New condo purchases can bring closing day surprises
By AdvocateDaily.com Staff
Hiring a lawyer can help buyers of newly constructed condos avoid surprises when closing day arrives, says Toronto real estate lawyer Daniel Bernstein.
Purchasing a new build is a “completely different transaction” from a resale and involves numerous extra steps and adjustments that many ordinary consumers may simply be unaware of, says Bernstein, a lawyer with Weltman Bernstein.
“All these extras and adjustments need to be pointed out to purchasers,” he tells AdvocateDaily.com.
The most potentially irritating difference comes on closing day, when the final price may not match the amount on the first page of the purchase agreement with the builder.
While resale purchase agreements tend to match the closing price — barring some small changes to account for prepaid items such as property taxes and maintenance fees — Bernstein explains that new units include numerous price adjustments to pay for things like utility connections, development levies, and Tarion fees.
“These charges could be as high as $10,000 or more,” Bernstein says. “These extras are set out in the schedule to the purchase agreement but unless purchasers read all the schedules they will be shocked on final closing when all the adjustments are added to the price.”
The good news for buyers is that many of the added costs are negotiable.
“Depending on the demand for the project and the identity of the builder, some of them can be deleted, but more likely capped. Purchasers can choose to negotiate directly with the builder or through their lawyers,” Bernstein says.
He says some people can also be tripped up by the fact that these deals have an extra closing date compared with resales. The first, known as the interim closing date, is when the purchaser takes possession of the unit. The second, or final closing date, is when the actual money changes hands. During the period between the two dates, a monthly occupancy rent is paid to the builder, which covers the estimated property tax, condo fees and interest on the purchase price.
Unlike resale closing dates, both the interim and final closing dates for new builds can be extended without the consent of either party due to the delays and uncertainty that come with construction deadlines.
Bernstein says prospective buyers also need to be told about HST, which is payable for new condos but not resales.
“The purchase price almost always includes the HST,” he says, noting that it is charged at a lower rate than the usual 13 per cent “because the builder assumes the buyer qualifies for the HST rebate for new residential homes.”
Those who don’t qualify, including anyone planning to rent or flip, will have to reimburse the builder for the rebate amount, which depends on the final purchase price, Bernstein says.
Luckily for consumers these transactions are conditional for 10 days, according to provincial legislation.
“That gives purchasers time to reconsider or have the agreement reviewed by a lawyer,” Bernstein says. “Resale transactions have no such legislated automatic review. If a purchaser wants to make his or her deal conditional then it must be written into the contract.”