Identifying Risk Factors
A. Risks Related to Easements
Easements grant certain parties the legal right to use or access specific areas of a property. If not properly documented or enforced, disputes can arise between:
Unit owners and the condominium corporation (e.g., an owner restricting access to a common area).
The condominium corporation and third parties (e.g., service providers requiring access to utility lines).
Common Easement-Related Risks
Failure to document easements properly
If an easement is not clearly registered, disputes may arise over who has access to which property areas.
Condominium corporations must ensure that easements are reflected in the condominium plan and bylaws.
Unauthorized restrictions on easements
A unit owner might block a shared walkway or refuse access to maintenance personnel, violating the terms of an easement.
The condominium corporation must be prepared to enforce easement rights legally if necessary.
B. Risks Related to Builder’s Liens
A builder’s lien is a legal claim filed by a contractor, subcontractor, or supplier for unpaid work or materials provided to a condominium project.
Common Builder’s Lien Risks
Missed or delayed payments
If the condominium board fails to pay a contractor on time, the contractor (or their subcontractors) may file a lien against the entire property.
Under the Prompt Payment and Construction Lien Act, contractors must be paid within 28 days of submitting an invoice.
Improper financial tracking
Failure to retain proper payment records can make it difficult to dispute a builder’s lien.
The condominium corporation should require proof of subcontractor payments before issuing final payments to a general contractor.
Failure to retain holdbacks
The Prompt Payment and Construction Lien Act requires condominium corporations to hold back 10% of the contract price for a period after project completion.
This holdback helps protect against claims from unpaid subcontractors.
Best Practices for Risk Management
To prevent legal disputes and financial liabilities, condominium managers should implement the following best practices:
A. Ensuring Easements Are Properly Registered and Documented
Verify that all easements are recorded in the condominium plan and bylaws.
Review condominium documents to confirm that easements are clearly defined and registered with Land Titles.
Educate the board and owners about easement rights and responsibilities.
Provide guidance on who has access rights to shared areas and what restrictions apply.
Enforce easement terms consistently.
If an owner violates an easement, the board must be prepared to enforce legal rights or seek legal remedies if necessary.
B. Managing Builder’s Liens Effectively
Adhere to payment timelines under the Prompt Payment and Construction Lien Act.
Ensure contractors and subcontractors are paid within 28 days of invoice submission.
Require bonding from contractors.
Condominium managers should recommend that the board only hire bonded contractors to provide financial protection against unpaid subcontractor claims.
A performance bond ensures work is completed as agreed.
A payment bond guarantees that subcontractors will be paid, preventing lien filings.
Retain holdbacks as required by law.
Retain 10% of the contract value for a specified period to cover potential lien claims.
Keep detailed payment records.
Document all payments made to contractors and require proof that subcontractors have been paid before releasing final payments.
Establishing Dispute Resolution Protocols
Develop a process for handling easement disputes.
Encourage mediation before escalating disputes to legal action.
Have a legal consultation plan in place for lien disputes.
If a lien is filed, work with legal counsel to determine whether it is valid or should be challenged.
Communicate clearly with stakeholders.
Keep owners, board members, and contractors informed about their rights, responsibilities, and obligations regarding easements and payments.
Activity: Draft a Risk Mitigation Plan
Instructions:
Create a risk mitigation plan for a condominium corporation, outlining the following:
Steps to document and register easements properly
How to ensure easements are reflected in the condominium plan and bylaws.
Strategies for educating owners and board members about easement rights.
Procedures for handling builder’s liens
Recommended contractor payment policies to prevent liens.
The role of bonding requirements in mitigating lien risks.
How to verify contractor and subcontractor payments before final payments are issued.
Strategies for preventing disputes related to easements and unpaid contractor work
Methods for resolving easement disputes before legal escalation.
Best practices for preventing financial disputes with contractors.
