A recent Superior Court decision, Chiarelli v. Toronto Standard Condominium Corporation No. 2339, confirms that the principle in Amlani v. York Condominium Corporation No. 473 continues to apply, even where a declaration’s indemnification provision is broader than the one considered in that case.
For those unfamiliar with Amlani, it is the 2020 decision on recovering the legal fees a corporation incurs enforcing compliance with the Declaration, by-laws and rules. The general practice was, based on the wording of a corporation’s declaration, to add those fees to the owner’s common expenses and register a lien if the owner did not pay. The court held that a corporation could not collect its legal costs that way without a court order.
TSCC 2339’s Declaration contained a strongly worded indemnification provision permitting it to charge back its legal costs incurred due to a breach of the corporation’s governing documents. The court held that even this broadly worded declaration provision could not avoid the requirements of section 134(5) of the Condominium Act, 1998 (the “Act”). The point being that there is no “breach” until a court has considered and concluded that there has been a breach.
The significance of the decision is that it finally provides an answer with respect to a corporation’s ability to collect and lien for certain legal costs. Since Amlani, condominium lawyers have taken different positions and the point remained unsettled. Many of us took the view that a clear, well-drafted indemnification provision was the distinguishing factor, and that a corporation with a strongly worded provision could still secure its costs by lien. Chiarelli resolves that question.
What happened
The owners at 140 Broadview Avenue were renting their unit short-term in breach of the Declaration. TSCC 2339 sent two demand letters, in 2023 and 2024, and added its legal costs for those letters to the owners’ common expenses, along with $99.95 for a smoke detector replacement. When the owners did not pay, the corporation registered a lien. The owners applied to court to discharge it and won on two grounds.
A strong indemnification provision does not change the result.
Many Declarations contain an indemnification provision covering the legal costs of enforcement against an owner in breach of the governing documents. The wording of TSCC 2339’s indemnification provision, which contained wording that would permit the Corporation to recover its legal costs due to the owners’ non-compliance, did not assist the corporation. At the risk of repetition, there is no “breach” until a court has determined that there has been a breach. The court found that section 134(5) permits legal costs incurred in securing the compliance of an owner to be added to common expenses only after a court order with respect to compliance or costs has been obtained, and that a Declaration cannot override the Act.
The Court’s ruling is narrow, and it applies to the legal costs of compliance and enforcement, not to a corporation’s separate right to charge back amounts such as repairs or owner-caused damage.
Recovery of these legal costs is not ruled out entirely for a corporation. Depending on the wording of a corporation’s governing documents, a corporation may still be able to bring a legal claim against the owner for compliance and/or to collect the costs incurred. What it cannot do is bypass the court order and proceed directly to a lien.
There is one practical consideration that a corporation should consider before seeking its costs in Court. If a corporation is simply seeking the recovery of the costs it has incurred, then a claim of that size will normally be brought in Small Claims Court, where section 29 of the Courts of Justice Act caps a costs award, disbursements aside, at 15 per cent of the amount claimed. Pursuing a few hundred dollars in demand-letter fees will usually cost more than it recovers. This is exactly what we saw in Chiarelli, where the parties incurred legal costs totally approximately $100,000 over the enforcement of a $4000 lien.
Keep notices consistent
Another issue for TSCC 2339 was with the content of its Notice of Lien. TSCC 2339 did not include the smoke detector charge in the Notice of Lien and subsequently told the owners that the smoke detector charge was excluded from the lien and would be pursued separately in Small Claims Court. TSCC 2339nonetheless included the smoke detector charge in the registered lien and, as part of its arguments in court, sought to justify the entirety of the lien on the basis if the smoke detector charge. The court found that unfair and discharged that part of the lien as well. A corporation cannot tell an owner a charge is outside the lien and then rely on it to support the lien.
No finding of oppression
The owners also argued oppression and the court rejected it. A corporation making a genuine, good-faith attempt to enforce its Declaration is not acting improperly because a judge later disagrees with its legal theory. Owners who have repeatedly breached the Declaration are in a weak position to complain about being held to it.
Takeaways for boards and managers
A court order under section 134(5) is still required before adding enforcement legal costs to common expenses, no matter how the Declaration is worded. A legal claim against the owner may be available instead, but the cost of pursuing it should be weighed against what can realistically be recovered. Keep notices consistent, and do not tell an owner a charge is excluded from a lien and then rely on it later. Good-faith enforcement will not be found oppressive, but it will not validate a lien that had no proper basis.
Congratulations to Shawn Pulver of Pulver on Condos, counsel for the owners, who has settled a question the rest of us have been arguing about since 2020.
