Strata Solutions: How New Legislation Affects Claiming for Unpaid Debt

FirstService Residential
August 20, 2015

When dealing with most legal issues in strata corporations, the first place to look for guidance is the Strata Property Act. However, other legislation can have a significant impact on the business of strata corporations. The Limitation Act, 1996, c. 266 (the "current LA") is one such piece of legislation.

The current LA sets out the limitation period, which is the time period that an individual (including a strata corporation) has to file a civil claim, such as collecting a debt. Under the current LA, different causes of action or types of lawsuits have different limitation periods, which are generally two, six or 10 years. The limitation period begins to run on the date on which the person has the right to bring an action. In certain circumstances, the start of the limitation period can be postponed.

In an effort to standardize limitation periods across Canada, the current LA is being replaced with the Limitation Act, 2012, c. 13 (the "new LA") effective from June 1, 2013.

Stratas’ Time to Claim is Getting Tighter

Most strata corporations would not have taken much notice of the limitation periods in the current LA unless faced with a major lawsuit. It will likely come as a surprise to most strata corporations and property managers that there is even a time limit to collect a debt. Under the current LA, the limitation period to collect a debt is six years, which is a long time to allow strata fees to remain unpaid, so for the most part, strata corporations would have initiated proceedings long before the limitation period expired.

That’s all about to change. Section 6 of the new LA sets the basic limitation period for most claims, including a claim in debt, to two years. Two years is not a long time to allow strata fees to remain unpaid, and it often takes more than two years from the time the owner stops paying strata fees for the strata corporation to make the decision to initiate proceedings. As a result, strata corporations are going to have to take a different approach to the collection of their debts.

So far, we have only mentioned the collection of strata fees; however, under the new LA, the collection of ALL monies owing to a strata corporation will be subject to a two-year limitation period. These debts could include outstanding strata fees, outstanding special levies, interest, insurance deductibles, NSF charges, administration charges, lien filing fees, gas charges, move-in fees, key fob fees, parking fees, chargebacks (damage caused by the owner), repairs below the insurance deductible, legal fees charged pursuant to a bylaw, the costs of remedying a contravention and any other fines.

While the above list is not exhaustive of the types of debts that would be subject to the new two-year limitation period, it is important to emphasize that the limitation period is the same for any and all of the above types of debts.

Transition: Which Debts Are Due When?

The new LA is enforced from June 1, 2013, which means that all causes of action that accrued on or before May 31, 2013, are subject to the limitation periods in effect under the current LA. Any cause of action arising on or after June 1, 2013, will be subject to a limitation period of two years.

In terms of strata fee/debt collections, this means a strata corporation has six years to collect all debts that are due and owing on or before May 31, 2013. For any debts that come due and owing on or after June 1, 2013, the strata corporation will only have two years to start a lawsuit to collect the debt.

Although determining the limitation period for strata fees and special levies will likely be easy, since the due date for strata fees is usually set out in the bylaws and the due date for special levies must be set out in the three-quarter vote resolution, not all charges to an owner’s account will be clear. For example, if the bylaws are silent on when payment of a fine is due, when does the limitation period start?

  1. The date of the council meeting at which the council makes the decision to levy the fine;
  2. The date of the letter notifying the owner of the fine; or
  3. The date the fine is levied on the owner’s account.

Because of the uncertainty of the due dates of some of the charges on an owner’s account, legal advice may be required to determine the limitation period applicable for certain charges.

Collection Methods

Given the change to a two-year limitation period, a strata corporation will have to diarize their outstanding accounts to allow enough time to decide whether legal proceedings will be started and to initiate those legal proceedings before the limitation period expires. Here are some options for collecting outstanding debts:

  1. Initiate court proceedings to collect the money;
  2. Write it off; or
  3. Engage the payee to make a partial payment to reset the limitation period.

Since different types of receivables may require different kinds of legal action, the strata corporation should consider obtaining legal advice to assist in making the decision. Where the receivable is small, such as a $200 fine for a bylaw contravention, it may make sense to write it off if the owner does not acknowledge the debt. On the other hand, if the money owed is $1,000 in strata fees, the strata corporation may want to proceed with legal action to prevent other owners from defaulting on fees on the assumption that the corporation will write it off.

If the debts fall under the current LA, a strata corporation may want to consider waiting until the arrears reach about $5,000 before initiating legal proceedings. However, with the level of strata fees in some strata corporations, it may take longer than two years of not paying strata fees to reach that threshold. Because of this, the limitation period for any arrears older than two years would expire and the arrears of strata fees might never reach the threshold.

In such circumstances, it might make sense to start forced sale proceedings. The strata corporation could start the proceedings, but not serve the initiating documents (petition and affidavit), on the owner and other respondents immediately. Under the Supreme Court Civil Rules, the strata corporation has 12 months to serve the petition. This gives the strata corporation a further 12 months to accumulate arrears to a threshold amount that makes the court proceedings cost effective. In addition, the strata corporation could serve the proceedings and allow time to pass before setting a court date to obtain the order for sale of the strata lot. Again, this buys the strata corporation some more time to make the forced sale proceedings more cost effective.

FirstService Residential
FirstService Residential in British Columbia is a subsidiary of FirstService Corporation, a global leader in the rapidly growing real estate services sector, one of the largest markets in the world. As the leading property management company in North America, FirstService Residential oversees more than 6,500 residential and commercial associations including 1.5 million residential units and over 50 million square feet of commercial space across three provinces in Canada and 21 U.S. states. The company has more than 12,000 employees driving local market expertise and manages in excess of $6 billion in annual budgets.