Buying a New Condo in Ontario – What You Need to Know
With the drastic rise of home prices in the GTA, an increasing number of home buyers are looking at buying a new condo as an affordable way to get into the housing market. Unlike with the purchase of a house, buying a condominium in Ontario can pose many more complicated and unforeseen challenges, especially if you have your eye on a newly built condo unit. With continuous real estate regulation changes and the imposition of extra rules and bylaws, it is essential that you consult an experienced real estate lawyer to help you close your transaction and successfully move into your new home.
Many times, people only reach out to a real estate lawyer when the closing date of a real estate deal is approaching. At this point, the lawyer finalizes the documents and transfers the title to the new owners. However, in the case of condominium purchases, it is crucial to hire a lawyer as soon as the Purchase Agreement is presented. By doing so, you can avoid potential trouble after committing to the contract because being aware of all the legal aspects and additional regulations surrounding condominium buildings is essential.
In this post we’ll go over some frequently asked questions when considering buying a new condo in Ontario.
House Purchase vs. Condominium Purchase
Before diving into the details of the challenges that may arise with a condominium purchase, it is important to first understand how a condo purchase differs from a purchase of a house.
Ownership
In general, when you buy a house, you acquire not only the house itself but also the land it occupies and any additional structures on the property (such as a garage, shed, or in-law suite). Condos, on the other hand, have different laws. When purchasing a condominium, you will legally own only the individual unit and not any other portion of the building. The common areas and exterior spaces, including the parking garage, pool, gym, and hallways, are shared among all the unit owners and are owned and maintained by the condo board.
Additional Fees
In addition to the basic cost of purchasing a house (i.e., purchase price, insurance fees, land transfer tax, inspection fees, closing costs, etc.), a condominium unit purchase will also include the payment of monthly condo fees which will cover the management of the building and condominium insurance. Furthermore, if the condominium is a new build, you may also be subject to occupancy fees which will be discussed in more detail below.
Status Certificate
When purchasing a condominium unit, you must request the condo corporation to provide the Status Certificate package. This package contains documents that describe and define the units and common elements in the condominium, the bylaws and regulations, restrictions, the budget, and the reserve fund of the condo corporation. Typically, these documents are lengthy and intricate, making them challenging for the average reader to comprehend. It is crucial to have a real estate lawyer review and discuss the essential details with you, ensuring that you understand the condo’s rules, bylaws, and financial status.
Condominium Re-sale vs. Purchase of a New Condo
Although much of the process remains the same, there are three important differences between the purchase of a condo unit that was previously owned by someone else, and a new condo unit from a builder:
- Disclosure Statement
- Cooling Off Period
- Dual Stage Closing
Disclosure Statements
While in a resale condo purchase the buyer must ask to be provided with a Status Certificate from the condo corporation, in a purchase of a new build condo the builder must provide new condo buyers with a Disclosure Statement. According to the law, an Agreement of Purchase and Sale is not binding until the buyer receives this document. If the builder does not provide it, the buyer may rescind the Agreement through written notice.
Generally, Disclosure Statements include the following details:
- Forecast budget
- Proposed declarations
- Rules and By-laws
- Insurance agreements
- Details regarding the apportionment of the units that would be sold or leased
- Cost of construction
It is important for the buyer to undergo due diligence when it comes to the Disclosure Statement. This is best done by hiring a real estate lawyer to review the document and ensure that the buyer has a thorough understanding of the costs and liabilities of their investment in the condominium.
Additionally, builders are required to provide buyers with a copy of the Residential Condominium Buyers’ Guide from the Condominium Authority of Ontario. This is a guide that outlines important information about the operation and governance of condominium buildings and the responsibilities of the owners of the units. The buyer will have to acknowledge having received this document by signing it.
Cooling Off Period
If you are purchasing a new condo from a builder, the law requires the builder to provide you with a 10 day cooling period after you have been given the Disclosure Package and signed the Agreement of Purchase and Sale. The 10-day period allows you to terminate the deal without providing a reason and without any penalties while being able to have your deposit returned.
