Condominium Lien Enforcement Should be Exempt From the Law Society of Ontario’s Verification of ID Requirements
For more than 15 years, Ontario lawyers have been obligated to verify the identity of clients in cases where the lawyer engages in the receipt, payment or transfer of funds on behalf of the client, subject to certain exceptions.1
Until 2024, two of those exceptions arguably applied in cases where a condominium corporation retained a lawyer to enforce a lien under section 85 of the Condominium Act, 1998, S.O. 1998, c. 19, as amended (the “Act”): the lawyer was not required to verify the client’s identity in cases where funds were “paid or received as a settlement in a proceeding” or “paid or received pursuant to a court order”.2 Additionally, after the onset of the COVID-19 pandemic, if neither exception applied, the lawyer could virtually or remotely verify the client’s identity with relative ease.3
Effective January 1, 2024, however, the Law Society of Ontario (the “LSO”) amended its By-law 7.1 to eliminate the exceptions mentioned above4 and further require that lawyers use one of several intrusive or cumbersome methods for the purpose of verifying the identity of any individual who is authorized to give instructions to the lawyer with respect to the transfer of funds.5 Those methods include, among other things, using authentication technology (i.e., biometrics) to authenticate an image of the individual’s driver’s licence, passport or photo ID card, and obtaining the individual’s credit file from a credit bureau like Equifax or TransUnion.6
In lien enforcement cases, the condominium corporation retains a lawyer to collect arrears owing on account of a given unit or parcel at the property.7 At least one representative of the condominium management provider is typically authorized to instruct the lawyer with respect to that retainer, and the lawyer cannot ascertain, within the required time, whether any of the few remaining exceptions provided by the LSO are available.8
In other words, when retained to assert and enforce a condominium lien, the lawyer will typically need to use one of the intrusive or cumbersome methods mentioned above for the purpose of verifying the identity of any representative of the condominium management provider or officer of the corporation who is authorized to instruct the lawyer regarding the lien. Needless to say, many managers are not pleased with having to produce such personal information.
We are of the view that an exception should be allowed in cases where the funds are paid or received for the purpose of discharging a lien arising under section 85 of the Act.
The requirement to verify a client’s identity is intended to discourage, and enable the detection of money laundering and terrorist financing activities while nevertheless preserving lawyer-client privilege and the independence of the legal profession.9 Funds paid or received on behalf of certain clients are exempt, however: funds paid or received on behalf of a “reporting issuer” (i.e., a public company) are exempt,10 presumably because the controlling stakeholders and many financial activities of reporting issuers are already a matter of public record; funds paid or received on behalf of a “public body”, which essentially includes any organ of the federal or provincial government or a municipal government, are similarly exempt,11 presumably because public bodies pay and receive funds pursuant to a statutory authority and their financial activities are also a matter of public record.
The same could be said of condominium corporations, at least with respect to the collection of amounts owing from owners. The corporation maintains a clear record of who is liable to contribute, which record is supplemented by publicly-available information from the land registration system. The corporation has a statutory duty to assess and collect common expenses in much the same way that a municipal corporation has a statutory duty to assess and collect property taxes. The corporation’s financial activities are quasi-public in nature and subject to scrutiny by the owners, either indirectly through an auditor whose communications are not ordinarily subject to privilege, or directly through access to corporate records.
Stated differently, the risk that an owner or mortgagee will launder money or fund terrorism by contributing to the common expenses seems, at the very most, negligible. Establishing an exception in cases where the funds are paid to discharge a condominium lien would reduce the administrative burden for lawyers, improve the efficiency of the lien enforcement process and ultimately help to limit the legal costs of lien proceedings.
© Deacon, Spears, Fedson + Montizambert, 2024. All rights reserved.
1 See By-law 7.1 of the Law Society of Ontario prior to January 1, 2024:
https://lawsocietyontario.azureedge.net/media/lso/media/legacy/pdf/b/by-law-7.1-operational-obligations-01-25-18.pdf
2 See note 1, clauses 22 (3) (d) and (f).
3 See https://lso.ca/news-events/news/latest-news-2022/covid-emergency-measure-(virtual-verification)-ext
4 See note 2 and LSO By-law 7.1, s. 22(3): https://lso.ca/about-lso/legislation-rules/by-laws/by-law-7-1.
5 LSO By-law 7.1, ss. 22 and 23: https://lso.ca/about-lso/legislation-rules/by-laws/by-law-7-1.
6 See https://lso.ca/lawyers/practice-supports-and-resources/topics/the-lawyer-client-relationship/identification-and-verification/methods-for-verifying-identity
7 Note that only lawyers, and not paralegals, are qualified to act for condominium corporations in lien collection matters: see 2017 CanLII 21772 (ON SCSM), at paras. 19-25.
8 The by-law provides exceptions in cases where the funds are received from a financial institution or the trust account of another lawyer, or by electronic funds transfer, but where the lawyer issues a Notice of Lien to Owner or gives notice of the lien to any mortgagee or owner, the lawyer is required to immediately verify the identity of the individual who is authorized to instruct the lawyer (i.e., the condominium manager or other representative of the condominium management provider): see LSO By-law 7.1, ss. 22 and 23: https://lso.ca/about-lso/legislation-rules/by-laws/by-law-7-1.
9 See https://lawsocietyontario.azureedge.net/media/lso/media/about/convocation/2021/convocation-may-2021-professional-regulation-committee-report.pdf
10 See notes 5 and 8.
11 See notes 5 and 8.
