Can Condo Corporation recover legal costs?

J.S. writes:

Dear Paul:

Our condo corporation had to respond to a unit owner’s complaint made under the Human Rights Code. As a result, we incurred thousands of dollars in legal bills. It did not cost the unit owner anything. The case was dismissed by the Human Rights Commission and there was no settlement. The corporation is now faced with this huge bill. Can we recover these costs from the unit owner?

Paul replies:

Dear J.S.:

The first step would be to review your governing documents to determine if it contains a specific provision about recovering legal fees from an individual owner who files a claim against its own condo corporation and loses. If it does contain such a clause, then you are probably safe to proceed on cost recovery. However, the usual clause we will find concerns the recovery of common element fees, or costs associated with enforcing the Act, the Declaration, the Bylaws, and the Rules. It does not seem to extend to claims that would be made under legislation such as the Human Rights Code, commonly referred to as a tribunal. Naturally, if the condo corporation is at fault then no cost recovery would be involved.

In Canada, the English Rule applies. This is states that a judge in a court of law can award legal costs to the prevailing (winning) side. A review of a few cases revealed that not all costs are awarded outside of exceptional cases. Typical cost recovery is in the area of 40%-50%. By contrast, the American Rule states that each litigant pays its own costs. (Better to be in Canada).

When first presented with a claim, I would approach the unit owner on a personal level explaining what will happen if she should lose the case and the corporation proceeds to recover costs through the legal process. If there is a possible settlement the personal approach may solve the matter quickly.

The next step is to determine how the legal fees can be recovered. The easiest route would be to include the fees as a debt owed to the corporation and collected along with regular condo fees. Depending on the amount, it could place the unit owner’s account in arrears quickly. At this point, it may be time to file a lien against the property in order to guarantee that the corporation eventually recovers its money. All legal fees for filing a lien and discharging the lien will be paid by the delinquent unit owner.

At the same time a lien is being filed, I would consider mediation.  Participation in Mediation is voluntary,  but the outcome can be binding if the parties agree. This mechanism is less formal, does not need the intervention of lawyers, and less costly. The condo corporation that demonstrates honest efforts in pursuing this route may have a better chance at claiming costs later due to its concern in resolving the matter at the lowest level of outside legal intervention.

While one school of thought believes that legal fees are a normal cost of doing business, we must recognize that some claims will be frivolous and brought forward for vengeful, or retaliatory reasons. These need to be discouraged. The pursuit of legal costs recovery from the losing party will act as a deterrent. One-unit owner’s dissatisfaction should not create a financial burden for the rest of the condo community who, unless recovery is possible, will need to share in the additional expenses.

Having exhausted all other avenues, the court would be my last resort.

As with any case, the devil is in the details. Competent legal advice should be obtained since the process alone can sometimes derail the best cases.

A thought! Maybe we need to include a clause similar to the following in all condominium Bylaws or Rules. Language the language proposed below would it make it very clear and unambiguous that legal costs will be charged to the Unit owner in the event that they do not win their case. (Legal counsel would definitely need to be involved in drafting the appropriate language)

“A unit owner who files a lawsuit, claim, demand, or complaint pursuant to any federal or provincial legislation, or the common law, for damages in contract or in tort, or any other cause of action, including a complaint under human rights legislation, and whose claim is dismissed ,denied, or otherwise settled in favour of the condominium corporation, shall in addition to any amount owing to the corporation on account of common expenses, pay to the corporation any and all  costs whatsoever incurred in defending the action, and enforcing payment, whether by way of a lien, court action, or otherwise, and all such costs shall be recoverable from the owner of the Unit as if they were unpaid assessments of common expenses.”

I would encourage anyone who is interested in this matter to review:

The Condominium Act – Section 220-222 – Mediation and Arbitration;

The Condominium Act – Section 223-228 – Court Orders;

This Post Has One Comment

  1. Jim stuparyk

    Thanks for your response to this dicey question. Legals are fearful of claiming feed for unwarranted HR claims Resulting in corps eating self defense costs. A clear reverse discrimination when claims are baseless. HR will dismiss a claim but to my knowledge n never ruled it baseless or frivolous in order to cover their own ruling- this creating this legal circle.

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