The Open Door Blog
Whether you own a new home or condo, are considering buying one, or just love to dream about it, the Open Door blog is here to share stories that can help you protect what is likely the biggest investment of your life.
The Open Door blog is published by Tarion, a non-profit corporation that administers Ontario’s New Home Warranty Plan and registers all new home builders in Ontario. Click here to learn more about us.
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- October 10, 2019
Tarion Talks: Episode 13, Buying a pre-construction condo
Tarion Talks is Tarion's official podcast for new home buyers, owners, builders and for other interested stakeholders. Don't miss an episode - subscribe today at iTunes or Google Play Music. To download an MP3 copy of this episode, click here.
It’s no secret that condominiums have rapidly transformed many of our cities and towns and our concept of what a home is today. While condos are an increasingly popular choice among new home buyers, they’re not without certain risks – and anyone interested in buying a pre-construction condo should be aware of what’s involved.
Every buyer of a pre-construction condo should pay close attention to the purchase agreement – it covers important information, such as your rights as a buyer and what your builder is permitted to do. It also attaches the condominium’s Disclosure Statement.
- Not only does the agreement cover specifics of your unit, it also contains details about the overall project, such as: What is owned by you;
- What is owned by the condominium corporation but to which you have ‘exclusive use’;
- Information related to monthly maintenance fees;
- By-laws and rules of the condominium corporation.
The purchase agreement is a critical part of finalizing the deal, so ensure you secure a lawyer who is familiar with condominium law to review this and all other legal documents.
10-day cooling off period
Once you’ve signed the purchase agreement, there is a 10-day cooling off period. This gives you a chance to have your lawyer thoroughly review your contract and provides you with an opportunity to cancel the contract and receive a deposit refund if you change your mind. However, be aware that these 10 days are not business days – they are calendar days, which means it includes weekends. Once these 10 days have passed, the purchase agreement becomes final.
Condos are generally large projects consisting of mid-rise or high-rise buildings that require heavy planning, a vast amount of people, and a lot of time. So it’s no surprise that you may be faced with delays before you’re able to move in.
Condo builders are aware of this and build it into your purchase agreement. The Addendum, which is part of your purchase agreement, is where you should look for information about the timing of your condo unit, including:
- The type of notice your builder needs to provide if your condo gets delayed;
- The possible compensation you’re entitled to for a delay;
- The conditions under which you can terminate your agreement due to a delay.
Within the first page of the addendum is the Statement of Critical Dates. It includes information about when your condo will be ready for occupancy. There are, however, two types of occupancy dates your builder can set for your condo – ‘firm’ or ‘tentative’. A firm date can’t be changed, while a tentative occupancy date can be changed multiple times as long as the builder provides purchasers at least 90 days’ notice for each extension.
Tentative occupancy dates are more common, as it’s difficult for a builder of a large project with multiple units to commit to a specific date, so buyers should be prepared for delays. With the Addendum and Statement of Critical Dates, you can track how the timing can change, what your builder’s obligations are, and what your rights are.
There’s always a risk that a condominium project can be cancelled. The following are a few factors that may trigger a cancellation:
- Insufficient sales. If the builder can’t sell enough units, the project is not economically viable.
- Financial loss. There may be times the builder can’t obtain – or has lost – the funding to take the project all the way to completion.
- Approvals. In some cases, the builder can’t get the approvals, such as zoning changes or permits, needed for the proposed project.
The reasons a project may be cancelled are outlined in the Addendum, so it’s important to review them – and understand the risks – before you sign. If a condo project does get cancelled, you’ll be reassured to know that builders are required under the Condominium Act to keep the money you provide for deposits and upgrades in trust. If a project falls through, buyers are entitled to get this money back.
Variations in floor area
When you’re ready to move into your condo, be prepared that it may not turn out to be exactly as you thought. There may be slight variations in layout, finishings and floor space. For example, the size of the condo might be smaller than advertised – that’s because when unit areas are calculated, they include items such as mechanical shafts and structural components of the building. These features may cut into the actual usable floor space of your condo.
While some variances are to be expected, there is a limit. A variation of up to 2% in floor space is considered acceptable – however, keep in mind that the variance amount may differ as every case is unique.
When it comes to floor space, it’s recommended to refer to your purchase agreement. When you’re at the buying stage, you and your builder can come up with your own agreement regarding floor area – things like what amount of variance is acceptable, and the penalties if the difference totals to more than what was agreed upon.
Whatever you settle upon, make sure it’s written into your purchase agreement and be sure to ask your lawyer to help you determine what kind of recourse you may have if things don’t go according to plan.
Variations in layout and finishings
Builders allow themselves the flexibility to make changes to a project including your individual unit – and this language is built into your purchase agreement. However, under the Condominium Act, builders are prevented from making ‘material changes’. This is a change that is so significant that, if it were to take place from the very beginning, it would have caused you as a purchaser to decide against buying your condo. For example, if you were promised a loft space as part of your unit but then it turned out that the builder can’t get the permits for it.
Because there’s some uncertainty as to what might constitute a material change, it is strongly recommended that you consult with your lawyer if you find that your condo ends up being very different from what you signed for.
One thing to keep in mind is that material changes are not that common. Minor changes are more common and may include details such as how the rooms are situated, or the size and shape of your kitchen island.
Be aware that builders make accommodations for these types of changes in your agreement.
Moving into your condo
There are some things to know when you move in, depending on when you get occupancy of your unit:
- If you’re on a lower floor, you’ll be among the first to be able to move in. That means you’ll most likely be living in a construction zone, as the builder will still be working on completing the upper floors. And you’ll be prone to dealing with the things normally associated with ongoing construction, such as noise, dirt and debris.
- The common areas of the project may not be completed. This includes amenities like a swimming pool, gym, or rooftop terrace. So you may need to wait a while before you can start enjoying these facilities.
- Moving into your condo doesn’t mean it’s officially yours. Even though you’ve received the keys and are living in your new condo, you don’t have legal ownership of it. This period is known as interim occupancy.
During the interim occupancy period, you don’t get the title to your condo or start your mortgage payments. This will happen when the condominium project gets registered with the municipality – and that doesn’t occur until the entire building is complete. This process can take months, or even more than a year. In the meantime, you’re required to pay a monthly interim occupancy fee to the builder – and even if you decide not to move in as soon as you’re granted occupancy, you still need to pay the monthly fees.
The interim occupancy fee is made up of three things:
- The interest on the unpaid purchase price of your condo;
- An estimate of the municipal taxes for your unit; and
- Your projected monthly common expense contribution.
Once the condominium gets registered, the title to your unit is officially transferred to you. At this point, you can stop paying the interim occupancy fee to the builder, start making your mortgage payments and begin paying your monthly maintenance fees to the condominium corporation. And, start enjoying your new condo!
Condos are still a great choice for many, and most of the time things go well and buyers are happy with their new home. But be aware of the things that are unique to the condo buying experience and be prepared in case they happen. If you have any questions, contact us or visit Tarion.com.