When Owners Fall Behind: The Hidden Cost of Strata Fee Arrears

A strata corporation can approve a perfectly reasonable budget and still run into a cash-flow problem.

Why?

Because a budget assumes the money will actually arrive.

When an owner stops paying strata fees or a special levy, the strata's expenses do not stop.

Insurance still has to be paid. Contractors still send invoices. Utilities remain due.

One overdue account may seem insignificant at first. Several overdue accounts can quickly become a problem for the entire community.

That is why a good collection process should be consistent, documented and started early.

How Long Does a Strata Have to Collect Unpaid Fees?

This is one of the most important things for councils to understand.

In British Columbia, the basic limitation period for debt collection is generally two years. For strata corporations, the Province specifically notes that debts such as unpaid strata fees and special levies are generally no longer collectible after that two-year period.

That does not mean council should wait anywhere close to two years.

Limitation periods can involve legal considerations about when the debt became due, acknowledgements of debt and collection proceedings. If an account is approaching the limitation period, legal advice should be obtained.

The practical lesson is simple:

Do not allow unpaid strata fees to sit unattended.

A small overdue balance is usually easier to resolve than an account that has been ignored for a year.

A Practical Three-Stage Collection Process

The Strata Property Act does not require councils to send three reminder letters before taking action. However, a staged collection process can be an effective way to resolve accounts while treating owners fairly and consistently.

A straightforward process might look like this.

Stage 1: The Friendly Reminder

When a payment is first missed, start with a simple reminder.

Payments can be missed for ordinary reasons. An owner may have changed bank accounts, forgotten to update a pre-authorized payment or simply overlooked the due date.

The first notice can be courteous and factual:

• Identify the outstanding amount

• Explain what the amount relates to

• Provide the original due date

• Explain how payment can be made

• Ask the owner to contact management if they believe the account is incorrect

The objective at this stage is not confrontation. It is to get the account back on track quickly.

Stage 2: The Second Notice

If payment is still not received, the next notice should be more direct.

It should make clear that the account remains overdue and that continued non-payment may result in additional collection action.

Council or management should confirm:

• The total balance outstanding

• Any applicable interest

• Which months or charges remain unpaid

• The date payment is required

• How the owner can contact management to discuss the account

• That further collection action may follow

Consistency matters.

If one owner receives repeated extensions while another owner is immediately pursued, council can create unnecessary disputes. A written collection policy helps ensure similar situations are handled in a similar manner.

Stage 3: Formal Demand Notice

If the account remains unpaid and the strata intends to register a lien, sue or begin arbitration, the process becomes more formal.

Before registering a lien, section 112 of the Strata Property Act requires the strata corporation to give the owner at least two weeks' written notice demanding payment and advising that a lien may be registered if payment is not received during that period.

Similarly, before suing or beginning arbitration to collect money, the strata must provide at least two weeks' written notice demanding payment and advising that action may be taken.

This third letter should therefore be very clear.

It should identify the amount owing, provide the deadline and explain the action the strata intends to take if the account is not brought current.

At this point, councils should make sure the account records and notices are accurate before proceeding.

What Can a Strata Register a Lien For?

A lien is one of the most powerful collection tools available to a BC strata corporation, but it cannot be used for every amount appearing on an owner's account.

Under section 116 of the Strata Property Act, a Certificate of Lien may generally be registered for:

• Unpaid strata fees

• Unpaid special levies

• Certain costs of work carried out under section 85

• A strata lot's share of a judgment against the strata corporation

Interest properly charged on late strata fees forms part of the strata fees. Interest properly imposed on a late special levy similarly forms part of that levy.

A lien cannot be registered simply to collect fines or costs of remedying a bylaw or rule contravention.

This distinction is important because an owner's ledger may contain several different types of charges, but they do not all have the same collection rights.

Once a lien has been properly registered, the strata corporation may ultimately apply to the BC Supreme Court for an order for sale of the strata lot if the debt remains unpaid.

