by: Rod Escayola |
At about 9:30 Friday night, the province of Ontario issued an Order in Council suspending all limitation periods and all procedural deadlines to be taken in civil proceedings. While this was welcomed news for litigators in Ontario, it raised a vital question for condo lawyers:
Does this Order also suspends the 3-month deadline to register condo liens?
Stated otherwise, do condo corporations have more time to register their liens, giving owners who cannot pay their fees an extended break without losing its priority to collect later?
For those wishing a short answer: In our view, this Order in council does not extend the lien registration deadlines. For the #LawGeeks amongst you, we present below how we get to this conclusion.
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What are Orders in Council?
Orders in council are government orders recommended by the Executive Council. They are signed by the Lieutenant Governor. These have a wide variety of use but we see them most commonly used to bring a law or regulation into effect.
As set out in section 7.1 of the Emergency Management and Civil Protection Act, these orders can also “temporarily suspend the operation of a provision of a statute, regulation, rule, by-law or order of the Government of Ontario” and, if appropriate, it can “set out a replacement provision to be in effect during the temporary suspension period only”.
What Did this Order in Council Do?
Last week’s order in council read as follows:
- Any provision of any statute, regulation, rule, by-law or order of the Government of Ontario establishing any limitation period shall be suspended for the duration of the emergency, and the suspension shall be retroactive to Monday, March 16, 2020.
- Any provision of any statute, regulation, rule, by-law or order of the Government of Ontario establishing any period of time within which any steps must be taken in any proceeding in Ontario, including any intended proceeding, shall, subject to the discretion of the court, tribunal or other decision-maker responsible for the proceeding, be suspended for the duration of the emergency, and the suspension shall be retroactive to Monday, March 16, 2020.
For most litigators in Ontario, the message was clear:
- The first paragraph is suspending any limitation period;
- The second paragraph suspends deadlines to take steps in a proceeding (or intended proceeding).
Are deadlines to register lien suspended?
The question of whether this Order in council suspends or extends lien rights will depend on the answer to the following question:
Is the 3 month deadline to register a lien a limitation period or is it a procedural step taken in a proceeding or intended proceeding? In our view, it is neither of those.
What is a lien?
As our readers know already, the Condo Act provides corporations with an automatic and enforceable lien against defaulting owners. This lien automatically comes into existence upon an owner’s default to pay common expenses. However, for the lien to remain valid, it must be registered on title within three months of when the default first occurred. If the lien is not registered on title within this time frame, it expires. Or, stated otherwise, until registered, the lien can only protect 3 months worth of arrears. The lien right is therefore not “lost”. It rolls forward but only cover a 3-month window of arrears.
Once registered on title, the lien is a super-priority that trumps most pre-existing encumbrances (for example the condo lien will have a priority over an existing mortgage).
It is important to note that, regardless of whether a lien has been registered, the corporation has a claim to recover the arrears in court. Stated otherwise, a corporation who has not registered a lien can still commence a lawsuit and sue for the existing arrears (provided you do so within 2 years of the arrears). We note in passing that THAT is the limitation period.
What is a limitation period?
Oddly enough, there is no easy-to-go-to definition of what is a “limitation period”. It is not defined under the Legislation Act or under the Interpretation Act. It’s not even defined under the Limitations Act but what is clear is that the Limitations Act deals with “claims”. It sets statutory deadlines to commence claims (see s. 4 of the Act).
Various court cases have defined limitation periods as periods “circumscribing the right of action of citizens”. The Court of Appeal goes on to quote a limitation period as :
A stated period of time, the expiry of which extinguishes a party’s legal remedies and also, in some cases, a party’s legal rights.
In our view, the deadline to register a lien is not a limitation period in that a corporation’s right to claim arrears is not extinguished by its failure to register a lien within 3 months:
- The corporation always retains the right to sue for the arrears
- The corporation always retains the right to register a lien at a later point, but the lien will only cover three months of arrears.
