Condo Talk - Collection Policy for Late Fee Payments

It's never a pleasant situation for a condominium corporation to be in when a unit owner falls behind in their condominium fees. As a board member or property manager who is responsible for collecting these fees you understand how difficult this can be. It’s not easy to go to a neighbour and remind them their bills are overdue. Talking to someone about their late fees is likely one of the most uncomfortable conversations that you will have to have with a neighbour. Often, you will be met with pleas about hard times, or how the owner is just getting back on his or her feet. It's our human nature to feel empathy for these people and want to help them, but as a board member, your duty is to the corporation.

These fees need to be collected. It's not fair to the other unit owners that someone isn't pulling their weight. It's also the board's responsibility to ensure that unit owners stay up to date on their fees. Thankfully, with some planning and knowledge about The Condominium Property Act, 1993 (the "Act") board members and property managers alike will be in sync and ready to deal with this unfortunate situation. By complying with the provisions in the Act and setting out policy on collection, fee collectors can ensure that they don't fall into the trap of letting condominium fees slide, and can substantially minimize the risk of unpaid fees.

The Act provides board members and property managers with a number of strong remedies to ensure the collection of condominium fees. Strict compliance with the lien provisions in the Act will ensure that the condominium corporation has a priority interest in the unit of the owner who is in arrears. Simply put, barring a few exceptions, the condominium corporation will be one of the first in line to receive any equity the unit owner has accrued in the unit in the event of a forced sale, and can enforce the lien in the same way a bank can enforce a mortgage. Because the process of registering a lien is technical and fraught with difficulties, the board may want to seek legal advice before enforcing or asserting their lien rights on a unit.

This brings our discussion to the types of policies that a board may want to consider. By adopting collection policies, the board takes all of the discretion out of the ability to collect fees. If a unit owner goes into arrears with respect to their fees, the person in charge of collecting fees can consult the policy and take the appropriate steps. Board members and property managers can remain sympathetic to the unit owner's issues, but also provide an explanation of why collection is necessary. It becomes a duty as part of policy, and not a discretionary exercise of power.

Here is a list a board may want to take into consideration when effecting collection policies.

• The longer a condominium corporation waits to try to collect the fees, the harder it becomes to collect. Fees are payable each month, and interest may be payable on any unpaid portion. Allowing unpaid fees to continue unchecked for a few months can be the difference between a $500 collection effort and a $2,500 collection effort.
• If the owners are having a hard time paying their fees, they may also be having a hard time paying their mortgages. A bank may not be so forgiving, and could attempt to force the sale of a unit where the mortgage falls into arrears. By taking the appropriate steps, a condominium corporation can significantly improve its priority position, with respect to the collection of sale proceeds.
• The failure to pay condominium fees will result in a default of the unit owner’s mortgage. The Act makes it an implied term of every mortgage registered on a condominium unit that the owner's default in the obligation to contribute to the common expense fund and reserve fund constitutes a default under the mortgage. This means regardless of whether the unit owner is current with the mortgage, the bank can still commence foreclosure proceedings.
• Finally, by registering a lien, board members and property managers are protecting the debt owing to the condominium corporation.  A condominium corporation can only run smoothly if there is enough money in the bank to pay the bills. By ensuring timely collection, and having a policy in place to enforce collection, there will be fewer disruptions with the day-to-day operations of the common property.

Any policy of collection should contain certain specific elements. The exact nature of each board's collection policy will depend on the unique situation of that condominium corporation. However, there are some common themes that will help to make a collection policy successful.

The board will want to consider a timeframe for collection and filing a lien. Thirty days in arrears may be too short, but extend longer than 90 days, and the board or property manager might have a hard time collecting from unit owners. A good policy will also have a point of contact for all fee collections. In most cases, this should be the property manager who is contracted to run the day to day operations of the condominium corporation. In some situations, it may be appropriate to give the property manager delegated authority in relation to the policy to effect the collection efforts. Finally, a board may want to consider what happens when a unit owner is habitually late in paying the condominium fees. A policy may provide for an accelerated timeframe to begin the lien process if a unit owner has been late more than three times in a six month time frame, or are liened twice in any twelve month period. There are many options for setting such a policy.

Irrespective of any policy, directors and property managers will continue to encounter owners that are delinquent in their fees. As a board member or fee collector, it is your duty to ensure the fees are collected and the condominium corporation can pay its bills. Setting a policy and learning the remedies available to a condominium corporation are two key factors to expedite this process and avoid both the heartache and headache that can come with late fee payments.