Time runs out on condo’s statutory lien rights
Statutory lien rights are valuable legal instruments that usually give the holder extraordinary powers over other creditors. But they are created to address a specific need and, for that reason, are given specific timelines. When those timelines are exceeded such that the statutory lien period has expired, courts are loath to revive the statutory rights, even in situations where it may be equitable to do so.
That was the situation in Trez Capital v. Wynford Professional Centre Ltd. 2015 ONSC 2794. The case involves a condominium corporation with large arrears in common expense payments owed by one owner that owns many units in the corporation. Under the Condominium Act, 1998, common expense payments owed by unit owners are protected via a lien. The condo corporation’s lien, if properly registered in accordance with the act, takes priority over all other encumbrances, even prior mortgages. It is an important consumer protection device as it ensures that a condominium corporation will not lose the ability to finance itself just because its owners have large mortgages that may wipe out the condo corporation’s ability to recover.
But what happens when the board of the condo corporation is controlled by the very people who are in arrears, and the board fails to register liens on the units within the statutory deadlines? That is what happened in Trez Capital.
In February 2011, Wynford Professional Ltd. purchased 83 units in Metropolitan Toronto Condo Corporation No. 1037. That was enough to give it a majority of the units in the corporation, which allowed Wynford to assume control of the board and management. Wynford then stopped paying common element fees for its units.
On March 7, 2013, Wynford refinanced the 83 units secured by a mortgage, registered against title to the units, to Computershare Trust Company of Canada. As of March 2013 when the loan was advanced, Wynford’s arrears on the common elements had reached $811,841.34 (and subsequently increased further to $1,284,503). Unfortunately for MTCC 1307, at that time Wynford still controlled the board and management. No liens were registered against the Wynford units, and the status certificates for the units did not disclose that there were any arrears.
By the time the new, non-Wynford- affiliated, board discovered the arrears in February 2014, the statutory lien period (90 days) had already expired. Wynford had registered the Computershare mortgage without giving notice of the arrears to the lender. Without the security provided by the lien, and in particular the priority over the Computershare mortgage, the condo corporation would likely be unable to collect the arrears.
In an action brought by Trez and Computershare against Wynford, the condo corporation brought a motion seeking an order granting it an equitable mortgage over the units or, alternatively, an order reviving its right to a lien against the units pursuant to the act.
Relying in part on the Court of Appeal’s decision in TSCC No. 1908 v. Stefco Plumbing & Mechanical Contracting Inc. 2014 ONCA 696, the court refused the condo corporation’s motion.
In Stefco, the condo corporation tried to revive the previously expired statutory lien rights by treating a judgment obtained against the unit owner as “damages” that could, under s. 134 of the act, be added to the owner’s common expenses, thus extending the lien rights to 90 days following the date of judgment. The court found that the lien rights were “designed to safeguard the financial viability of a condominium corporation in a manner that fairly balances the rights of the various stakeholders.” However, those rights were purposely restricted in a manner that “balanced the right and obligation of a condominium corporation to collect common expenses against the right of a mortgagee to have notice of a default in the payment of common expenses.”
The court in Trez followed that logic and found that granting an equitable lien would similarly be contrary to the purposes of the act as it would interfere with the balance struck by the legislature.
Even if an equitable lien were granted, said the court, it could not have priority over the Computershare mortgage since Trez and Computershare, which did extensive due diligence prior to advancing funds, had no actual or even constructive notice of the condo corporation’s common expense arrears.
Both sides filed expert evidence from experienced condominium lawyers. The condo corporation’s position was that there were irregularities in the status certificate that should have caused Trez/Computershare to look beyond it and perform extra due diligence. These irregularities, however, were not related to the arrears and the court accepted Trez/Computershare’s position, backed by their expert, that the recipient of the status certificate should be entitled to rely on the statements contained in the certificate — in particular, that there were no arrears or liens to the condo corporation at the time they advanced funds.
The result is unfortunate for the other, innocent, owners of MTCC 1307 because if the condo corporation is not able to collect the arrears from Wynford, the other owners may have to suffer the loss that should have been secured via the lien provisions of the act.
Nonetheless, this case, along with the Court of Appeal’s decision in Stefco, are important reminders that statutory lien rights must be strictly adhered to as courts will likely not intervene to extend the lien rights, particularly where, as here, to do so would mean favouring one innocent party over another.