September 16, 2021
Condominium corporations often take legal action against unit owners who have fallen behind on their condominium fees or have contravened the bylaws. Corporations usually try to collect their expenses (including legal fees) from the delinquent owner. Otherwise, all other owners (who are following the rules) must pay these expenses as a collective.
This post will summarize if condominium corporations can collect their legal fees from delinquent owners, how they can go about collecting legal fees, and provide some strategies and tips for successfully collecting those amounts.
How Can Condominium Corporations Collect Legal Fees?
- Condominium corporations are permitted to charge a delinquent owner the legal fees it incurred to fight with the delinquent owner. In other words, if you are a delinquent owner fighting with the condominium corporation, you could be on the hook for both your legal fees and the fees incurred by the corporation.
- The law is not yet settled whether the corporation can charge those legal fees to the delinquent owner as a “contribution”. Contributions are monies paid by unit owners to the condominium corporation (for example, as part of their condo fees or as part of a special assessment).
- In order to charge legal fees as a ‘contribution’ your Bylaws must contain language allowing the corporation to do so. It is important to review your bylaws and ensure they are up to date.
- Just because a corporation can charge legal fees, does not mean it can charge all its legal fees. How much of the legal fees depends on the bylaws and the circumstances of each case.
The Condominium Property Act and Monetary Sanctions
The Condominium Property Act gives a condominium corporation a general power to establish the condominium fees and contributions charged to each owner. If an owner fails to pay the condo fees, the Condominium Property Act gives the corporation the power to pursue the owner for the unpaid fees and to recover its legal expenses from that delinquent owner.
The Condominium Property Act also gives the corporation the power to impose reasonable monetary sanctions on a delinquent owner for failing to pay condominium fees or follow the bylaws. If a person fails to comply with the sanction, the corporation may take additional steps to enforce the sanction, such as bringing a lawsuit. The Condominium Property Act permits the corporation to recover the legal expenses it incurs to enforce that sanction from the delinquent owner.
How to Collect the Corporation’s Legal Expenses?
While the condominium corporation is entitled to collect its legal expenses from the delinquent owner, the law is not clear on how the corporation can collect. The Condominium Property Act does not specify if the corporation can charge those legal expenses as a “contribution” (i.e. by increasing just the delinquent owner’s condominium fees or by charging a special assessment only to the delinquent owner). This distinction can be important because if legal expenses count as a “contribution”, the corporation can recover them as part of a claim in rem (i.e. a claim against the property or condominium unit). Otherwise, a corporation is left only to recover legal expenses as part of a claim in personam (i.e. a claim against the individual unit owner personally).
There are tangible benefits to classifying the legal fees as a ‘contribution’ (or an in rem claim). Generally, it is better for the corporation if the legal fees are ‘contributions’ (in rem) because this allows the corporation to collect its legal fees from both the individual owner and from the equity in the property. If the legal fees are not classified as ‘contributions’, the corporation may only be able to collect against the individual. If the individual sells the property, goes bankrupt, or has no other assets, then the corporation may not be able to collect its legal fees.
Therefore, the question becomes: Can a corporation classify its legal fees as ‘contributions’? There are two lines of authority: one permitting a corporation to charge legal fees as a contribution and the other forbidding it.
Recovering Condominium Corporations Legal Fees as a Contribution
One line of authority, found in King and Seehra, concluded that a condominium corporation can recover legal fees from a unit owner as a “contribution”, but only if the bylaws explicitly allow for it. These cases suggest the corporation should adopt bylaws which: (i) explicitly allow the corporation to recover legal fees from the individual owner who caused the corporation to incur those fees, and (ii) to recover those legal fees as a “contribution” (i.e. as part of their condo fees) from only that delinquent owner.
The rationale underlying the King and Seehra decisions is that the Condominium Property Act does not expressly prohibit legal fees from being included as a contribution. As long as the bylaws permit it, the corporation can include its legal fees as a contribution, just like any other expense. However, it is important that the bylaws explicitly permit the corporation to charge legal fees as a contribution, to charge the legal fees from only that delinquent owner (as opposed to sharing the fees equally among all owners), and to claim all of the corporation’s legal fees (i.e. on a solicitor-client basis).
When Condominium Corporations Cannot Recover Legal Fees
The more recent cases of Bachand and Tutt suggest the opposite; a condominium corporation cannot recover legal fees from the delinquent unit owner as a “contribution”.
These cases interpret the Condominium Property Act as suggesting “contributions” do not and cannot include legal expenses. The Court found that the Act treats a corporation’s legal fees as a separate kind of expense and therefore legal fees cannot be charged as a “contribution”.
However, these cases do not explicitly overrule the King and Seehra decisions. Therefore, the law is not yet clear whether legal fees can always be charged as a ‘contribution’ and it will depend on the specific facts of your case.
What do the Bylaws say About Collecting Legal Fees?
What remains clear is that your bylaws are important. Regardless of which line of authority a Court follows, the first step is to ensure that the condominium corporation’s bylaws permit the corporation to charge legal fees as a “contribution”. The bylaws should also indicate those legal fees can be charged on a solicitor-client basis. Otherwise, a corporation may only be entitled to collect a portion of their legal fees from the delinquent owner.
If the bylaws are silent, it is unlikely the corporation can charge the legal fees back to the delinquent owner as a “‘contribution”.
Important Information for Unit Owners and Board Members of a Condominium Corporation
If you are a unit owner considering an action against a condominium corporation, or facing a threat or demand from the corporation, be aware that you may be on the hook for some or all of the corporation’s legal fees and those fees could be charged against your unit as a ‘contribution’.
If you are a board member of a condominium corporation, ensure the bylaws are up to date and permit the corporation to pursue delinquent owners for the corporation’s legal fees. However, do not take it for granted that the corporation’s legal fees are recoverable from the delinquent owner. In either case, realize that the law is unclear. Whether a corporation can successfully collect its legal fees from a delinquent owner is fact-specific and depends on multiple factors. If you would like to discuss your condominium bylaws or condominium disputes generally, please contact a member of the Carbert Waite Condominium Law Group
 RSA 2000, c-22, ss 39 and 42
 Ibid, ss 35 and 36