The market for new condominium units in Toronto continues to be active as a flood of buyers – from first timers to empty nesters to investors – snap up units even before the foundation is dug. Yet many people are unaware that the advertised purchase price is often just the beginning, and hidden fees and charges may push up the actual cost by $10,000 or more.

In Ontario, condominium developers are obligated to provide prospective buyers of condo units 10 days following execution of the Agreements of Purchase and Sale (the “APS”) to decide if they will proceed with the transaction – this is the “cooling off” period set out in the Condominium Act.

Most purchasers do not take advantage of the opportunity to have the APS reviewed by a lawyer because they are often told that the Agreement is “standard”, that the developer will not entertain any changes to the form of Agreement and that they are wasting their time and money in having it reviewed.

If the buyer is sophisticated, has a law degree and is knowledgeable in the intricacies of condominium law and has the patience to review a 20 to 30 page small font document there is no reason to contact a lawyer for a review.  All others should tread carefully if they forego a review.

The top three issues that should be identified by the lawyer and reviewed with the buyer are the following:

The purchase price on the APS is not what the buyer pays

Not unexpectedly nor surprisingly, developers seek to maximize the amount that they will receive from a buyer.  Even though the purchase price is most often set out prominently on the first page of the APS, there are a myriad of other costs that are sprinkled throughout the APS which the buyer agrees to pay on closing.  They range from development charges, which can be several thousands of dollars, to nickel and dime charges, such as the developer’s lawyer’s Law Society transaction fee of $65.00.   Cumulatively these costs can be in the $5,000.00 to $10,000.00 range and catch most buyers by surprise when it comes time for closing and they have not budgeted for these “extras”.

Calculation of “Occupancy Fees”

In most situations developers are not able to transfer title to buyers when the condominium units are ready.   The reason for this is because the condominium registration process has not been completed.   The staff of Land Registry Offices, and especially the one in Toronto, is overburdened due to the plethora of condominium developments currently underway.

As a result, once the units have been completed to a standard to permit occupancy, buyers must accept possession.  From the date of possession to the title transfer date (also known as the closing date) a buyer must pay a monthly occupancy fee to the developer.   This fee is made up of 3 components.

  • an estimate of the realty taxes payable to the municipality on the condominium unit once it is completed;
  • the common expenses set out in the draft budget given to the prospective purchaser when the APS is signed; and
  • an interest component on the unpaid portion of the purchase price, the so called “phantom mortgage”.

The interest rate charged on the phantom mortgage amount is usually pegged to what is quoted by a chartered bank for first mortgages.  This appears fair at the first blush but it works against a homebuyer who has a substantial down payment.  Barring an amendment to the APS at the time that it is entered into the amount of the phantom mortgage does not take this into account and the buyer ends up paying more in interest than if the transaction closed on the possession date.

Personal use or investment property?

Today’s standard APS for condo units is prepared on the assumption that the units are being purchased as the primary residence of buyers.   Consequently, although in most cases the purchase price is inclusive of HST, this is only true where the buyer qualifies for a rebate of a portion of the HST.  In situations where the buyer is not eligible for the rebate, the purchase price is increased by the amount of the rebate.

The second point to keep in mind is that often buyers do not have the right to rent the unit between the possession date and the closing date.  For buyers who are counting on the income from a rental to help pay the occupancy fee there will be substantial hardship if they are not able to rent their units prior to the closing date.

A careful and thorough review of an APS during the cooling off period is necessary and worthwhile.   An experienced lawyer in condominium law will add value to the buying process.

Do not let anyone tell you otherwise.