Real Estate: Buying New? What You Need to Know
Agreements Give Law to the Contract – Pacta dant legem contractui
People who purchase new condominiums and houses directly from the developer are usually attracted to the prestige of being the first to own and occupy the property; however, buying brand new may not be the right decision for those who are cost and time conscious.
Developer agreements heavily favour developers, which should come as no surprise. Although purchasers are somewhat protected by the Ontario New Home Warranties Plan Act, which provides safeguards against matters such as delayed closings or delayed occupancies, developers still retain a lot of leeway. Generally developers have an 24 month period starting from the tentative closing date to finish the dwelling without purchaser reprisal. Moreover, under the standard developer agreement, developers can make aesthetic changes to your house or building and you may not get the actual square footage that you bargained for.
The costs associated with buying new are considerable. Not only do purchasers have to pay GST, although a small rebate is available from the government for homes under $450,000.00, developers also pass along additional charges to the purchaser such as utility connection charges and home warranty enrolment. In addition, condo purchasers will usually be subjected to an Interim occupancy fee period, giving them the displeasure of moving into a construction zone.
Before the condominium creating documents are registered on title and the property can become legally yours, the developer needs to get paid to carry their costs. Interim occupancy fees (aka the “Phantom Mortgage”) are set by the developer and represent the interest on the balance of the purchase price for the unit, an estimate of the purchaser’s realty taxes and common expenses. This fee does not get credited to the purchaser, nor is it refundable, as it is basically akin to rent. The kicker to all this is that you may have to pay this fee for over a year and you may not be able to enjoy the common areas as they may still be under construction.
It is amazing how many people make what can be considered the biggest purchase of their life without proper consultation. Before spending $200,000.00 or more for a home, have a lawyer review the agreement in order to educate yourself of both your and the developer’s rights under the agreement of purchase and sale.