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J. Scott Wilson
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What are occupancy fees?

When buying a pre-construction condominium, it's important to know about the (interim) occupancy fees.

The Condominium Act requires condo developers to be substantially constructed prior to registration of the condominium plan. Obtaining title to a unit is not possible until the development has been registered.

Newly built condominiums have two "closings". The "interim closing" occurs at the time of occupancy and the "final closing" occurs at the time of registration.

The process works like this; the developer undertakes to build a condo development by submitting a site plan with the Municipality. When the Municipality registers this site plan it becomes a "Registered Site Plan", setting out precisely what the developer is promising to deliver.

The developer then sells the suites as "pre-sales"; based on floor plans, brochures, etc. Once the developer sells enough units, say 75% or more, they start construction while continuing to sell the remaining units.

Upon completion, the Municipality verifies the building to be in accordance with the registered site plan and issues the "Occupancy Certificate".

Since the buyer's down payment is deposited into the lawyer's trust account, the developer does NOT receive and monies until the building registers (final closing). In most cases, the developer borrows the construction financing from lenders until they receive monies held in trust on closing.

Upon receiving the occupancy certificate, the developer contacts all the buyers notifying them of their occupancy date, starting from the lower floors up, spread over a few months. This is the first (interim) closing.

At this juncture, the developer is unable to transfer title to the purchaser. The Municipality still has to inspect the development to ensure that the developer had delivered exactly what the original "Registered Site Plan" represented. This process can take anywhere from 4 - 6 months.

Upon completing its due diligence, the Municipality registers the building, this is the second (final) closing, at which time purchasers will receive title to their unit(s) and the balance of their purchase price is transferred to the developer along with their initial deposits held in trust.

During the interim occupancy period the buyers undertake a portion of the developer's mortgage, also called a "Phantom Mortgage", which is equal to their proportionate share of the overall project.

The "Interim Occupancy Fee" is comprised of three components and is roughly equivalent to the:

  • interest calculated on monthly basis on the unpaid balance of the purchase price (the rate is protected under the Condominium Act)

  • the monthly maintenance fee contributed for the unit, and

  • a factor for property tax

The purchaser can avoid paying the interest portion of the occupancy fee should he/she elect to pay the full balance of the purchase price owing on the date of occupancy. In order to do this, the purchaser, or his/her lawyer, must request this during the 10 day rescission period (cooling off period after signing a purchase agreement).

In all cases, it is the prerogative of the developer to include or exclude any of the above components in the occupancy fee, as long as this is made clear in writing and disclosed in the developer’s disclosure documents.

The interim occupancy fee does not accrue to the mortgage, hence it's frequently interpreted as "rent".

The above article is for informational purposes only and may not be interpreted as, or substituted for, legal advice of any sort.

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