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BUYING A NEW CONDO FROM A BUILDER: WHAT CAN GO WRONG !!!

1)    Surprise Closing Costs

A builder's agreement to purchase a newly constructed condo (in contrast to the simplicity of a resale condo) contains pages of fine print which are NOT standard for each builder since each has it's own pet clauses. The "adjustments" chargeable on closing (in addition to the upgrades ordered by a purchaser at time of colour selection and in addition to the closing costs of legal fees, legal disbursements and land transfer tax) can be substantial. In the last few years, many builders have been more creative in their fine print for items charged on closing which adjust the ultimate purchase price upwards- e.g. the unit's share of the building's sewer connection charges, education development charges, bulk hydro meter, estimated property taxes for the year after closing (as well as for the balance of the year of final closing), initial reserve fund contribution, subway connection charge, (if applicable) etc., with each such charge ranging from a few hundred dollars to two thousand dollars plus. The total of such adjustments (depending on the builder's fine print) can add up to a nasty surprise on final closing.

2)    Room Sizes and Square Footage

Walk into a new condo site and you will be provided with glossy brochures showing layout (floor plans) of the various models with room dimensions and square footage of the model which can magically disappear from the floor plan (with many builders) as soon as an offer to purchase is being signed. Remember, the builder's promotional advertising is not meaningful since what counts is the actual terms in the agreement of purchase and sale signed by purchaser and by builder. If it is not in writing within the terms of such agreement, the contents of the glossy brochure mean nothing. Verbal assurances by the builder’s sales representative will not help. It is wise to insist that the floor plan showing room sizes and square footage be a schedule inserted in the builder’s sale agreement being signed by the buyer.

3)    Does a Buyer Get Interest on Deposits When Buying From a Condo Builder?

Section 82 of the Condominium Act states that the builder must pay the buyer interest on all deposits paid before the interim occupancy closing and only up to such occupancy closing date. However, the prescribed rate of interest referred to in section 82(1) is defined in section 19(3) of Ontario Regulation 48/01 as 2% per annum below the Bank of Canada overnight bank rate which currently is only 1%; therefore, money on deposit with a builder is not earning any interest now. In fact, money on deposit with a builder going back to December 9, 2008, earned ZERO interest since that is the date that the overnight Bank of Canada rate dropped from 2.25% to 1.50%, and has remained below 2% since such date. NOTE: The Bank of Canada overnight bank rate is typically a lower rate than the Bank of Canada prime rate.