RESOURCES

Congratulations, you finally received a notification from the Builder that the preconstruction condominium that you booked a couple of years ago is now complete and your Occupancy Closing is approaching. You are on cloud nine that you will finally be able to move into your dream home. Everything is sunshine and rainbows…… UNTIL you are told by your lawyer that you have to pay a monthly fee, which will not go towards the purchase price, will be almost equal to your budgeted mortgage payments and there is little you can do about it now (Note – to avoid such surprises, contact our office for an APS review as soon as you sign).

Pre-construction condominiums are usually completed through a two-staged closing process. On the day of the Occupancy Closing, the possession will be transferred to you. The Builder will allow you to occupy your new unit according to the APS and/or an Occupancy License Agreement. In return, you will pay a monthly fee (almost like a rent) to the Builder. On the Final Closing date, the title will be transferred to you and the transaction will be completed. This is the day when you become the actual owner and stop paying the monthly Occupancy Fees.

So, what is this Occupancy Fees?

According to Section 80(4) of the Condominium Act, 1998, –

If the purchaser assumes interim occupancy of a proposed unit or is required to do so under the agreement of purchase and sale, the declarant may charge the purchaser a monthly occupancy fee which shall not be greater than the total of the following amounts:

1. Where applicable, interest calculated on a monthly basis on the unpaid balance of the purchase price at the prescribed rate.
2. An amount reasonably estimated on a monthly basis for municipal taxes attributable to the unit.
3. The projected monthly common expense contribution for the unit

Majority of the Agreements for preconstruction condominiums will require the purchasers to complete an Occupancy Closing when their unit is considered fit for Occupancy and will further require them to pay the maximum amount of Occupancy Fees allowed under the sub-section. Therefore, the Occupancy Fees will comprise of – (1) Interest on unpaid balance of purchase price; (2) Property Taxes; (3) Common Expenses

Interest on unpaid balance – the first component, that forms the majority of the fees is interest on the balance that is deferred to the Final Closing. Unpaid balance is usually equal to total purchase price, less the deposits, less balance paid on Occupancy Closing. According to Ontario Regulation 48/01, interest rate for the purposes of this subsection 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”. O. Reg. 48/01, s. 19 (1). (Note – we might be able to help you save some interest, only after having reviewed your APS)

Property Taxes – the second component is the estimated property taxes. Annual property taxes are estimated considering the total purchase price and tax rates of the city in which the property is situated.

Common Expenses – amount of monthly common expenses as projected in the proposed condominium declaration.

EXAMPLE

To better understand, please see an example below –

Before proceeding, I would like to add a caveat. The calculations below are estimated and should only be seen as an example. They do not guarantee that your Occupancy Fees will be the same in similar circumstances.

Consider a preconstruction condominium in the City of Toronto with total purchase price of $400,000.00. Let’s make it $800,000.00, well… its Toronto. Deposits have been paid in the amount of $80,000.00.

Purchase Price = $800,000.00

Deposits = $80,000.00

Balance paid on Occupancy Closing = $20,000.00

Unpaid Balance = Purchase Price – Deposits – Balance paid on Occupancy Closing = $700,000.00

Rate of Interest currently posted by BOC for 1-year conventional mortgage = 6.09%

Yearly interest on unpaid balance = $42,630.00

(A) Monthly interest on unpaid balance = $3,552.50

Residential Property Tax rate in Toronto = 0.631933%

Estimated Yearly Taxes = 800,000 x 0.631933% = $5,055.46

(B) Estimated Monthly Taxes = $421.29

(C) Common expenses (assumption) = $400.00

Total Occupancy Fees = A + B + C = $4,373.79

To reiterate, this calculation should only be considered as an example. Your Occupancy Fees can differ in similar circumstances depending on other factors and factors discussed above being subject to change.

Now you have an idea of what Occupancy Fees is and why it should be taken into consideration before you decide on firming the APS. It is important that a real estate lawyer reviews your APS and confirms the Occupancy provisions. If you have entered or are considering entering into an APS for a new build, please do not hesitate to contact our office to get a review done.

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Yashkaran Singh is an Associate Lawyer at Kormans LLP. You can reach Yashkaran here: ysingh@kormans.ca The information and comments herein are for the general information of the reader and are not intended as advice or opinion to be relied upon in relation to any particular circumstances. For particular application of the law to specific situations, the reader should seek professional advice. Kormans LLP cannot be responsible for the content of other sites. We expressly disclaim all liability with respect to actions taken or actions not taken based on content received from a third party website linked, directly or indirectly, to that of Kormans LLP.  The link to another site is not to be construed in any way as an endorsement of the host, the site or the information contained therein, nor is such link to be inferred as an association or affiliation with the host.