News of the court’s decision in  Amlani  v. York Condominium Corporation No. 473  has spread rapidly throughout the condominium industry. Now that we have had an opportunity to read this decision in light of other caselaw in Ontario, we want to set out how the Shibley Righton condo law group expects to deal with enforcement costs going forward.

For the reasons set out below, our position is that the Amlani decision does not change the law in Ontario. If a condominium corporation’s indemnity provision correctly identifies costs related to enforcement as common expenses, we will continue to collect and register liens for those costs.

Here’s what the case is all about.

Under the Condominium Act, 1998 (the “Act”), a condominium corporation may register a lien against a unit to secure the payment of common expenses.  Many condominium corporations, including YCC 473 in Amlani, have provisions (commonly referred to as the ‘indemnity provision’) that require owners to compensate the corporation for costs or damages it incurs as a result of certain actions of owners. Many indemnity provisions also state that, if the costs are not paid, they are treated as “additional contribution to common expenses payable by the unit”. Because the costs are deemed to be common expenses, the corporation can register a lien for the unpaid amounts.

The complaint against Mr. Amlani was a result of his smoking in his unit. Complaints about the smoke emanating from his unit were made by residents in surrounding units. The initial smoke complaints were resolved by the corporation making modifications to his unit so that the cigarette smoke no longer entered other units.

Two years later complaints began again.  At this time the corporation insisted that Mr. Amlani stop smoking in his unit. Mr. Amlani was a life-long smoker and had purchased a unit in the building after determining that smoking was permitted.

According to the findings of the court, once the complaints started and Mr. Amlani was told he could no longer smoke in his unit, little effort was made by the corporation to determine if there might be a solution to the problem. Mr. Amlani on the other hand made repeated efforts to meet with the board and the owners who were complaining, to establish if there was a means of resolving the problem. Engineers were hired by the condominium corporation. The court found that the engineer’s mandate was not to look for a solution as to what steps could be taken that would contain the smoke within his unit, but rather to establish that there was no guarantee of “smoke proofing” the surrounding units.

The corporation then passed a no smoking rule with a grandfathering provision. By then unable to resolve the problem, Mr. Amlani moved out of his unit and rented it until a resolution could be reached. The lease for his unit contained a no smoking clause.

When the rule was passed Mr. Amlani applied to be grandfathered. Even though the board was aware he had moved out temporarily until he could reach a resolution with the corporation, it refused his request to be grandfathered because he was not a resident in the unit.

A mediation was scheduled without consulting Mr. Amlani on the date. He was notified of the date and appeared and participated in the mediation.  

The corporation tried to collect the legal fees it incurred in dealing with Mr. Amlani, which totalled over $25,000. Most of these were incurred after Mr. Amlani moved out of his unit.  Mr. Amlani refused to pay and a lien for unpaid common expenses was registered against his unit. When the lien amount was unpaid, the corporation commenced power of sale proceedings. Mr. Amlani brought the court application to stop the sale on the grounds that the corporation had no right to lien for these costs and that its conduct was oppressive.

The court found, among other things, that the lien was not valid because the legal fees could not be considered common expenses. The decision, however, raises more questions than it answers as it is not clear whether the court’s decision turned on the wording of the indemnification clause in the corporation’s declaration or whether the court’s decision means that a lien for legal fees can never be valid without a court order.

In his analysis, the judge evaluated the definition of “common expenses” in the corporation’s declaration and, in particular, the indemnification provision which read, in part:

“Each owner shall indemnify…the Corporation … against any … cost … which the Corporation may … incur… caused by an act or omission of such owner to or with respect to the common elements and/or all other units… all payments pursuant to this clause are deemed to be additional contributions toward the common expenses and recoverable as such.”

The court’s comments on the validity of liens are certainly cause for concern for condominium corporations. On the other hand, however, it appears the specific wording of the corporation’s Declaration played a significant factor in the court’s decision.

