Volume 25, Issue Number 3, Spring 2021
Financial Matters

The Future of the Chargeback

The Impact of Case Rulings

By Jason Rivait, Justin McLarty | Other articles by Jason Rivait, Justin McLarty

Case Law and Differing Interpretations of the Impact of Rulings in Chargeback Cases

There have been plenty of articles written about chargebacks within the past year. Much of the discussion has revolved around case law and differing interpretations of the impact of the rulings in those cases.

Amendments to Section 84 of the Condominium Act, 1998 (the "Act") are not yet in force, but will drastically alter how condominium corporations process chargebacks. These amendments will hopefully clarify murky case law and some longstanding uncertainties. At this point in time, this is what we know (again, these are amendments to Section 84 of the Act, which are not yet in force):

The Chargeback Process
If the condominium corporation is charging back an owner, it must provide the owner with notice of such chargeback within 15 days of adding the amount to the contribution to the common expenses for the unit. The key word of the previous sentence is within (not prior to). Similarly, the owner must do any of the following within 30 days of receiving the chargeback notice:

1. pay the chargeback; or
2. if the owner transfers the unit within the 30 day time period, then:
   (i) the owner must ensure that the amount of the chargeback is held in escrow; and
   (ii) give notice to the condominium corporation that the amount of the chargeback is being held in escrow; or
   
3. apply to the Condominium Authority Tribunal (the "CAT") if they wish to challenge the chargeback.

If an owner applies to CAT for resolution, then they are exempt from paying the chargeback unless a settlement is made or a final order of the CAT is made.

If an owner ceases to be exempt (for example, if the dispute is not moved along the CAT process by the owner), then the condominium corporation must send the owner another notice specifying a time by which the owner is required to remit payment.

Any notice that is sent to the owner relating to a chargeback must specify a time by which the owner is required to pay the amount in accordance with the regulations.

Date of Chargeback
There are some longstanding questions regarding the date of the chargeback (or the date of default pertaining to a chargeback). Is it the date of the incident, the date of the invoice, the date of the demand for payment or the date it is added to the unit ledger?

An owner who does not pay the chargeback or apply to CAT within the required timeframes is deemed to be in default. In this regard, the owner has 30 days to make payment or otherwise apply to CAT for resolution, failing which they are in default and the clock starts ticking from that day for registration of lien purposes.

When dealing with a transfer, if the owner does not hold the money in escrow and does not give notice to the condominium corporation that this is being done, then such owner shall be deemed to have been in default on a date that is before the closing of the transaction. This provision is obviously going to be a bit tricky to deal with, so it will be interesting to see if there are any further regulations to clarify the process and timeframes.

Chargeback Form
It is likely that the regulations will set out the details to be included in the chargeback notice. This could be a notice from the condominium corporation, such as a demand letter that includes the date of charge back, which describes the incident and provides legal justification for the chargeback. Alternatively (and more likely), the regulations may prescribe a "chargeback form" that is more plug and play (similar to a proxy form). The thought of another form may make many in the industry cringe, but this could be the one form that many in the industry welcome.

What is a "Prescribed" Chargeback?
There are undoubtedly some outstanding questions surrounding a "prescribed" chargeback. We know that certain Sections of the Act such 92 (repairs), 98 (alteration agreements) and 105 (insurance deductibles) expressly provide the right to chargeback owners for certain expenses. The amendments to the regulations, however, make it clear that Section 98 issues will not be decided at CAT. Prior to 2020, case law had seemed to establish that condominium corporations could charge back for its reasonable legal costs to obtain compliance. More recently, the case law has muddied the waters on whether condominium corporations may charge back these costs. One has to wonder whether compliance letter costs will be included in any definition of a prescribed chargeback. If not, then condominium corporations will have to continue to rely on unclear case law and indemnification provisions to continue to chargeback these costs.

Indemnification Provisions
With respect to indemnification provisions, we question whether there would be value in establishing a standard indemnification provision by way of regulation that applies to all condominium corporations across Ontario. These provisions are heavily relied upon when dealing with damage to property caused by residents (which is a common chargeback) and all indemnification provisions are not made the same.

If the Province created a clear and cogent indemnification provision, then condominium corporations could avoid having to rely on inconsistent case law and the differing interpretations of indemnification provisions. The obvious concern will be that the number of CAT cases will exponentially grow. Boards will need to grapple with their duties to enforce compliance and the costs of achieving such compliance. That is a much larger conversation for a different day.

Settlement Agreements
What is interesting about the new Section 84 of the Act is that there is reference to a settlement agreement between the condominium corporation and owner regarding chargebacks. Specifically, if an owner makes an application to CAT to dispute the chargeback, then the owner is exempt from making payment unless a settlement agreement is entered into or a final order of the CAT is made.

This could provide condominium corporations and unit owners some leeway and flexibility to enter into settlement agreements to payback a large chargeback over the course of multiple months. In normal course, we would caution Boards about these settlement agreements, as they may limit a condominium corporations ability to lien if the settlement agreement is not complied with and the original date of default is beyond three months. For example, if payment is to be spread over a five month period and the owner stops payment after three months, can a condominium corporation lien for the remaining two months (knowing that it has already been three months from the original date of default)?

There is still much to uncover with respect to the new chargeback process, and we are not entirely certain whether settlement agreements are expressly permitted if the CAT process is not triggered. The good news is that there is at least some reference to settlement agreements. Our hope is that this is clarified through further regulation(s) and that owners and condominium corporations are permitted to enter into settlement agreements irrespective of whether the CAT process is triggered. This could have been particularly useful during the dark days of the pandemic.