Amlani v. York Condominium Corporation No. 473, a recent case of the Superior Court of Justice, has created buzz within the Ontario condo community.
The case revolves around the conduct of a condo corporation in addressing smoke migration, the Corporation’s ability to charge back its legal costs in dealing with the owner, and “grandfathering” or exempting residents when passing rules.
We believe there are two key takeaways from the Amlani decision:
- Be reasonable! Absent an immediate and serious safety concern or risk of damage, corporations should attempt to first address compliance issues in a non-adversarial way, with a view to resolving the non-compliance cooperatively (especially if your governing documents require it). This does not mean permitting non-compliance to continue; it just means that the initial approach should convey a more cooperative than adversarial tone.
- Before charging back compliance costs without a court order, Corporations must carefully review the language in its indemnification provision to ensure the provision permits the chargeback. While some may argue that certain portions of the Court’s reasoning in the Amlani decision prohibit chargebacks absent a court order, previous cases confirm that such chargebacks are valid where the indemnification provision is appropriately worded. Corporations without strong indemnification provisions may wish to consider amending their declarations to permit a wider variety of costs to be charged back to owners.
For our (somewhat lengthy) review of the facts, analysis, and implications, read on.
Mr. Amlani, a long time smoker, and his wife moved in to the condo, making sure there were no restrictions on smoking at the time of purchase. Two years after moving in, some of the neighboring residents began to complain about the second-hand smoke that was emanating from the unit. The Corporation took some steps to seal the unit and complaints stopped for about two years.
In response to some new complaints, Mr. Amlani did all the right things. He took many steps to abate the migration, including using air filters, only smoking in certain rooms that he believed were sealed, attempting to communicate with the Corporation and arrange for a meeting with the Board, and even offering to retain an engineer at his own cost to prepare a report and opine on possible solutions.
Instead of working with Mr. Amlani, or even engaging in a real dialogue about the issue, the Corporation demanded that Mr. Amlani stop smoking altogether. This prompted the Amlanis to voluntarily move out of the unit until a reasonable solution could be reached.
The last legal letter received by the Amlanis prior to them moving out demanded reimbursement of $863.99. About a week after they moved out, the Corporation’s legal counsel sent another letter demanding a full cessation of smoking. Given that the Amlanis had moved out, the smoking had already ceased well before that letter was sent.
The Corporation, on the other hand, acted unreasonably and oppressively, in the Court’s view. During the period that the Amlanis moved out, the Corporation passed a no smoking rule, which included a clause which permitted existing smokers to be exempt from the rule. The Corporation refused the Amlanis request to be exempted (“grandfathered”) from the rule because Mr. Amlani was not actually living in the unit and the exemption was only for current residents.
The Corporation continued to charge back all legal costs it was incurring in corresponding and dealing with Mr. Amlani, including the cost of mediation which the Corporation’s own by-law required be split 50/50. The Corporation’s by-laws also required negotiating in good faith; the Court found that the Corporation failed to do so.
The Corporation incurred over $25,000 in legal costs, and subsequently registered a lien against the Amlanis’ unit for that amount. The Corporation then tried to force the sale of the unit, prompting the Amlanis to commence a court application preventing the sale.
The case highlights the importance of: (i) acting reasonably; and (ii) carefully reviewing the precise language of the indemnification clause to ensure that compliance-related costs can be charged back to a unit.
Although there are many variations of indemnification clauses in declarations, permitted chargebacks contained in these types of clauses predominantly fall into two main categories:
- Costs incurred by the corporation for damage to the common elements or other units;
- All costs incurred by the corporation for any breach of the governing documents or to enforce the governing documents against an owner, and for costs incurred for damage to the common elements or other units
The provision stated the following:
Each owner shall indemnify and save harmless the Corporation from and against any loss, cost, damage, injury or liability whatsoever which the Corporation may suffer or incur resulting from or 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 Corporation took the position that its indemnification provision permitted the chargeback against the unit and that the lien was valid.
A corporation is entitled to deference in its interpretation of its declaration, as long as the interpretation is not unreasonable.
The Court reviewed the provision in the Corporation’s declaration and found that the provision fell into the first category, above: the provision did not permit the Corporation to charge back compliance-related costs against the Amlanis. The Amlanis did not cause any damage to the units or common elements.
The Court found that the interpretation advanced by the Corporation of its indemnification provision was unreasonable and invalid because:
- There was no act to the common elements or other units;
- Since the Amlanis were not in the unit, the costs could not have arisen from acts by the Amlanis to the common elements or other units; and
- Section 134(5) permits a corporation to recover the costs of obtaining an order made against an owner to enforce compliance as a common expense if a corporation obtains an award of costs or damages. The Corporation’s interpretation of the indemnification provision was contrary to section 134(5) of the Act because the costs that the Corporation tried to charge back related to compliance and enforcement costs that were not embodied in a court order. The provision did not permit the charge backs relating to compliance and enforcement costs.
On the facts of the case, and the language of the indemnification provision, the interpretation of the indemnification provision was contrary to the Act.
The Court has previously confirmed (in other cases) that with an appropriately worded indemnification provision and different facts, a corporation can properly charge back compliance and enforcement costs as common expenses, without a court order. For example, in Italiano v. Toronto Standard Condominium Corporation No. 1507, the Court confirmed that costs, including legal fees, incurred by a corporation in abating noise can be collected in the same manner as common expenses. In this case, the court determined that an indemnification provision which permitted charging back legal fees incurred by the corporation in abating noise was not inconsistent with the Act; the charge back was therefore valid and enforceable.
The Act is consumer protection legislation. This includes protection against owners who single-handedly cause the Corporation to incur legal costs due to their non-compliance. In our view, it would be contrary to the interests of all of the owners for a Corporation not to be able to charge back the legal costs it incurs in sending an enforcement letter to a non-compliant owner when the declaration permits doing so. As has been reiterated in so many prior court decisions, the innocent unit owners should not have to bear the cost associated with the misconduct of one owner. Indeed, although not yet in force, the amendments to the Act are going to specifically provide that these types of indemnifications provisions are valid.
In our view, these cases led to different results for two key reasons: (i) the language of the indemnification provision; and (ii) the reasonableness/unreasonableness of the Corporation in dealing with the unit owner.
Special thanks to Sarah Morrey for her assistance with this blog.