The lien is not a substantive right per say. It strictly deals with setting priorities between competing encumbrances. It sets the starting point at which a corporation can claim a priority over a mortgage. It also serves to notify competing encumbrancers: ie, it tells the owner’s mortgage lender that a competing priority has been registered. It gives mortgage lenders the ability to preserve their priority (should they chose to do so) by redeeming the unit and pay the arrears.
In support of our position that the lien deadline does not constitute a limitation period is the fact that the Condo Act is not listed in the schedule appended to the Limitations Act. Indeed, the Limitations Act provides that any limitation not provided by either this Act or its schedule is of no effect. The Schedule then goes on to list all legislations having kept their own limitation period…. The Condominium Act is not listed in the schedule. The Mortgages Act is, but not the Condo Act.
In our view, the lien deadline is not a limitation period.
Are liens a procedural step in a proceeding?
Liens not falling under the first paragraph of the Order in Council, we must then turn our minds to the second paragraph:
Are liens a procedural step in a proceeding or anticipated proceeding?
Clearly, a lien is not a step in an actual proceeding. Where it gets murkier is whether it is a step in an “anticipated” proceeding. In our view, it is not. Many (if not most) liens situations are resolved without ensuing litigation. In fact, strictly speaking, a proceeding is not even required in cases where the unit goes to power of sale.
Under the Emergency Management and Civil Protection Act, the province was able to “temporarily suspend the operation of a provision of a statute, regulation, rule, by-law or order of the Government of Ontario”. It has chosen to do two very distinct and precise things, both related to civil proceedings:
- Suspend the limitation period
- Suspend procedural steps in proceedings
The fact that these two paragraphs are so closely related to proceedings supports, in our view, our conclusion that this Order in Council was not geared towards securities and encumbrances.
In our view, suspending civil proceedings was necessary as, without such suspension, Ontarians with a claim (an ongoing one or an imminently pending one) would have had to meet with their lawyers; attend the courts to file documents; attend discoveries/mediations, sign affidavits…. all steps (and many more) requiring face to face interactions with others.
The province could have suspended the lien period (or any period associated with securing encumbrance priorities). It opted not to do so. Perhaps in part because these steps don’t require such in-person interactions.
What should you do?
I realize everyone wants to help owners in these unpredictable and financially very difficult times. Many Ontarians are prevented to work and some have been laid off. This will undoubtedly create a very difficult situation for many. This is beyond regrettable.
However, the corporation must continue to operate. It must continue to pay utilities, municipal services an employees. It will continue to receive invoices. For the greater good of the collectivity, the Corporation must continue to collect common fees and to take any and all steps required to collect from each and every owner. To do otherwise could cause tremendous financial harm to corporations, who are not-for-profits, running on shoestring budgets. To do otherwise for the benefit of a few would put the greater collectivity at risk.
The question we are struggling with is not strictly limited to whether a corporation ought to give owners a break now. The question is what steps ought to be taken by corporations to preserve their ability to collect later when many creditors knock at the door of the defaulting owner. Keep in mind that 3 months down the line, when normal life resumes again, owners who have lost income will not be in a much better financial situation. The Corporation who was too patient/lenient will now have to fight with maxed-out credit cards and mortgage lenders. It is then that the Corporation will need, more than ever, the protection of a timely lien.
If it’s any consolation, the notice of lien (and lien) usually comes after nearly 3 months of default or non-payment. In most cases, a lien is not required immediately. Corporations should consider waiting things out, giving owners the time they need to get their financial affairs in order. But it should not, in our view, lose the statutory protection of liens.
We know this view is not popular. We also know it is not shared by all of our colleagues. In fact, there was quite the debate internally. Still, we continue to strongly recommend to all of our clients to continue to protect their corporation and the collectivity of owners in these difficult and uncertain times.
In another blog we will discuss whether this Order in council suspended deadlines to call/hold AGMs or to send PICs out… Spoiler alert: it does not.