The Importance of Noting Arrears and Liens on Status Certificates
By: Victor Yee
In this buyer’s market for condominiums, the Status Certificate has become increasingly important for helping a purchaser make an informed decision. First-time home buyers are scrutinizing the Status Certificate to see if buying that larger, multi-bedroom condominium unit in an older building is a better choice than a modern, smaller unit in a newer building with less of a financial history.
A Status Certificate gives a snapshot of the condominium corporation at a particular moment in time. It offers a window into matters such as whether the unit has unpaid common expenses, how the condominium is doing financially, what insurance is in place, whether common expenses may increase, and whether there are any ongoing legal proceedings.
Changes to the Condominium Act, 1998 (the “Act”) and recent court decisions have increased the risk for condominium corporations and managers. If the information on a Status Certificate is incomplete or incorrect, the condominium and the manager may face legal and financial liability.
Why Arrears Owed by the Unit Must Be Clearly Disclosed
One of the most important purposes of a Status Certificate is to say whether the unit owes any unpaid common expenses to the condominium.
Ontario courts have repeatedly held that buyers are entitled to rely on what a Status Certificate says. This is especially true for information that the Act specifically requires be disclosed in the Status Certificate.
If a unit’s arrears are understated, described unclearly, or not mentioned at all, it can lead to financial loss for the condominium, weaken lien enforcement, and unfairly shift costs to other owners.
Arrears determine a condominium’s lien rights and enforcement strategy. Section 85 of the Act allows a condominium corporation to register a lien for unpaid common expenses, within three months of the default date. If a Status Certificate incorrectly advises that no arrears exist, the condominium might later find itself unable to collect the arrears using a condominium lien.
Arrears also impact fairness among unit owners. When one owner’s unpaid common expenses are not properly disclosed and recovered, the resulting shortfall is effectively borne by the remaining owners of the non-profit condominium.
If Unit is Liened, the Status Certificate Should Direct the Reader to Contact the Corporation’s Counsel for a Payout Statement
A frequent point of confusion is when a unit has been issued a Notice of Lien or a Certificate of Lien has been registered on title for arrears owing. Although the Condominium Manager usually prepares and issues the Status Certificate, the issuance of a Notice of Lien and/or the registration of a Certificate of Lien is typically the responsibility of the condominium’s solicitor.
Section 85 of the Act provides that the legal costs of collecting, or trying to collect, arrears can be added to the common expenses owed by that unit, together with interest at the rate set out in the condominium’s by-laws. Because legal fees and interest may continue to increase, the exact amount owing can change over time and may not be known to the condominium manager on the date that the Status Certificate is issued.
For that reason, if a unit has been issued a Notice of Lien and/or a Certificate of Lien has been registered on title, the Status Certificate should explicitly note in paragraph 5 of the prescribed form that the unit is in default, and to contact the condominium’s solicitor at their telephone number, fax number, or their email address to obtain an up-to-date Statement of Arrears (sometimes called a “lien payout statement”).
In short, clear and accurate disclosure of arrears and liens on a Status Certificate helps buyers make informed decisions, protects the condominium’s collection rights, and promotes fairness among owners. Boards and managers should take care to ensure that if lien proceedings have commenced against the unit, then the Status Certificate should direct the reader to contact the condominium’s counsel.