Part 2: To Chargeback or Not to Chargeback? The Legal Perspective
ii. The Condominium’s Governing Documents
The second category of chargebacks are those found in a condominium’s declaration or by-laws. Many declarations contain an “indemnification” clause which permits a condominium to chargeback costs to a violating unit owner. These provisions typically begin with wording along the lines of, “Each owner shall indemnify and save harmless the corporation against any loss, costs, damage or injury caused to the common elements…”. These provisions can assist condominiums in recouping costs from an owner where the owner damaged the common elements or property of the condominium. While these indemnification provisions are common in newer condominiums, they are often absent in older ones. It is important that boards and property managers review the governing documents to ensure there are appropriate indemnity clauses.
iii. Enforcement Costs
The third category is that of enforcement costs, often being the legal and other administrative costs which are incurred by a condominium in enforcing its declaration, by-laws, or rules as against a violating owner. The two cases referenced in the introduction to this article, being Amlani and Rahman, have cast doubt on the enforceability of chargebacks for enforcement costs alone, and there is still much debate on whether these costs can be charged back and become the subject of a lien under section 85 of the Act. The validity of such chargebacks can depend on a number of factors including the specific wording of the indemnification provisions of the condominium’s governing documents, and whether the Act requires that the underlying dispute first be adjudicated through mediation/arbitration, the Superior Court of Justice, or the Condominium Authority Tribunal (the “CAT”).
Conclusion
To answer the question ‘to chargeback or not to chargeback,’ each circumstance requires a review and that the board or manager ask themselves:
- Is this chargeback supported by the Act?
- Is this chargeback supported by this condominium’s governing documents?
- Does this chargeback first require the resolution of the underlying dispute?
If the chargeback can be sorted into one of these three categories and the appropriate procedure followed in each case, then condominiums can avoid, or limit, the sea of troubles Hamlet warned about.
Chargebacks, and potential liens for such, can be ambiguous and can come with strict timelines under the Act. If there is any ambiguity, it is important to seek the advice of your favourite condominium lawyer before steps are taken which may impact the validity of any chargeback or lien. Sorting out which category your condominium’s chargeback falls into is the first step to determining how to appropriately proceed.
*The content of this article is intended to provide a general guide to the subject matter and is not legal advice. Specialized legal advice should be sought regarding your specific circumstance.
