmed that where condominiums improperly issue chargebacks, the onus does not shift to owners to “prove illegality of the chargeback” since the error with the chargeback rests with the condo.
As a pragmatist at heart, I recognize that the Condo Act can be unclear or overly rigid in many situations such that creative but fair approaches are required. However, a pragmatic approach under the Condo Act is only achieved if does not offend the spirit of the Condo Act. Here lies my fundamental problem with the Chargeback Card: it violates the basic consumer-protection intention of the Condo Act. It deprives owners of their legitimate right to due process and is used to improperly force owners into submission. The Divisional Court seems to agree:
[Amlani] does not stand for the proposition that, through deft wording of an indemnification clause, a condominium corporation can deprive an owner of his or her day in court as provided for in subsection 134(5) of the Act.
…the interpretation the Corporation advances contravenes section 134(5) of the Act because the costs it claims related to compliance and enforcement costs without being embodied in a court order. An interpretation that contravenes a statutory provision is, by definition, unreasonable…
We continue to see the Chargeback Card inappropriately played. The Chargeback Card is a relic from a time where the Condo Act was in its infancy and owners were not as aware of their rights and how a condo functions as they are today. The exploding increase in condominium developments in Ontario will result in more condo owners/residents and ergo, more condo problems. This calls for a modern approach: with all the information, case law and commentary on condo issues nowadays, heavy-handed lawyering, false threats and financial punishment must be replaced with reasonable responses and without depriving owners of their legal rights. Until it is widely understood and accepted that the Chargeback Card is not a winning hand, we will keep seeing cases like Amlani and YCC 50 v. Overholt.