Maintaining a legally unenforceable caveat on title to a condominium unit: Should this be permitted?

In the recent Alberta Court of King’s Bench decision The Owners: Condominium Plan No. 9311533 v Shui Ming Tong Foundation, the Applications Judge was asked to determine two questions:

1. Whether a unit owner is entitled, by operation of the Limitations Act, RSA 2000, c L-12 (the “Limitations Act”), to immunity from liability for unpaid contributions which arose more than two years prior to legal proceedings being commenced against them;[1] and
2. Whether, if some of the contribution arrears are limitations barred, can a condominium corporation still maintain a caveat registered against the owner’s certificate of title notwithstanding that all contribution arrears which are not limitations barred have been paid.[2]

The facts of this decision are uncomplicated.  The defendant unit owner fell into arrears in February 2017.  The plaintiff condominium corporation (the “Corporation”) filed a caveat, pursuant to section 39.2(6) of the Condominium Property Act, RSA 2000, c C-22 (CPA), to create a charge against the defendant owner’s unit for the unpaid contributions plus accrued interest in March 2019.  It was not until April 2022, almost three years after the plaintiff condominium corporation filed its caveat, that a foreclosure action was commenced.

The Corporation argued that it should be entitled to foreclose on all unpaid contributions (plus accrued interest) “secured” by its section 39.2(6) caveat, including contributions which were more than two years in arrears.  The Court disagreed and found that the defendant unit owner was entitled to immunity from the Corporation’s claims for arrears which accrued more than two years prior to the commencement of the Corporation’s foreclosure action.  As set out in s. 39.2(8) of the CPA, a s. 39.2(6) caveat is enforceable in the same manner as a mortgage. Following the 2005 decision of the Alberta Court of Appeal in Daniels v. Mitchell, 2005 ABCA 271 in the mortgage context, where it was held that claims against borrowers by mortgagees are limitations barred if not commenced within two years of default, the Court confirmed that the approach adopted in Daniels with respect to mortgage foreclosures also governs the situation with respect to condominium arrears proceedings, whether or not the condominium corporation’s caveat persists. [3]

This finding serves as a firm reminder that condominium corporations must diligently collect unpaid contributions and commence an action to collect the same within two years of the arrears first arising.

Notwithstanding the fact that part of the Corporation’s claim was limitations barred, the Court nonetheless held that the Corporation was entitled to maintain the s. 39.2(6)caveat it filed against the defendant owner’s title until all arrears were paid, including arrears that accrued more than two years prior to the Corporation’s action.[4]   The Court supported its finding in this regard by concluding that limitations barred arrears are still an “amount owing” to a condominium corporation and that, pursuant to section 39.2(4) of the CPA, condominium corporations are given a statutory right to garnish rental income where a unit is rented to a tenant, which right does not require a “remedial order” and is therefore not captured by the provisions of the Limitations Act.  That is, condominium corporations are entitled to garnish rental income to the credit of arrears without a Court order.

There is a policy and legal argument to consider as to whether a condominium corporation should not be permitted to maintain its s. 39.2(6) caveat.  Previous case law has found that even where claims under a mortgage are limitations barred, where the mortgage contains an assignment of leases and rents a mortgagee’s mortgage can remain registered against title to protect the assignment.[5]  However, in those cases, the assignment of rents, which is likewise enforceable without a court order, was inextricably tied to the mortgage document itself by contractual obligation.  Therefore, to protect the mortgagee’s assignment, courts have permitted the mortgage to remain registered against title.

A condominium corporation’s right to garnish rental income pursuant to s. 39.2(4) is not so intrinsically linked to the s. 39.2(6) caveat.  That is, the caveat does not protect the right to garnish rental income.  Within the framework of s. 39.2 of the CPA, a condominium corporation’s statutory right to claim an assignment of rent arises and exists independently of its right to register a section 39.2(6) caveat.   In this regard, the decision in Daniels as well as section 106(1)(c) of the Land Titles Act, RSA 2000, c L-4 should govern, the latter of which provides that once a mortgage or encumbrance is unenforceable by reason of the operation of the Limitations Act it shall be discharged from the land:

Discharge of mortgage or encumbrance

106(1)  The Registrar shall discharge a mortgage or an encumbrance wholly or in part, or the land comprised in it wholly or in part, according to the tenor of the discharge, and shall make an entry of the discharge on the certificate of title affected by the discharge, in any of the following cases:

…

(c)    on the production of a certificate signed by a judge certifying that the right of any person to recover any money secured by the mortgage or encumbrance has been extinguished by reason of the operation of the Limitation of Actions Act, RSA 1980 cL?15, or is unenforceable pursuant to an immunity from liability established under the Limitations Act.

There is also an outstanding question of whether, from a policy perspective, a condominium corporation should be entitled to garnish limitations barred arrears, whether pursuant to a s. 39.2(6) caveat or under a s. 39.2(4) garnishment of rental income.  The Supreme Court of Canada has identified the underlying rationale of statutory limitations as consisting of three components: certainty, evidentiary, and diligence rationales.[6]  These three underlying rationales can be summarized as follows:

1. Certainty: There comes a time, it is said, when a potential defendant should be secure in his reasonable expectation that he will not be held to account for ancient obligations.[7]
2. Evidentiary: Evidence can become “stale” with the passage of time, the fading of witness memory and there has to come a point when potential defendants should no longer be concerned about the preservation of evidence.[8]
3. Diligence: Plaintiffs are expected to act diligently and not « sleep on their rights. » Statutes of limitation are an incentive for plaintiffs to bring suit in a timely fashion.  This accords with a public policy rationale as well, in that it is a poor spending of limited judicial resources to attempt to adjudicate ancient claims.[9]

Condominium corporations are reliant on owners paying their contributions when assessed and levied to maintain sufficient cash flow to carry out their ongoing obligations.  It is difficult to see any rationale as to why condominium corporations should be treated any differently from other civil litigants for the purposes of limitations.  As with any potential plaintiff, where a condominium corporation has a claim against an owner for the non-payment of condominium fees, the corporation should not be permitted or even encouraged to sleep on its enforcement rights, potentially allowing “ancient” arrears to continue to accrue interest, which may add up to astronomical sums over the course of time.  Considering the importance of the timely payment of contributions by all owners, this issue warrants further judicial consideration, or perhaps the CPA should be amended to clarify the meaning of s. 106(1)(c) of the Land Titles Act in respect of s. 39.2(6) caveats and the application of the Limitations Act thereto.

If you have any questions about condominium-related issues, please reach out to a member of Miller Thomson’s Condominium & Strata Group.

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[1] The Owners: Condominium Plan No. 9311533 v Shui Ming Tong Foundation, 2022 ABKB 826 at paras 1-2 (Shui Ming Tong Foundation).

[2] Shui Ming Tong Foundation, ibid at para 3.

[3] Shui Ming Tong Foundation, ibid at para 19.

[4] Shui Ming Tong Foundation, ibid at para 28.

[5] See Orr v. Orr, 2015 ABQB 136 at para 13, citing David M. Gottlieb Professional Corp. v. Nahal, 2014 ABQB 271.

[6] K.M. v. H.M.; WOMEN’S LEGAL EDUCATION AND ACTION FUND (Intervenor), 1992 CarswellOnt 841, at para. 21

[7] Ibid, para. 22

[8] Ibid, para. 23

[9] Ibid. para. 24