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Case confirms court unlikely to extend statutory lien rights

While statutory lien rights usually give a holder extraordinary power over other creditors, they are subject to specific timelines — and as one recent decision shows, when timelines are exceeded, courts are often reluctant to revive those rights, Toronto condo lawyer John De Vellis writes in Lawyers Weekly.

Trez Capital v. Wynford Professional Centre Ltd. 2015 ONSC 2794 involved a condominium corporation with large arrears in common expense payments owed by one owner of many units in the corporation, De Vellis, a partner with Shibley Righton LLP, explains.

“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,” says De Vellis.

However, he says, in the Trez Capital case, the board of the condo corporation was controlled by the very people who were in arrears, and the board failed to register liens on the units within the statutory deadlines.

In early 2011, Wynford Professional Ltd. purchased 83 units in Metropolitan Toronto Condo Corporation No. 1037, which was enough to give it a majority of units in the corporation, and allowed it to assume control of the board and management. Wynford then stopped paying common element fees for its units, says De Vellis.

It later refinanced the units secured by a mortgage, registered against title to the units, to Computershare Trust Company of Canada. When the loan was advanced in early 2013, Wynford’s arrears on the common elements had reached more than $800,000 and at that time, Wynford still controlled the board and management, says the article.

As the article notes, no liens were registered against the units, and the status certificates did not disclose that there were any arrears. When the new board discovered the arrears in 2014, the 90-day statutory lien period had expired.

“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,” explains De Vellis.

“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,” De Vellis says in the article.

However, the court refused the condo corporation’s motion, relying in part on the Ontario Court of Appeal’s decision in TSCC No. 1908 v. Stefco Plumbing & Mechanical Contracting Inc. 2014 ONCA 696. In that case, the condo corporation tried to revive previously expired statutory lien rights by treating a judgment obtained against the unit owner as “damages” that could 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 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,” writes De Vellis.

This case, along with the Stefco decision, he explains, “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.”

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