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Rebellious co-owner: penalty clauses, clause of interests and indemnity

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Rebellious co-owner: penalty clauses, clause of interests and indemnity

Wednesday, 12 March 2014 16:29

Rebellious co-owner: penalty clauses, clause of interests and indemnity

Keywords: declaration – condo – act – uncooperative coowner – divided co-ownership – penal clause – interest rate – collection – common expenses – by-laws – injunction – unpaid common expenses

The declaration of a divided co-ownership contains three sections, the act constituting the coownership, the by-laws of the immovable and the description of the fractions (Art. 1052 to 1055 of the Civil Code of Quebec).

The Civil Code of Quebec establishes unequivocally the enforceability of the declaration of co‑ownership to a co-owner of the immoveable, upon the registration of the declaration of co‑ownership at the Land Registry Office of Quebec (art. 1062 of Civil Code of Quebec).

Divided co-ownership is governed by the Civil Code of Quebec from articles 1038 to 1109. These rules are completed by the declaration of co-ownership specific for each immovable.

At the occasion of a unit sale into a condo, the notary mandated for the sale will provide to the new co-owner a copy of the declaration of co-ownership and the bylaws and regulations adopted and filed in the Register of the co-ownership since the registration of the declaration of co-ownership. A clause specifying that the new co-owner will comply with the rules of the co-ownership is usually inserted in the deed of sale, retaking the words of article 1063 of the Civil Code of Quebec, which reads as follows:

« 1063. Each co-owner has the disposal of his fraction; he has free use and enjoyment of his private portion and of the common portions, provided he complies with the by-laws of the immovable and does not impair the rights of the other co-owners or the destination of the immovable ».

In several cases brought before the courts, the Court states that the divided co-ownership of immovable is a place of compromise. It recalls that it is a choice to live under the divided co-ownership and it has some advantages and disadvantages.

Moreover, before seeking enforcement measures against a co-owner in order to make him comply with the rules of the declaration of co-ownership, one has to make sure to avoid disputes by making sure that the rule complies with the principles of article 1056 of the Civil Code of Quebec, which reads as follows:

« 1056. No declaration of co-ownership may impose any restriction on the rights of the co-owners except restrictions justified by the destination, characteristics or location of the immovable. »

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For example, in application of the article 1056 of the Civil Code of Quebec, the Court has recognized the validity of a clause in the declaration of co-ownership, establishing a general standard soundproofing regulation of floors of condo units and prohibiting the installation of any new floors below of this standard [1].

Also, the Court has already judged reasonable the restrictions under a declaration of co-ownership adopted to maintain harmony in the appearance of the terraces of the building [2].

The declaration of co-ownership as a whole and his extrinsic elements will enable the Court to determine the destination of the immoveable and to justify or not the validity of the restrictions to the rights of a co-owner [3]. One of the most conflicting restrictions is certainly the imposition of penalty clauses.

Nature of the penal clauses

Penal clauses have a preventive character used to ensure compliance with the rules laid down in the declaration of co-ownership. The amount imposed as a penalty must be high enough to dissuade the co-owners to break the rules, but should not shy away from equity. In Court, fairness is established by the balance of a prejudice “Prima facie” suffered by the Syndicate and the total amount of the penalty claims against the co-owners [4].

In addition of the imposition of a penalty clause, if the co-owner still does not comply with the rules of the declaration of co-ownership after being informed of the application of penalties, the Syndicate may apply to the Court for an injunction to force the co-owner to comply.

If the co-owner still does not comply or fails to comply with an injunction rendered by the Court and if the Syndicate suffered of a serious and irreparable damage cause by this violation or disobedience of the co-owner, the Syndicate may request the Court to order the sale of the co-owner’s fraction (article 1080 of the Civil Code of Quebec).

In the context of the present text, we will discuss the practical rules surrounding the application of penal clauses in co-ownership and we will make the distinction with those clauses imposing an interest rate for unpaid common charges.

 

Penal clause

Once he his informed of the fault and/or refusal of a co-owner to comply with one or more rules listed in the declaration of co-ownership, the Syndicate may, by a penal clause provided in the declaration of co-ownership claim penalties to the defaulting co-owner. This will be done after informing the co-owner, preferably by writing, of his failure and have ordered to comply within a specified time period, showing him the beginning of the period of application of penalties. The information regarding the default of a co-owner can take the form of a Notice or Demand letter.

The courts do not seem to have adjudicated on the requirement or not to proceed with a modification of the act constituting the co-ownership for the validity of a penalty clause contained in the declaration of co-ownership. We believe that the powers of the administrators of a Syndicate to impose penalties should be included in the act constituting the co-ownership and this clause should refer to the by-laws of immovable for the details and procedures of penalties, including the amounts of penalties. In this purpose, your legal counsel could provide you advice and propose choices of penalty clauses.

If your declaration of co-ownership does not contain a clause empowering the administrators to impose penalties, it will be possible to adopt one by getting a majority vote (50% +1) of the co-owners representing 75% of the votes of all co-owners at a meeting called for that meaning. Once the vote obtained, it must, by notary act, modify the act constituting the co-ownership to include the power of the Board of Directors of the Syndicate to impose penalties according to the rules contained in the by-law of immoveable. Then, the amendment to the act constituting the co-ownership shall be published at the Land Registry Office of Quebec.

