A recent ruling by an Ontario Superior Court judge has the potential to significantly alter how condominium corporations in the province recover legal fees from unit owners, challenging a long-standing practice that effectively allowed legal costs to function as fines. The decision, issued on August 7 by Justice Edward Iacobucci, clarifies that legal fees cannot be added to common expenses owed by condo owners without a court order, a shift that could curb the use of legal letters as enforcement tools.

In Ontario, condominium law does not permit corporations to impose fines on owners for violations of bylaws or rules, a contrast to other provinces such as British Columbia. However, since a 2008 ruling in Italiano v. Toronto Standard Condominium Corporation No. 1507, condo boards have been able to treat legal fees incurred for enforcement actions as common expenses. Because all owners must pay common expenses, this mechanism effectively allowed legal letters—costing hundreds or even thousands of dollars—to pressure owners into compliance on issues like smoking bans, pet restrictions, or short-term rental prohibitions.

Legal letters, typically sent by lawyers on behalf of the condominium corporation, served as a costly deterrent. “The condo industry has been sort of spoiled; they’ve been able to get away for too long with the concept that they could send a legal bill and it would get paid,” said Rod Escayola, a partner with Stack Condo Law. Escayola noted that no other industry permits one party to retain lawyers and expect the other party to bear those costs without recourse.

The August ruling arose from a case involving enforcement of a short-term rental ban. Justice Iacobucci’s decision reaffirmed that unless a court specifically authorizes the charging of legal costs as common expenses, such fees cannot be unilaterally appended to owners’ accounts. This reverses the previous interpretation that allowed legal fees to be automatically treated as common expenses.

Legal experts point to unintended consequences of the prior approach. Bradley Chaplick, a lawyer specializing in condo law, indicated that the practice sometimes led to misuse, with owners being charged legal fees even when no actual breach had occurred. “Some condo boards had bad judgment and would use lawyers’ letters to impose financial hardship on perceived political ‘enemies’ in the condo,” he said, noting that fees for letters could range from $500 to $800, potentially accumulating to thousands.

The ruling has drawn mixed reactions from industry professionals. Dean McCabe, president of the Meritus Group, a condo management company, expressed concern over enforcement challenges, explaining that letters from management are often ignored until legal action is threatened. He said legal cost threats frequently succeed in resolving compliance issues without litigation. “Well over 95 per cent of cases do not end up in litigation,” McCabe said. “It ends in a broken relationship, where owners grudgingly pay or refuse and the condo eventually writes it off.”

This latest ruling echoes a 2020 decision in Amlani v. York Condominium Corporation No. 473, which similarly questioned the automatic imposition of legal fees but failed to transform industry practices. Escayola commented that despite that precedent, many condominium boards continued the practice of sending legal letters with fees.

While the new ruling restricts adding legal fees to common expenses without court approval, the practice may still persist in other contexts. Denise Lash, founder of Lash Condo Law, explained that liens for common expenses, including legal fees related to repairs or collections, can still be registered without a court order. However, owners may challenge the reasonableness of those fees through court applications, though doing so can be costly and complicated.

Overall, the ruling signals a tightening of legal standards for condominium corporations seeking to recover enforcement expenses, potentially reducing the use of legal fees as a de facto fine. Yet, some legal fees may continue to be recorded as debts if validated by judicial review, leaving room for ongoing disputes between condo boards and owners.