Real Estate

Judgment could have impact on condo industry: Mackey

By Tony Poland, AdvocateDaily.com Associate Editor

A recent court ruling that saw a condominium owner lose her unit due to the actions of her tenant is good news for condo residents but could have a “chilling effect” on investors, says Toronto condominium and commercial litigator Megan Mackey.

The Ontario Superior Court of Justice found that a woman was responsible for her tenant’s legal costs in a failed lawsuit and granted possession of the unit to her condominium corporation so it could be sold to pay $86,000 in fees.

Mackey, a partner with Shibley Righton LLP, says she was “quite shocked to see that legal defence costs could be tacked onto the unit — not for what an owner did, but for a lawsuit filed by a tenant.”

While unusual, the ruling does have some positive ramifications, she says.

“This case came as a surprise to some of us in in the industry,” Mackey tells AdvocateDaily.com. “This is a really novel decision because condominium corporations get sued all the time, and it causes them to incur a lot of costs.

“Until now, it’s the other unit owners that have had to pay to defend these lawsuits, but with this decision, when an owner or their occupants lose, they’re going to end up paying all of the condominium’s legal fees.”

She says “many unit owners will be really pleased” with the ruling because such legal fees have been passed on to them. It can be costly, particularly at complexes where there have been many lawsuits, Mackey says.

However, if you are an owner and rent out your unit, the judgment should serve as a warning, she says.

“This decision will certainly have a chilling effect for many investors in the city,” says Mackey. “My message to investors is to be very careful who you let move into your unit.”

She says the case is a lesson in knowing and understanding the rules that govern a condo.

Court was told an owner rented her unit to a man who was in constant conflict with the condominium corporation and building management and filed a $5-million lawsuit.

The lawyer representing the corporation recognized the claim was unlikely to succeed and warned the owner that failing to dissuade her tenant from moving ahead with court action could ultimately have serious consequences for her.

The owner failed to heed the advice, and her son swore an affidavit that supported the suit, which failed at trial and on appeal.

Court ordered that the legal costs be added to the common expenses of the owner’s unit. When she failed to pay the outstanding fees, the corporation registered a lien against her unit.

Mackey, who was not involved in the case and comments generally, says she commends the corporation’s lawyer for bringing the consequences to the woman’s attention at the outset of the dispute — before legal costs were incurred.

She also notes that the owner claimed she wasn’t properly notified of the lien against her unit. However, the corporation maintained they sent her notices to the address she provided, which was the procedure according to condo bylaws.

“We often face issues where owners complain they didn’t get the notice,” Mackey says. “In this case, the court had no interest in listening to that, which I thought was excellent.”

She says it’s not unusual for unit owners to pay legal costs when they have physically damaged the complex, or disturbed other residents because of their conduct.

“It’s common to see legal costs awarded against owners, but in all of the cases I’ve been involved with it’s where the owner or the occupant physically does something that causes the condominium to incur costs,” Mackey says. “But in this case, it was just paperwork. It was a lawsuit.

“I think this decision is unique because it’s the first time that the courts have agreed that even though these monetary losses were not necessarily tied to physical behaviour in the building, it can all be charged back against the unit.”

She says it will be interesting to see the impact the judgment has on the industry.

“Although this is new and a change for those of us who practise in this area, maybe it’s a change for the better. Time will tell,” Mackey says. “This is a whole new level of scrutiny that investors should consider when choosing a tenant.”

To Read More Megan Mackey Posts Click Here