Debt type determines ways to collect

Thursday, August 25th, 2016

BC has progressive and effective legislation for strata corporations to collect and secure debts that are owing

Tony Gioventu
The Province

Dear Tony:

Our townhouse complex has been using a collection service to deal with unpaid strata fees, special levies and fines.

A number of owners have complained about being harassed and bullied for fees they do not owe, or additional fees on top of what they owe, and council members are having a rethink about this decision.

Our management company offered to act as our collection agent, but has proposed that it retain a 40-per-cent fee of the amount owing in exchange for the collection. Could you write a column outlining the simple steps for collection fees from owners?

Glen J., Abbotsford

Dear Glen:

British Columbia has some of the most progressive and effective legislation for strata corporations to collect and secure debts that are owing.

There are fundamentally two types of debts owed by a strata lot: secured and unsecured.

Strata fees, special levies, interest authorized in bylaws or resolutions for special levies, and cost for work orders issued by an authority are debts that may be secured against a strata lot by filing a lien. A strata can also make an application to the Supreme Court of B.C. for an order for sale to pay those debts. When a lien is filed, the cost of the lien and the amount of the debt are secured as a priority above mortgages and personal debts.

If a strata lot is sold or forced into sale, after taxation matters are settled, the strata corporation is paid first, then any remaining funds satisfy the mortgage debts, loans or other charges registered on the title. This priority ensures the other owners don’t pay for the default and the strata recovers the debts without the requirement of other collections actions.

Fees like bylaws fines, user fees, damages and insurance deductibles are unsecured debts because they are allegations of a violation or cause of action resulting in a claim. The strata corporation is not allowed to file a lien for unsecured debts; however, it may start a court action, arbitration or make an application to the Civil Resolution Tribunal for a decision on the amounts owing.

Once the strata has a decision, you can register that decision on the title. Your strata can also withhold a Form F Payment Certificate required for a sale of a strata lot until the amount is paid or satisfactory arrangements for payment have been made.

Either option provides a strata corporation with secure economic collection solutions far below a 40-percent fee.

It is critical your strata maintain a monthly aging collections roster to make collection decisions before the two-year limitation period expires.

A strata corporation can negotiate additional service costs for management; however, it is not the manager collecting the fee, it is the manager acting as the agent of the strata corporation — therefore, the strata corporation collecting the fee. The amount collected is shown in the strata revenues, and any amounts paid for the collection services are shown in the expenses as set by the strata management service agreement.

Before your strata signs any service agreements or addenda, seek advice on the consequences of the agreements. Forty per cent of a $50 fine is $20. Forty per cent of an $18,000 special levy is $7,200, plus court costs, if necessary.

A valuable method of assessing fees and collection costs is to determine whether your strata council has the authority to spend the funds for the collection proceedings.

If they are not within budgets, special levies or the bylaws, your council may be authorizing a collection cost beyond your scope of authority.

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