Purchasing a pre-construction condominium involves a series of important differences compared to buying a resale unit. One of the most critical and potentially perplexing distinctions pertains to "Interim Occupancy" and "Final Closing." In this comprehensive report, we will explore these concepts in detail and address their significance in the context of acquiring a pre-construction condo. We will also introduce Olea Financial as your trusted partner in securing the ideal mortgage for your future home.
Understanding Interim Occupancy
Interim Occupancy is a unique mechanism that allows purchasers to access and enjoy their property before the development is fully completed and title can be transferred to the buyers. This phase occurs when your unit is ready for occupancy but the entire building is not fully finished or registered as a Condominium Corporation.
In essence, Interim Occupancy permits you to inhabit your unit while certain areas of the building may still be under construction. The city will issue an Occupancy Permit to confirm that your unit is habitable. During this period, you are required to pay Interim Occupancy Fees, which cover the time from Interim Occupancy until Final Closing. The duration can vary but typically ranges from 2 to 12 months, with contractual limits of 24 to 36 months in most agreements.
Your Agreement of Purchase and Sale (APS) with the developer contains vital information about Interim Occupancy, including:
The First Tentative Interim Occupancy Date: The earliest possible date for your unit's readiness.
Notice Period for an Occupancy Date Delay: The latest date by which the vendor can inform you of a delay to the First Tentative Occupancy Date.
The Outside Occupancy Date: The vendor may postpone your Interim Occupancy Closing multiple times until this date.
The Purchaser's Termination Period: If the unit is not ready by the Outside Occupancy Date, you have a 40-day window to notify the vendor in writing of your desire to terminate the agreement.
Understanding these dates is crucial, since delays are not uncommon. Once the vendor is confident that Interim Occupancy can proceed, they will set a Firm Interim Occupancy Closing Date.
Interim Occupancy Fees
Interim Occupancy Fees are a significant aspect of the Interim Occupancy phase. These fees essentially act as a form of "rent" paid to the vendor/developer, sometimes referred to as "phantom rent" or "phantom mortgage." These fees are composed of three components:
1-Estimated Common Expenses/Maintenance Fees/Condo Fees: Similar to a resale property, the unit owner is responsible for their share of Condominium Corporation costs. During Interim Occupancy, you must pay these monthly fees based on the proposed budget outlined by the vendor/developer, plus inflation.
2-Estimated municipal Realty/Property taxes: Just like a resale property, you are accountable for Realty/Property taxes. However, during Interim Occupancy, these taxes are not yet assessed, so the vendor/developer charges a reasonable estimate.
3-Interest on the unpaid balance of the purchase price: The vendor/developer can collect interest on the remaining balance of the purchase price, which is often linked to the Bank of Canada's 1-year conventional mortgage rate.
It's important to note that these fees are not counted toward the purchase price or considered as a deposit. According to the Condominium Act, 1998, section 80(4), vendors/developers are strictly prohibited from profiting from these fees. They solely cover the carrying costs of the development during Interim Occupancy, even if the vendor's construction mortgage interest rate is higher than the Bank of Canada's rate.
Unfortunately, there is no way to completely avoid paying Interim Occupancy Fees. However, you can offset some of these costs by increasing your deposits to the vendor/developer, reducing the unpaid balance of the purchase price. Reducing the time you are required to pay these fees can also help mitigate costs, as Interim Occupancy periods can vary from months to years. Renting out your unit during this phase can generate income to cover these fees.
Renting or Selling During Interim Occupancy
During Interim Occupancy, you, as the purchaser, are in a situation similar to that of a tenant. You possess the unit, but the vendor/developer retains ownership. Therefore, anyone other than you or a close blood family member wishing to reside in the unit must obtain the vendor's consent. Those purchasing properties for investment purposes must secure an Amendment at the time of signing the Agreement of Purchase and Sale, permitting them to rent or lease to a third party during Interim Occupancy.
If you intend to sell the unit during Interim Occupancy, you must do so by assignment with the builder’s consent. Since you only possess the unit and do not own it, you lack the right to sell a property that is not yet fully owned.
Final Closing: Ownership Transition
Final Closing marks the point when:
All units in the building are complete.
All final inspections are conducted.
The Condominium Corporation is registered with the Land Registry Office, establishing its legal existence.
Title can be transferred to the purchaser.
During Final Closing, you are required to pay the vendor/developer the remaining balance of the purchase price, either from your own funds or through a mortgage from a bank. This process also involves paying closing costs, such as Development Charges, utility connection fees, park levies, Land Transfer Taxes, legal fees, and other builder costs outlined in your Final Statement of Adjustments.
On the closing date, your lawyer ensures that the funds and documents are delivered to the vendor's lawyer. Upon registration, the property officially becomes yours.
It's essential to have your Agreement of Purchase and Sale reviewed by an experienced real estate lawyer to ensure a smooth transition from Interim Occupancy to Final Closing.
Conclusion
In summary, embarking on the exciting journey of purchasing a pre-construction home comes with the need to navigate unique processes. Condo buyers have additional considerations such as Interim Occupancy and Final Closing, as well as understanding the associated fees. To ensure a seamless transition to final ownership, having a trusted partner by your side is paramount. That's where Olea Financial steps in, serving as your expert support to help you secure the ideal mortgage and successfully navigate the financial intricacies of pre-construction home ownership.
For a confident start to your pre-construction home journey, reach out to Olea Financial today. Your dream home is just a step away! Whether you're in the early stages with a pre-approval or a letter of intent, Olea Financial can provide you with a clear understanding of your financial capabilities, ensuring a smoother process.
