Purchasing a Condominium Unit from a Developer: What Every Buyer Should Know

It has been over fifty years since the first condominium development was built in Ontario. Condominium developments are now ubiquitous in the Province and exist in a number of different forms each with their own complexities. Condominium units have become a significant component of the supply of new housing in Ontario largely due to the density of such developments which is a preference of both municipalities (who tend to prefer high density land use) and developers (who tend to maximize profits given the density). The relative affordability of condominium units, when compared to more traditional freehold home ownership, drives the demand, as condominium units are often well-suited to first time home buyers and investors alike. Unfortunately for those buyers, the process and transaction of purchasing a condominium unit from a developer is one of the more complex residential transactions that one can become involved in and is a process fraught with uncertainty and legal complexities. Fortunately for those buyers, effective January 1, 2021 and pursuant to the Condominium Act (Ontario), developers must now provide buyers of condominium units with the Ontario Residential Condominium Buyers’ Guide 1. Buyers who take the time to read and understand this guide and who retain a knowledgeable and experienced real estate lawyer to assist with the completion of the transaction, will be well-suited to navigating the complexities of this unique transaction.

I have summarized my “top three” items and aspects of the transaction and agreement that every buyer should know. This is not intended to be a substitute for good legal counsel and a prudent buyer educating themselves about the process through the Ontario Residential Condominium Buyers’ Guide and other resources available online.

1. The “two-stage” closing process:

   The majority of new condominium purchase transactions will involve two “closings” which the buyer must prepare for. The condominium “unit”, which the buyer eventually becomes the registered owner of, does not legally exist until the developer has registered the condominium plan. The conditions that must be met by the developer in order to register the condominium plan go beyond just the completion of the building(s) and the construction of the physical units themselves. Accordingly, it is common for the physical units to have been constructed (and constructed to the requirements of the Ontario Building Code) well before the condominium plan is registered. In such a case, purchase agreements will typically require the buyer to accept possession of the unit through an “occupancy” closing, the first of two closings. Although ownership of the unit is not transferred to the buyer at this point in time (by reason that the unit does not yet legally exist), the buyer is required to accept possession of the unit and is required to begin paying a monthly occupancy fee, such fee being composed of estimated common expenses, property taxes for the unit and interest paid to the developer calculated on whatever portion of the purchase price remains outstanding at that point in time. There are often many restrictions placed upon this occupancy and those restrictions can significantly impact the buyer and his/her intended use of the property. The terms of occupancy and associated costs (and ways of minimizing those costs) should be carefully reviewed and considered from the outset of the transaction. The length of the occupancy period can range, sometimes from a number of days or weeks to months and years – the variability will largely depend on the nature of the development and its size. The second of the two closings is the “final” closing and this is the date upon which ownership of the unit is transferred to the buyer and the balance of the purchase price (and other adjustments) are paid, along with other closing costs such as Land Transfer Tax.

2. Closing Dates and the TARION Statement of Critical Dates:

   Developers will often begin selling condominium units before a shovel has even entered the ground. For the buyer this means uncertainty as to when the unit will be ready and available for its intended use. The uncertainty of timing is driven by aspects of the construction industry outside of the buyer’s control and even the developer’s control, such as availability of labour, materials, and development approvals. Every new condominium purchase agreement in Ontario must contain a TARION addendum which, among other things, establishes a number of “critical dates” for the particular transaction – this is a standard form addendum prepared by TARION, a not-for-profit consumer protection organization established by the Ontario government to administer the Province’s new home warranty program. In the context of a condominium unit, this addendum would include the “first tentative occupancy date”, being the earliest date that the developer anticipates the unit will be ready to be occupied, and the “outside occupancy date”, being latest date by which the developer anticipates the unit will be ready to be occupied. The period of time between such dates will vary with each development. The buyer should pay particular attention to this time span to ensure that the buyer’s needs and expectations align with these dates. The outside occupancy date establishes the commencement of the buyer’s termination period, being a thirty-day period during which the buyer can elect to terminate the agreement if occupancy has not been provided. Buyers should understand that in the case of termination during this period, they will likely only be entitled to a return of their deposits, perhaps some interest and possibly some delayed closing compensation.

3. Adjustments to the Purchase Price:

   You’ve heard the old adage “read the fine print” and this is particularly important when it comes to the developer’s agreement of purchase and sale and the provisions within that agreement pertaining to adjustments to the purchase price. These adjustments most often result in additional amounts owed to the developer by the buyer. Every developer agreement will vary with respect to these provisions and how those additional costs will impact the buyer. While attention is drawn to these adjustments in the TARION addendum previously mentioned, the provisions themselves still require a careful reading to understand their effect and potential cost implications. Where possible, these adjustments should be eliminated or capped (so as to not exceed an agreed upon amount) – this will provide greater cost certainty to the buyer and avoid last minute surprises before closing. In some cases, the potential for large adjustments on closing (if not eliminated or capped) may dissuade a buyer from proceeding with the transaction, making it important part of the buyer’s review process to identify these adjustments as early as possible and before the agreement is firm and binding. An experienced real estate lawyer with familiarity with developer agreements will be able to assist the buyer with identifying and explaining these adjustments and negotiating their elimination or capping if possible.

A prudent buyer of a new condominium unit will take the time to educate themselves on this unique form of residential real estate transaction. The Ontario Residential Condominium Buyers’ Guide is a great starting point for that education. A prudent buyer will also read the condominium disclosure documents provided by the developer (which are required to be provided to the buyer pursuant to the Condominium Act (Ontario)). This self-education, combined with the counsel of a knowledgeable and experienced real estate lawyer, will reduce the complexities of the transaction and allow the purchaser to avoid surprises along the way.

The experienced real estate team at O’Connor MacLeod Hanna LLP would be pleased to assist you with all your real estate needs, including purchases of new condominium units.

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.