Legal mortgage: Can the syndicate recoup the costs?

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29 May 2017
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In a recent decision of the Court of Québec, Small Claims division¹, the Court found that the syndicate of co-owners was entitled to recover the reasonable costs of legal mortgage action against a co-owner who did not pay his contribution for the common expenditures.

The context according to the Court

The Syndicate claims $7901.41 from one of the co-owners of the building. The syndicate asks that the co-owner should be ordered to repay that amount to it, amount which represents the fees and extrajudicial costs of its lawyers. The syndicate has incurred these expenditures in its efforts to recover the regular condo expenses and a special contribution unpaid by the co-owner. The syndicate has issued a legal mortgage against the fraction of the co-owner and has served a notice of exercise of its right.
For his part, the co-owner defended himself, and said that he owed nothing to the syndicate because of Section 2762, paragraph 2, of the Civil Code of Québec, which reads as follows:
2762. A creditor having given prior notice of the exercise of a hypothecary right is not entitled to demand any indemnity from the debtor except the interest owing and the costs incurred. Notwithstanding any stipulation to the contrary, the costs incurred exclude extra-judicial professional fees payable by the creditor for services required by the creditor in order to recover the capital and interest secured by the hypothec or to preserve the charged property.
The questions of the Court

The Court considers that the main question is this: does the Syndicate have the right to recover the co-owner’s extrajudicial fees and disbursements incurred in enforcing the rights of the co-ownership?
The Court reminds the parties that the case-law trend² is to the effect of recognizing that contract clauses which provide for reimbursement of fees and expenses may be valid. It also recalled that the Court has power of control and will consider whether the costs incurred are reasonable, and that a deed of co-ownership is considered as being a contract. Moreover, the Court notes that there are examples of other cases involving deeds of co-ownership in which the clauses dealing with the fees and expenses of the syndicate were declared valid notwithstanding Section 2762, paragraph 2, of the C.c.Q.

However, the Court notes that the key is to know whether the deed of co-ownership provides via a clear provision to that effect. If the deed provides for it, and if the costs incurred are reasonable, the syndicate can demand repayment thereof by the co-owner. It points out to the parties that it is not normal that all of the co-owners shall bear the legal fees and disbursements incurred when it should take legal action against a co-owner who neglects or refuses to pay his share of the common expenses.

The Court is of the opinion that this kind of clause in a deed of co-ownership is justified so that the other co-owners will not be financially penalized by additional expenses incurred by the syndicate because of another co-owner who does not pay.
According to the Court the syndicate is not a traditional mortgage creditor who has the option of its debtor, and it is not in a position of strength against its debtor to the same degree as a bank, and the limitations imposed on a creditor by Section 2762 of the C.c.Q. do not take into account the relationship of a syndicate of co-owners and its co-owner. The Court believes that the intention of the law via this section is not to deprive the syndicate of co-ownership of the opportunity to be reimbursed for legal fees and disbursements, if the deed of co-ownership permits it.

The Court notes that the claim of the syndicate for unpaid common charges aims at amounts owed by the co-owner, which are essential for the conservation of the building, and that they are not the amounts due and unpaid under a loan from a bank.
Besides, the bank has the choice of its debtor in a business relationship, which is something that the syndicate of co-owners has not: it must receive its due from the co-owner, whether the latter is a good or a bad payer. It is through the fact of becoming a co-owner that people commit themselves to the syndicate to contribute to the charges.

This being said, the Court noted that the deed of co-ownership was amended by a majority decision of the assembly of co-owners to adopt a clause allowing the syndicate to recover the fees and other costs incurred for the registration of legal mortgages against the fraction of a co-owner who fails to pay his contribution to the costs for more than thirty days.

However, the Court notes that this amendment to the deed of co-ownership has no retroactive effect. Consequently, it cannot apply to legal fees and disbursements incurred by the syndicate in respect of that co-owner before the date of adoption of the amendment. Therefore, the amount that can be awarded to the syndicate must be reduced to $4,511.98, representing only the portion of the reasonable fees and expenses incurred in connection with the legal mortgage against the co-owner after the date of adoption of the amendment to the deed of co-ownership.

Consequently, the Court partially accepted the request of the syndicate, and ordered the co-owner to pay it the sum of $4,511.98 plus interest at the legal rate and the additional indemnity provided for in section 1619 of the C.c.Q and the court costs.

For any question concerning co-ownerships, as well as about real-estate law in general, do not hesitate to contact our team of lawyers specialized in the field.

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