The law relating to legal expenses in litigation involving Alberta condominium corporations is evolving, but remains far from settled. In several recent decisions of the Alberta Court of Queen’s Bench (Toronto-Dominion Bank v Bachand, 2021 ABQB 271, Tutt v The Owners: Condominium Plan No. 7822572, 2020 ABQB 213), the Court concluded that legal fees incurred by a condominium corporation in recovering unpaid contributions or taking action to enforce bylaws against an owner cannot be added to and treated like an assessment for common expenses, and charged back to the particular owner responsible, regardless of what the corporation’s bylaws might say.
The Bachand case was decided by a Master, who is bound to follow decisions made by Justices (which rank higher than Masters in the Court’s pecking order). The Tutt decision was made by a Justice, and is expressly referenced by the Master in her reasons for decision. But what happens when there are conflicting authorities at the Justice level?
The result, unfortunately, is that Masters (and Justices) must pick and choose which cases to follow, preferring one line of authority over another. On this particular issue, there have been few decisions over recent years, but there is most definitely a divergence. One branch (the Bachand and Tutt decisions) hold that a condominium corporation’s legal fees are not recoverable from an individual unit owner, while another says that they are, provided the corporation’s bylaws include the necessary language to permit such disproportionate assessment.
These decisions, starting with the reasons of Master Prowse in Condominium Plan No 8210034 v King, 2012 ABQB 127, and culminating with Justice Lee’s finding in Condominium Plan 052 6233 v Seehra, 2014 ABQB 588, rationalize that legal fees, like other costs incurred by condominiums, are expenses of the corporation, like any other. If not charged back to a particular unit owner, they must be charged proportionately to all the unit owners.
The result is an inherent unfairness, in that all bylaw-abiding, non-delinquent unit owners are required to foot the bill for the misconduct of a single owner or group of owners. This is at odds with the objective of the legislative framework for condominiums to achieve fairness among members of a given corporation. And the irony is that the condominium corporation has no choice but to pursue collection of unpaid monthly fees and special levies. Corporations are statutorily required to uphold and enforce their bylaws. Discharging their prescribed legislative duties often require condominiums to hire legal counsel, particular where unit owners are unresponsive or behaving in an unreasonable manner.
In 1996, the Legislature of the Province of Alberta passed legislation amending what was then section 31(1) of the Condominium Property Act, RSA 2000, c C-22 so as to permit the assessment of common expenses on a basis other than unit factors: Condominium Property Amendment Act, 1996, S.A. 1996, c. 12, s. 32. The provision is now s. 39 of the Act. This section speaks only of “contributions”, which, rather unfortunately, is circularly defined as “an amount levied under section 39”. Any expense, so long as it is a true expense of the corporation and not something like an unpaid monetary sanction, can potentially be considered a contribution, and that should properly include legal costs.
The Act is intended to provide certainty for unit owners, and the Court of Appeal in Alberta has held that this means courts cannot impose their own ideas of fairness on a case-by-case basis. What has happened, however, is just that, different Masters and Justices have taken it upon themselves to decide what is fair in a particular situation.
A close reading of several of the cases in the Bachand and Tutt line reveal that the decision on legal fees is either very case specific (e.g. Bank of Montreal v Bala, 2017 ABQB 38, where the bylaws at issue did not actually permit disproportionate assessment of the corporation’s legal costs against a particular owner) or is simply “obiter dicta” (meaning something that is said in passing, but which is not really the decision the court was called to answer and therefore lacks the binding force of precedent).
In the Tutt decision, Justice Graesser (rightly) noted that mortgagees are undoubtedly aware that the priority of their charge over a unit is behind a claim by the condominium corporation for unpaid common expenses and interest (which is statutorily deemed to have the force of a contribution). He was concerned that mortgagees cannot protect themselves from huge legal bills that might be assessed against the unit, and notes that they can insist the mortgagor obtain insurance for things like deductibles and negligence claims.
But in my view, focusing on assessments for legal fees alone ignores the increasing frequency of large, unexpected special assessments being levied to address rising insurance costs, and unexpected capital repairs, for which there is no insurance available. These special levies, which are protected as contributions, can be just as unexpected as large legal bills, and just as necessary for the corporation to impose on owners. They have just as much of an impact on mortgagees as would an assessment for legal costs.
The only difference is that these costs are being imposed on ALL owners, who are made collectively responsible, rather than upon only one owner who is directly responsible for the cost being incurred. Is it fair to exercise greater concern over a single unit owner, or a single mortgagee for that matter, than for all the owners in a corporation combined (engaging the interests of multiple mortgagees)? To me, this does not align with the purpose of the Act, to achieve fairness among all the owners. Unfortunately, and for better or worse, this is the direction in which the Court in Alberta is currently headed if the Tutt decision continues to be followed. But, the Seehra decision yet remains good law, until it is overruled by a higher court.
As long as there are divergent legal decisions at the same level of court in Alberta, this issue will remain unresolved and confusing. What is sorely needed is clear intervention from a higher court, such as the Court of Appeal, which could issue a final pronouncement on this topic. Better yet, the Alberta legislature could amend the Act to better define the term “contribution” and clarify when, and under what circumstances (if at all), legal costs incurred by a condominium corporation can be disproportionately assessed and added to the contributions levied against a particular owner or group of owners.
If you have any questions about these court decisions, or others, please contact me.
Please note: the opinions expressed in this post are that of the lawyer’s not of Field Law.
One thought to “Legal Costs for Condominium Corporations: A Refresher”
Thank you Erin for this excellent summary. Although I understand and share your concern about the owner collective paying for the delinquencies and misdeeds of some owners, I’m much more deeply concerned about the potential for legal fees to be incurred unnecessarily and/or prematurely then charged back to unit owners who are already struggling. I would like to see a requirement for corporations to first approach mortgagees regarding arrears prior to any legal engagement and expense, given the fact that standard mortgage clauses pretty clearly give lenders the right to pay any monies owing to the corporation and add it to the mortgage if they want. It’s in the lenders best interest to do so, and ultimately would cost them less than what they will lose in a foreclosure, especially if legal fees are treated as a contribution. I think few owners realize this is an option and I think there needs to be some effort by the corporations to educate owners in this regard, or to notify the mortgagees of the debt.