Regarding the details and terms of the new penal clause, they will be adopted by regulation and by ordinary resolution at a meeting of co-owners duly called, by a majority vote (50% + 1) of the co- owners present or represented at such meeting. Then, the modification to the by-laws of the immoveable must simply be filed in the register of the Syndicate, without no need to be published at the Land Registry Office of Quebec (art. 1060 al.1 fine in the Civil Code of Quebec).

The discouraging nature of a penalty clause is useful in co-ownership to allow the respect of the rules applicable. In some cases, it avoids the Syndicate the need to apply to the Superior Court for an injunction against the defaulting co-owner.

The Syndicate of co-ownership could apply to the Quebec Court Small Claims Division to claim the amounts of penalties if the amount does not exceed $ 7,000. It should be noted that according to Bill no. 28 establishing the new Code of Civil Procedure adopted on February 20th 2014, the jurisdiction of the Court of Quebec Small Claims Division will increase from $ 7,000 to $ 15,000 from the fall 2015.

The Syndicate of co-ownership has three (3) years from the date of imposition of the penalty to file a demand in Court against the co-owner personally for the outstanding amount of the penalty, as prescribed under section 2925 of Civil Code of Québec.

 

Interest rates and indemnity and unpaid common expenses

At the difference of penalty clauses, the interest rate in co-ownership generally applies when the co-owner is in default to perform his obligation to pay the common expenses attributable to his fraction.

The article 1617 of the Civil Code of Quebec provides the following:

« 1617. Damages which result from delay in the performance of an obligation to pay a sum of money consist of interest at the agreed rate or, in the absence of any agreement, at the legal rate.

 

The creditor is entitled to the damages from the date of default without having to prove that he has suffered any injury.

 

A creditor may stipulate, however, that he will be entitled to additional damages, provided he justifies them. »

 

The interest rate should be indicated as an annual basis. Otherwise, the interest rate will be 5% per year (article 4 of theInterest Act).

The coowner in default to pay his common charges will be in formal default when the period granted by the Syndicate to pay his common charges has expired (article 1072 C.C.Q). For this, if nothing is provideb by the declaration of co-ownership on this matter, the Syndicate shall notify to the co-owner the delay granted in order to pay his common expenses. The preparation by the Syndicate of an Notice of Assessment and / or detailed bill is important in the recovery of common expenses.

The rules regarding the recovery of common expenses are contained in the declaration of co-ownership in the section entitled by-laws of the immovable (article 1054 al. 2 of the Civil Code of Quebec). Your declaration of co-ownership should include an interest rate applicable to unpaid common charges. If your declaration of co-ownership is silent, the applicable interest rate will be the legal rate. The legal rate is currently at 5% per annum and in the context of a legal suit, it will be possible to add to the claim an additional compensation under the article 1619 of the Civil Code of Quebec, currently equivalent to 1 % per annum. The legal rate will be applicable from the Demand letter or the Motion to instituting proceedings. The interest applied to an unpaid amount shall not exceed 60% per year, which is the criminal rate under the article 347 of the Criminal Code, RSC 1985, c C-46.

To modify the interest rate specified in the declaration of co-ownership, it will be possible to do so by simply changing the by-laws of the immoveable by getting a regular decision of a meeting of co-owners duly called on this meaning, by a majority vote (50% + 1) of the co-owners  present or represented at such meeting. Then, the modification of the by-laws of immoveable shall be recorded in the register of the Syndicate, without needing to be published at the Land Registry Office of Quebec (art. 1060 al.1 fine in the Civil Code of Québec).

This being said, your declaration  of co-ownership could also provide an indemnity clause covering to claim expenses reasonably incurred for the recovery of unpaid common expenses by a co-owner, in accordance with article 1617 al.3 of the Civil Code of Quebec. Your legal counsel could propose you the content of a clause of interest and indemnity.

The collection of common expenses and of the interest rate must be exercised in court within three (3) years following the date of unpayment by the co-owner, according to the prescription provided at the article 2925 of the Civil Code of Quebec. For more information about the possible remedies for the recovery of common expenses in divided co-ownership, please visit our text entitled How To Collect Condo Fees / Recourses For Collecting Regular And Special Assesments.

*** This text contains general information and is not an exhaustive list of rules surrounding the penalty clauses and the recovery of common expenses in co-ownership. For specific application cases, a consultation with your legal counsel is recommended ***

[1] Marcotte c. Syndicat des copropriétaires La Maison Amyot 2011 QCCS 3044 (S.C.)

[2] Association des copropriétaires de Valbourg II c. Forget REJB 1999-11186 (S.C.) and Syndicat des copropriétaires de Trillium Court Condominium c. Ouellette 1998 AZ-98022137 (S.C.)

[3] Ibid note 1

[4] Vacher c. Ciesielski 2012 QCCS 3819 (C.S.) confirmed by the Appeal on December 9th 2013.

 

Last Updated on Friday, 15 August 2014 15:28

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