New Condos

If you are considering buying a new residential condominium from a builder and you have never done so before you are in for a lot of surprises.

Firstly, be aware that if something is not contained, in writing, within your agreement of purchase, it is not binding on the builder. Statements made by the builders agents, plans, pictures, models and other sales materials are generally considered as unenforceable advertising or mere artists illustrations. If they are not in your agreement in writing than in all probability it just won’t happen. Even the plans that are given to you as a part of your agreement does not guaranty you will receive everything as shown in those plans. Builders retain rights to make wide ranging changes and modifications to most aspects of your unit. Unless the changes are so significant it can be said that the unit is substantially different from what you purchased, you will by contract, be obliged to accept the changes.

The fact that square footage may be stated in your agreement is not a guaranty you will actually receive that square footage. Even though builders may use the stated square footage as a basis for determining the price of your unit, the agreement will make it clear that the square footage noted is approximate only and you have no right to seek a reduction in price if the square footage is less than what the contract indicated it would be. The way square footage is calculated it includes in your square footage, the thickness of exterior wall plus half of the thickness of the walls between your unit and neighbouring units and any walls between your unit and a corridor that is adjacent to your unit.

Unlike any other property, you are given a 10 day period (“Rescission Period”) to decide whether or not to proceed with your purchase. This time period is commonly referred to as a “cooling off period”. The cooling off period begins when you receive a copy of the purchase agreement signed by both yourself and the builder, together with a disclosure package. When you see the volume of material you are given, you will understand why you receive 10 days to review the documents. If you decide not to go ahead with your purchase, you must provide a written notice saying you have decided not to proceed. This notice must be given to the builder’s representative before the expiry of the ten day period. You should definitely retain a lawyer to assist you with the review of these complex documents and do so as soon as possible. Please don’t wait until the 9th day.

New condominiums (like most new homes) typically have a number of charges added to the purchase price.  Generally they are referred to as adjustments and cover such expenses as utility meters and connection charges, increases to levies, new home warranty enrollment fee (Tarion) and various other charges limited only by the builder’s creativity. They can be substantial so make certain you are aware of the total cost of these adjustments.

The completion date or closing date set out in the agreement of purchase is seldom more than a date used to fill in the blank in the contract. The builder reserves the right to extend this date for up to 2 years and if the builder provides the proper notices there are no penalties he must pay for the delay.

Your deposits will earn interest but the interest rate will be 2% below the bank rate.

There will be two closings. The first one is referred to as “Occupancy”. When your unit is considered to be substantially completed you must take possession.  Generally a large portion of the building will remain a construction site and amenities will not be available. At the time of occupancy you are required to pay the balance of your deposits (if any are still outstanding) and you will be required to deliver a series of post-dated cheques to the builder. These cheques constitute your occupancy fees and are made up of three components; your estimated common expenses, plus, your estimated property taxes, plus interest on the balance of the money you owe the builder. The interest rate you will be charged is determined by the Condominium Act and is the rate of a one year conventional mortgage as of the date of occupancy. Since the interest component of your occupancy fee is interest only, you are not reducing the principal balance of the amount you owe during the occupancy period. The interest component generally forms the largest component of your occupancy fees. Therefore, if you intend to make a down payment larger than the minimum deposits called for in the agreement you should have a clause inserted in the agreement allowing you to pay a larger amount at the time of occupancy. You have an absolute right during the ten day rescission period to insert this provision, but at any other time you would require the builder’s consent. They cannot be compelled to give you their consent (except during the rescission period) and if they do consent after the 10 day period, they will generally charge you a fee.

However, do not be confused. It is something you can do only if you will have the extra cash available on the occupancy date. It must not be money you are expecting to receive from a new mortgage you  have arranged on your condominium as such a mortgage cannot come into existence until the time of the second closing which occurs after the condominium is registered.

You will receive no more interest on your deposits after the date of occupancy.

The length of the occupancy period will vary but it is normally a period of several months.

During the occupancy period only the buyer or a member of the buyer’s immediate family may occupy the unit (unless the builder agrees to allow someone else to occupy your unit). Remember however, in your agreement you have certified that you or an immediate family member will occupy the unit and you have agreed to assign the HST rebate to the builder.

If it is your intention to purchase the condominium as an investment property and have tenants occupy the unit you may not be allowed to have tenants until after registration.

A further complication arises in that you are not permitted to assign the HST rebate to the builder as the contract obliges you to do. As a result you will have to pay the amount of the rebate the builder would otherwise have received in addition to the other sums you owe to the builder.

If you keep the unit and do in fact rent it out you will be able to claim a refund of the rebate amount following closing. If however you decide simply to sell the unit after registration the amount of the rebate you pay to the builder, cannot be refunded to you.

If it is your plan to sell the unit between the time you purchase it and the time of the occupancy or final closing (This type of sale is referred to as an assignment of your agreement of purchase) you will find the agreement of purchase prohibits you from doing so. If the builder will grant you the right to assign your agreement you will have to pay an administrative fee to the builder usually in the $3,000.00 to $4,000.00 range and you will remain responsible to complete the transaction in the event the person to whom you have assigned the agreement does not close the transaction.

The second closing that occurs takes place shortly after the condominium has been registered. At that time you must pay the builder the balance of the purchase price together with the builder’s adjustments. You will then receive the ownership of the condominium and will be able to register your mortgage against the condominium and receive the money you have borrowed.

Land transfer tax must be paid at the time of the final closing.

You must arrange for your own condominium owner’s insurance. The insurance obtained by the condominium will not replace the improvements within your unit (cabinets, floor coverings, etc.) nor will it protect you from an act of negligence that may cause damages to other unit owners or injuries that may be sustained by someone visiting your unit. Your own insurance will also protect you the loss of your contents.

You should also be prepared for an increase in your common expenses or maintenance fees at the end of the first year following closing. The original proposed budget is seldom large enough to meet the actual operating expenses for the condominium. The original budget is set by the builder and tends to be based on very conservative estimates of the expenses. However when the unit owners elect their own board of directors and take over the management of the condominium the current actual expenses can be determined and an increase can be expected to meet these actual operating expenses. Also the portion of your common expenses that is paid to the reserve fund may be determined not to be adequate which would result in a further increase to the monthly maintenance fees.