During these 10 days, you should review the Disclosure Statement and Agreement of Purchase and Sale with your real estate lawyer to ensure you understand all the terms, responsibilities, limitations, and any possible anticipated costs that may arise. Sometimes buyers are not aware of the hidden costs associated with long-term construction plans where there are possibilities of significant construction delays. This period allows you to consider all the information available to you and make a final, thought-out decision.
It is important to note that purchasers of resale condominiums do not receive the benefit of a 10-day cooling-off period.
Dual-Stage Closing
When you are purchasing a resale condo, you will have one closing date where you will be allowed to move into the unit after the title is transferred from the seller to the buyer and all the funds are paid.
In contrast, newly built condominiums typically have a two-stage closing process which includes:
- Interim Closing and Occupancy
- Final Closing
Interim Closing and Occupancy
If you are buying a newly constructed condo unit, it is likely that the construction of the building has not started or is in its early stages. This happens because the builder needs to sell the units first in order to finance the construction. Once the builder has enough funds from buyers’ deposits, construction can commence. Throughout this process, some floors and units may be ready for occupancy while others are still under construction.
This brings us to the initial step of the condominium closing process: interim closing and occupancy. During this stage, buyers can take possession of the units they purchased on the occupancy date, provided they have made the required down payments to the builder and signed an Interim Occupancy Agreement. However, for ownership transfer and condominium registration to occur, the building must be fully constructed. If the building is still under construction, buyers can physically move into their units but do not yet receive legal title.
During this interim occupancy period, instead of paying the remaining amount of the purchase price, buyers will be required to pay occupancy fees until the final closing date. The fees would cover the maintenance of the building, taxes, and any interest on the balance of the purchase price.
The Disclosure Statement should outline the possible occupancy fees and any other costs for this interim period. You should be aware that it is common for these costs to be raised significantly after the signing of the Agreement of Purchase and Sale. A budget should be made in anticipation of these fees.
Final Closing
Only after the condominium is fully constructed and registered with the government can the buyers finalize their closing. The purchaser of the unit will be able to obtain financing through a mortgage and receive legal title ownership from the builder for their unit. At this stage, the buyer will pay the remaining balance of the original purchase price as well. Although occupancy fees will no longer be required to be paid, monthly maintenance fees will be established instead.
Ontario New Home Warranties Plan
In response to the growing concern from buyers of newly built homes, the Ontario government enacted the Ontario New Home Warranties Plan (ONHWP) which offers protections to buyers of newly constructed homes.
The ONHWP offers three main types of protections available to newly built condominium buyers and owners:
- The mandatory registration of most new home builders and vendors,
- A warranty program for consumers protecting against a range of defects, and
- A deposit protection mechanism in the event of builder failure.
The ONHWP grants newly built condominium buyers and owners a two-year warranty period that safeguards against defects in materials, as well as a seven-year protection against major structural defects. Moreover, the ONHWP safeguards buyers from the loss of their deposits in case of builder bankruptcy or construction failure, although the coverage is capped at $20,000. Additionally, if a buyer experiences substantial occupancy delays, they may be eligible for compensation.
What is the Lawyer’s Role in the Purchase of a New Condo in Ontario?
Although you may find that there are numerous advantages of buying a newly built condominium (i.e., being able to choose your preferred floorplans, finishes, and upgrades), you may also find that there are many challenges that are unique to purchases of newly built condominiums. It is important that the buyer has an understanding of these potential issues prior to signing the Agreement of Purchase and Sale.
Retaining a real estate lawyer is not only mandatory to close the transaction, but also essential to understand the intricacies of a condominium purchase. A lawyer will take you through the Disclosure Statement and ensure that you have sufficient knowledge about the transaction to be certain in your decision to bind yourself to this long-term investment.
If you require any assistance with your real estate transaction get in touch with us at Beffa Law and we will be able to help you navigate through the rough waters of the real estate world and achieve the results your desire. Beffa Law is a real estate law firm serving customers in Greater Toronto Area and beyond. We offer assistance in buying, selling, refinancing along with other practice areas. Call us at 647-812-8462 or email us at info@beffalaw.ca to set up an appointment to discuss your estate questions or concerns.