There is also no reference in the decision to previous cases in which the right to lien without a court order had been implicitly accepted by the court. As an example, in Temedio v. Niagara North Condominium Corporation No. 6, the corporation registered a lien against the owner’s unit without a court order (similar to the situation in Amlani). The court refused to vacate a lien, finding that the lien “arose out of the refusal on the part of [the owners] to address the legitimate concern of the Condominium regarding unacceptable noise. [The owners were] advised in at least three letters that it was the intent of the Condominium to charge her unit with the legal fees incurred in securing compliance with the rules.  I therefore am not prepared to vacate the lien as requested by [the owner].”

In Italiano v. Toronto Standard Condominium Corporation No. 1507, the court held that the arbitrator was correct in permitting the condominium corporation to treat mediation and arbitration costs as common expenses. The court found that s. 134(5) of the Act did not apply but, based on the wording of the declaration, found that the costs could be treated as common expense “and recoverable as such.” For the same reason, the court also granted the condominium corporation’s counter-application to validate the lien it had registered on the owner’s unit.

Considering all the above, in our view, it is too soon to declare that condominium liens for legal costs in compliance matters are prohibited in all cases.  There is strong language in the case but given the factual context of the case and the other jurisprudence in this area, we believe that the case does not change the law in Ontario.

What should condominium corporations do in the face of this decision? One is to contact legal counsel to determine if the indemnity provisions in their governing documents support the registration of a lien to secure the costs, including legal fees, that the corporation incurs in seeking an owner’s compliance. If no such provision is contained in the corporation’s documents, consider enacting one.

What this case also demonstrates-perhaps above all else-is that condominium corporations need to act reasonably in compliance matters.  The court was clearly frustrated with the actions of the corporation. The court found that the corporation was “intractable” and had unreasonably refused to discuss options, proposed by Mr. Amlani, to diminish the migration of smoke to other units. The court noted that Mr. Amlani tried repeatedly to engage with the board and resolve the problems.  The court held that had the corporation considered and exercised the options presented by Mr. Amlani, the corporation, “would have solved the problem more quickly and cheaply than running up $25,000 in legal fees,”

The court found that the corporation’s treatment of Mr. Amlani was oppressive. In this case not only did the court order that Mr. Amlani did not have to pay the $25,000 in legal fees but he was awarded damages in excess of $14,000, not including court costs, which have yet to be determined.  

If this decision does become the “law” in Ontario, there will be consequences.

Historically in Ontario, before condominium corporations had the right, in the Act and their governing documents, to collect enforcement costs from non-complaint residents, Boards that typically did  not budget for legal costs beyond a few thousand dollars regularly chose not to enforce the provisions of their documents.  Boards being uncertain as to whether they could recover their costs, and without knowing how high those costs might be, were not prepared to enforce the governing documents because owners would complain about their higher common expense payments. 

If this decision does become law, a second consequence is that all condominiums will now have to go to court to seek a compliance order as that would be the only way to secure payment under the indemnity provision. That means more litigation and more costly disputes with owners.

The decision would also leave condominium corporations in limbo when it comes to enforcement actions that needs to be enforced via arbitration. An arbitration award is not an “order” under s. 134. Read literally, the court’s decision would mean that, despite having an applicable indemnity provision, a condominium corporation could not register a lien to secure legal costs awarded by an arbitrator in an enforcement application. The corporation would have to apply for a court order to permit it to register a lien.

Finally, we note that this issue may ultimately be resolved by the Act itself. The amendments to the Act passed in 2017, but not yet in force, will have a procedure for adding certain “prescribed additions” to the common expenses payable for a unit and, ultimately, a dispute resolution procedure involving the Condominium Authority Tribunal. It is not clear what the “prescribed additions” will be (that will be determined by regulation), but, in view of the Amlani decision and the uncertainty it will create in the industry, the government will need to ensure that these sections of the Act deal with this question and come into force as soon as possible.