Reasonable legal costs, land title fees, court registry fees and certain reasonable disbursements related to registering or enforcing the lien may also be added to the amount owing.

That is a significant step and one where professional legal advice is appropriate.

What Happens to Unpaid Amounts When the Unit Is Sold?

The sale of a strata lot often brings outstanding accounts into focus because a Form F: Certificate of Payment is generally required for the transfer of a strata property.

A Form F tells the parties whether money is owed to the strata corporation. The strata must generally provide it within seven days of a proper request if the owner owes nothing, or if acceptable arrangements have been made for amounts that are owing or disputed.

Importantly, the amounts that can be addressed through a Form F are broader than the amounts that can be included in a lien.

A Form F may include amounts owing for:

• Strata fees

• Special levies

• Certain section 85 work costs

• A strata lot's share of a judgment against the strata corporation

• Properly imposed fines

• Costs of remedying certain bylaw or rule contraventions

The Act does not allow a Form F to include an unresolved claim for damages that has not been determined by a court, arbitration or the Civil Resolution Tribunal.

That distinction is worth remembering:

Some amounts can be shown on a Form F even though they cannot be secured by a strata lien.

Fines are a good example.

A strata cannot register a section 116 lien solely for unpaid fines, but properly imposed fines can be included when completing a Form F.

Because a Form F is commonly required as part of a sale, an upcoming sale often provides an opportunity for outstanding amounts to be addressed.

However, councils should not rely on the possibility of a future sale as their collection strategy. There are exceptions to the usual transfer process, limitation issues can arise, and not every debt has the same collection rights.

What About an Unpaid Special Levy When a Unit Is Sold?

Special levies have their own rule.

If a special levy was approved before the property is transferred, the seller is responsible for portions of the levy payable before the transfer date.

The purchaser becomes responsible for portions payable on or after the transfer date.

This is another reason accurate records matter. Where a levy is payable in several instalments, council and management need to clearly identify which instalments have become due.

Do Not Confuse Fines With Strata Fees

Councils should also be careful not to lump every outstanding charge together.

Strata fees, special levies, interest, fines and chargebacks may all appear on the same owner ledger, but the legal collection options are different.

For example:

Strata fees and special levies: generally lienable, subject to the Act and proper notice.

Fines: cannot form the basis of a section 116 lien.

Costs of remedying a bylaw contravention: generally cannot be included in that lien either.

Undetermined damage claims: cannot simply be inserted on a Form F as though they were established debts.

The classification of a charge matters.

Accurate Records Make Collections Easier

Before any collection action is taken, the strata should be able to answer a few basic questions immediately:

What does the owner owe?

What does each charge relate to?

When did each amount become due?

What payments have been received?

Was interest properly authorized?

What notices have already been sent?

Is any portion of the account disputed?

Could a limitation period be approaching?

A clean owner ledger makes those questions easy to answer.

A confusing ledger makes collection unnecessarily difficult.

Do Not Wait Until the Balance Is Large

One of the most common collection mistakes is waiting because the amount seems too small to worry about.

A missed $400 payment becomes $800.

Then $1,200.

Then several months have passed, interest may be accumulating and communication becomes more difficult.

A good collection process does not need to be aggressive.

It needs to be prompt and predictable.

Start with a courteous reminder. Follow up when necessary. Escalate clearly when the account remains unpaid. Document every step.

That approach protects both the strata corporation and the owner by making expectations clear.

The Bigger Financial Picture

Unpaid fees are not simply an issue between the strata corporation and one owner.

Every budget depends on the contributions approved by the owners actually being collected.

When they are not, the strata still has bills to pay.

Consistent collections, accurate accounting and timely follow-up help protect operating cash flow and prevent relatively small accounts from becoming significant financial or legal problems.

Next week: Once the money has been collected, who is making sure it is properly controlled?

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