Interest on your condo deposits; how and when do you get paid by the builder or when does the builder have to pay you?

Normally, unless explicitly written into your contract, interest is not required under law in Ontario to be paid on your deposits or any other amounts paid towards your purchase prior to delivery or transfer of ownership of your condominium unit.  However, in Ontario, the condominium act (the “Act”) requires that (1) interest be paid at the prescribed rate on all monies a declarant receives under the purchase agreement if the purchaser rescinds as of right, or (2) interest be paid or credited towards the purchase price (setoff), on all amounts deposited, paid or prepaid on account of or credit to the purchase price, not including occupancy fees or any purchased moveable (not fixed) personal property, on the earlier of termination of the purchase agreement or when the purchased condominium unit is available for occupancy.  Furthermore, reservation fees prior to entering into a purchase agreement are required to be credited towards to the purchase once an agreement is entered into.

Under sections 73 and 74 of the Act a purchaser shall receive interest on any amounts paid under the purchase agreement together with a refund of all such amounts when a purchaser rescinds during the 10 day statutory rescission period which, under section 73 of the Act, begins on the day the purchaser receives the last of (1) the disclosure statement, (2) the condominium guide, (3) and a fully executed (signed by both vendor and purchaser) agreement of purchase and sale, or, under section 74 of the Act, begins on the day the purchaser receives a revised disclosure statement or notice of any material changes from the original disclosure statement provided.  Interest is calculated from the date money is received from the purchaser from time to time, to the date all such monies are returned.

Under section 82 of the Act a purchaser shall receive interest on amounts deposited, paid or prepaid on account of or credit to the purchase price, not including occupancy fees or any purchased moveable (not fixed) personal property, on the earlier of termination of the purchase agreement or when the purchased condominium unit is available for occupancy pursuant to the purchase agreement.  Interest is calculated at the then prescribed rate from the date such monies are received from the purchaser from time to time, to the date that is the earlier of the date the unit is available for occupancy (or possession) or the date that all such monies are returned when the contract is terminated pursuant to the purchase agreement.  Note that absent rescission rights under the Act, the right to terminate and a return of such monies paid are pursuant to the purchase agreement.  The declarant can decide to pay or setoff the interest on the occupancy date (the possession date) or final closing date (the ownership transfer date), which could also be the same date.  If the final closing date follows the occupancy date, the declarant/vendor shall also pay interest at the then prescribed rate on the interest accrued as of the occupancy date.  The interest on interest shall continue until the interest payable as of occupancy is actually paid or setoff and credited towards the purchase.  Note that should the declarant/vendor invest such monies and earn interest, it is entitled to any excess after payment of the interest required under section 82 of the Act, and furthermore, the interest required to be paid to the purchaser under section 82 of the Act is regardless of the declarant/vendor earning any interest on investing such monies.

The prescribed rate of interest applicable from time to time, accrued on such monies received from time to time and payable under sections 73, 74 and 82 of the Act is two percent (2%) below “the bank rate established by the Bank of Canada as the minimum rate at which the Bank of Canada makes short-term advances to members of the Canadian Payments Association (a.k.a. the Bank rate)” as of March 31st of that year for the applicable accrual period between April 1st and September 30th, and as of September 30th of that year for the applicable accrual period between October 1st of that year and March 31st of the following year.  However, for new condominium developments or phases that have not presold any condo units prior to January 1st, 2023, and for which a purchase agreement for a new condo unit is entered into on or after January 1st, 2023, the prescribed rate of interest applicable from time to time, accrued on such monies received from time to time and payable under subsection 82(7) of the Act (i.e. terminated purchase agreements) is “the target for the overnight rate established by the Bank of Canada (a.k.a. the Policy interest rate a.k.a. the Deposit rate)” as of March 31st of that year for the applicable accrual period between April 1st and September 30th, and as of September 30th of that year for the applicable accrual period between October 1st of that year and March 31st of the following year.

In addition to the purchaser’s requirement to pay interest pursuant to the purchase agreement, usually under default or breach, section 80 of the Act grants the declarant/vendor the right to collect interest at the prescribed rate calculated on a monthly basis on the unpaid balance of the purchase price from the occupancy date until the final closing date.  The prescribed rate in this case is “the rate of interest that the Bank of Canada has most recently reported as the chartered bank administered interest rate for a conventional one year mortgage as of the first of the month in which the purchaser assumes interim occupancy of a proposed unit or is required to do so under the agreement of purchase and sale”.  One should note that if the rate changes, even if it changes in the same month of the Occupancy Date, the rate is still the rate that is applicable as of the first day of the month of the Occupancy Date for that purchaser.

To illustrate the disparity in the applicable prescribed rates of interest payable under sections 73, 74, 80 and 82 of the Act, below are the rates as of the date of this post.

Under Section 80 Payable By Purchaser During Occupancy (eg. Occupancy Date is  January 30th, 2023)

The effective applicable and payable rate is the BOC 1-yr mortgage rate as of January 1st is: 6.34% (Dec 28, 2022 last posted rate as of the date of this post) found here https://www.bankofcanada.ca/rates/banking-and-financial-statistics/posted-interest-rates-offered-by-chartered-banks/

Under Sections 73, 74 and 82 Payable by Vendor (eg. repayment date is January 30th, 2023)

(Note: for this purpose we are only illustrating the last applicable rate for the accrual period in which the payment of interest is made or credited, (i.e. the September 30th, 2022 rate for the October 1st, 2022 to March 31st, 2023 accrual period).  However, the rates applicable (eg. as of March 31st and September 30th of each year) would have to look back to each accrual period (eg. from April 1st to September 30th and from October 1st to March 31st) that monies were held by the vendor from the date received.)

BOC minimum short-term advance rate to members of the Canadian Payments Association as of September 30th, 2022 is: 4.25% (Dec 7, 2022 last announcement for target overnight rate as of the date of this post, found here https://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/) + 0.25% (operating band, found here https://www.bankofcanada.ca/2022/04/understanding-policy-interest-rate/) = 4.50%

The effective applicable and payable rate by the Vendor is less 2% which equals: 4.50% – 2.00% = 2.5%

Under Subsection 82(7) Payable by Vendor on Termination for New Projects/Phases on or after January 1s, 2023 (eg. repayment date is January 30th, 2023)

(Note: for this purpose we are only illustrating the last applicable rate for the accrual period in which the payment of interest is made or credited, (i.e. the September 30th, 2022 rate for the October 1st, 2022 to March 31st, 2023 accrual period).  However, the rates applicable (eg. as of March 31st and September 30th of each year) would have to look back to each accrual period (eg. from April 1st to September 30th and from October 1st to March 31st) that monies were held by the vendor from the date received.)

The effective applicable and payable rate by the Vendor is the BOC target overnight rate as of September 30th, 2022 is: 4.25% (Dec 7, 2022 last announcement for target overnight rate as of the date of this post) found here https://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/

Whether you have concerns over the interest that you are entitled to receive from a builder (declarant/vendor/developer) or if you are a condo developer and need help and guidance over your statutory requirements to pay and calculate interest under the Condominium Act, 1998 S.O. and the regulations, feel free to contact Jeff Levy, our real estate and condo lawyer with a tremendous amount of experience and knowledge in this space.