Condominiums are a popular choice for many new home buyers and some consider purchasing a pre-construction home, which means buying a property before it is completely built. Below are some items you should consider before you buy:
Confirm if your builder is licensed
It is important to research with the Ontario Builder Directory to make sure that the builder is licensed by the Home Construction Regulatory Authority (HCRA) to build homes in Ontario. The directory also allows you to search for condominium projects to obtain more information about the condominium project’s current status and the builder’s history.
In the Ontario builder Directory, you are able to access a 10-year background for all licensed builders, as well as those who are no longer licensed to build homes. If your builder is not listed in the directory, it may be for various reasons, and they may be building illegally.
Click here to go to the Ontario Builder Directory page.
Purchase Agreement
Your purchase agreement contains important information about your rights, the builder’s rights, your unit and the condominium project. You should have your purchase agreement carefully reviewed by a lawyer who is experienced in pre-construction condominium transactions in order to better understand what you are signing up for.
Under the Condominium Act, 1988, you are entitled to an initial 10-day period to terminate your agreement and get your deposit back if, on further review, you decide that you no longer wish to go through with your purchase.
All agreements of purchase and sale for condominium projects which go to market after January 1, 2020 will include an information sheet for the buyers that outlines some of the key potential risks of buying a pre-construction condominium. Some of which are potential early termination conditions, such as reaching a minimum sales threshold for the project to proceed, the builder securing necessary financing for construction and completion of the project, and obtaining the required approvals from the city.
Construction delays
A condominium project will require far more time to complete than a single-family home, therefore the potential for construction delays is much higher. When it comes to the occupancy date, otherwise known as the day you receive the keys to your unit and can begin moving in, the builder will most likely establish a Tentative Occupancy Date because it allows them to extend the date multiple times as long as they give you written notice for each delay enough in advance. It is important to review the addendum to your purchase agreement to understand how occupancy dates may be extended, any rights to terminate due to delay, and potential eligibility under the warranty for compensation due to delay.
Project cancellations
A condominium project also carry with it risks of being cancelled. Common reasons for cancellations can include insufficient sales, lack of funding, and failure to obtain development approvals. It is important to review the addendum attached to your purchase agreement to understand the provisions regarding early termination conditions as the project may be cancelled if these conditions are not satisfied. In the event a project becomes terminated, you are eligible to receive your deposit back, inclusive of additional monies paid for upgrades.
Interim occupancy
During interim occupancy, you do not officially own the unit until the entire project is registered with the city and your final closing is complete. This period can span anywhere from a few months to over a year, during which you must pay a monthly occupancy fee to the builder for the coverage of the following things: interest on the unpaid balance of your unit, estimated municipal taxes for your unit, and maintenance expenses.
If your unit is among the first to be allowed occupancy, you would be living in your unit while construction for the rest of the condominium is still ongoing. You may therefore live under construction related issues, such as noise, debris and disruptions. Some of the amenities included in a condominium, such as a swimming pool or gym, may still not be ready during this interim occupancy period.
Review your purchase agreement with a lawyer
Buying a pre-construction involves dealing with a ton of paperwork and it is always best to have these reviewed by a real estate lawyer to ensure you understand the terms of the purchase and sale, including potential delays and terminations, and what is and is not included in the purchase price. We would be happy to help you review your pre construction agreements during the cooling off period.
You can visit Tarion’s Homeowner Resources Hub for more resources on your rights and responsibilities when buying a pre-construction home.