Purchasing a Pre-Construction or New Build Condominium Unit from a Developer? Why it is Important to Retain a Lawyer to Review your Agreement of Purchase and Sale and Disclosure Package

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Section 73 of the Condominium Act1 provides a purchaser of a pre-construction or new build condominium unit with a ten day cooling off period in which the purchaser may rescind their agreement of purchase and sale. This ten day cooling period begins on the later of: 

  1. the date on which the purchaser receives the disclosure statement; 
  2. the date on which the purchaser receives a copy of the applicable condominium guide; and
  3. the date on which the purchase receives a copy of the agreement of purchaser and sale executed by the declarant (the ‘developer’ or the ‘builder’) and the purchaser.2

The documents delivered to a purchaser forming the agreement of purchase and sale and disclosure package are usually voluminous and often consist of hundreds of pages of detailed terms and information, portions of which may be drafted in legalese that many purchasers may be unfamiliar with. Often the agreement of purchase and sale is signed by a purchaser at a sales office and, practically speaking, a purchaser usually does not have time to review the agreement in full prior to signing. It is essential that a purchaser understands what they have agreed to by signing the agreement and what their rights and obligations under the agreement may be – especially prior to the expiration of their cooling period, before their statutory right to terminate the agreement has expired. 

Having a lawyer review a pre-construction agreement of purchase and sale and disclosure package for a condominium does not relieve a purchaser from reviewing the same, in full, themselves. Rather, retaining a lawyer for this purpose is to assist a potential purchaser in understanding their purchase agreement and answer questions a purchaser may have as a result of their own review. 

Below is a high-level list of some of the terms that a real estate lawyer experienced in reviewing these types of agreements and disclosure packages can help a purchaser understand and which are often of significance to a potential purchaser. This list of examples is by no means exhaustive. 

Tarion Addendum

As part of the requirements under the Condominium Act, a builder is generally required to provide a purchaser of a new build condominium with the Tarion addendum which includes important information for the purchaser about their pre-construction unit. 

It is important that a potential purchaser understands the critical dates set by the builder, if there are any early termination conditions that may apply, the potential for delayed occupancy, what home warranty may be applicable to their purchase transaction and for how long, and the standards which the building needs to be completed to.

Payments

Pre-construction agreements of purchase and sale often include provisions that provide for strict consequences in the event of non-payment of any amount due to the builder under the agreement of purchase and sale. Some of those severe consequences can include, but are not limited to, termination of the agreement and forfeiture of the purchaser’s deposit(s) paid to date (which can be significant), accelerated and immediate payment of certain outstanding amounts owing, and the builder’s right to sue the purchaser for damages suffered as a result of the breach of contract (i.e. non-payment). 

A lawyer can highlight for a purchaser and explain when the payments of any outstanding deposits or other sums are due, what amounts to expect to be due on occupancy closing, provide a general estimation of occupancy fees, and what a purchaser can expect to pay on final closing. A lawyer can also explain what deposit protection is provided and what the limits of that protection may be. 

HST 

Many lawyers that review pre-construction agreements of purchase and sale will not provide a potential purchaser with tax advice (except those who may be qualified to do so) and will strongly suggest that a purchaser speak with a qualified tax advisor or accountant regarding any tax consequences respecting their purchase. However, a lawyer will draw a purchaser’s attention to any provisions in an agreement of purchase and sale dealing with HST. A lawyer can help a potential purchaser understand the terms of the agreement of purchase and sale which may provide if the purchase price is exclusive or inclusive of HST and, if HST is included in the purchase price, what the risk may be to the purchaser of having to pay to the builder HST or a reimbursement of the HST rebate(s) available in certain circumstances (or the suspicion of certain circumstances). 

Adjustments

Similar and further to the above, understanding what the potential additional costs that may be owing to the builder on occupancy closing and/or final closing (known as adjustments) is critical for a purchaser to understand. This may be especially so for first time purchasers or those on a tight or restricted budget to ensure that they understand what the total out of pocket costs or cost range may look like for them on closing (in addition to other closing costs – such as title insurance, land transfer tax, legal fees and disbursements). 

Phases of Closing, Occupancy Fees and Occupancy Requirements

There are typically two different stages of closing for a purchaser buying a pre-construction build. An occupancy closing and a final closing. A lawyer reviewing your agreement of purchase and sale can assist you in understanding when these dates may occur, the range of time a purchaser can be in between closings and what their rights may be in the event that there is a delay in closing. It is especially critical for purchasers to understand and be aware of the potential time period between an occupancy closing and a final closing (if they do not occur on the same day) as they will usually be paying occupancy fees to the builder during this time. 

It is also essential for a purchaser to understand any terms of their occupancy including what the purchaser’s obligations to the builder are on occupancy closing, the parties’ respective rights during the occupancy period and what rules and restrictions they may have to follow and be aware of. 

Disclosure Package

The disclosure package provided by a builder contains a lot of information for a potential purchaser respecting the condominium corporation or proposed condominium corporation that the purchaser is obtaining an interest in. As part of reviewing the agreement of purchase and sale, a lawyer can also be retained to review the disclosure package to assist the purchaser in understanding the condominium’s declaration, by-laws, proposed budget (including any estimated condo fees and assumed inflation factor), and rules that will govern the purchaser’s ownership and use of their unit.

It is important that a potential purchaser discloses to their lawyer the circumstances surrounding their purchase, who will be living at the property, whether there will be pets, if there are any special needs, the intended use of the unit, etc. so they can properly advise the purchaser. 

Overall, when a purchaser signs a pre-construction agreement of purchase and sale for a condominium, they may be agreeing to terms that can have costly consequences and which they should understand and be aware of prior to the expiration of the statutory cooling period. A lawyer that is experienced in reviewing these types of pre-construction agreements and disclosure packages can be critical in assisting a purchaser with understanding what their rights and obligations are so a purchaser can decide whether to move forward with the transaction, fully informed. 

A lawyer’s review of your agreement of purchase and sale and disclosure package should absolutely not serve as a substitute for the purchaser’s own review of the same, in full.

1 Condominium Act, 1998, S.O. 1998, c. 19

2 If you are unsure as to when your cooling off period has started to run and/or when it may expire, consult a qualified real estate lawyer with experience with pre-construction condominium purchases.

The foregoing should not be considered to be legal advice and should not be relied upon as such. Please consult a lawyer to get advice and an opinion on your unique circumstances.