I have a client who is in the middle of purchasing a new condo and we are currently in our 10-day rescission period. I am helping my client do their due diligence in reviewing their contract with a lawyer, making sure the financing is in place for the deposits as well as the mortgage, answering any questions that come up, and generally making sure they are totally comfortable before moving forward and finalizing the purchase.
In the course of our due diligence, this particular client had some concerns about occupancy fees or ‘phantom rent’ as it is also known. Whenever you purchase a new condo, there is a period of time between when you take occupancy of your unit and when you take ownership of your unit. This is known as the ‘occupancy period’ or ‘interim occupancy’.
You can’t own something that doesn’t exist, and in real estate in Ontario, a property does not exist until it is entered into the Land Registry system (until it is ‘registered’). This process takes some time in a new condo because there are often hundreds of units to register at the same time.
Once your unit is ready and liveable, you take possession of it, but not ownership. You must pay the developer for the right to live in the unit (no free lunch). The amount of the occupancy fees is roughly equivalent to the interest on the amount outstanding on the purchase price. For example, a $300,000 condo with 25% down means you must pay monthly occupany fees roughly equal to interest payments on $225,000.
The occupany period ends when the building is registered, your mortgage kicks in, and you get the deed to your property.
So should you let the occupancy fees deter you from purchasing a new condo? Absolutely not! Here are 5 things to know about occupancy fees:
- Occupancy fees will have to be paid to the developer every time you purchase a new condo. It is normal and there is no way around it.
- The occupancy period is normally 3-6 months, but the higher up you are in the building, the shorter the occupancy period will be. So if you buy a unit on the ground floor, you can expect a long occupancy period. If you buy the penthouse, you will likely have a very short occupancy period.
- There is no way to say absolutely how long the occupancy period will be.
- There is often a relationship between the length of the occupancy period and the experience level of the developer. The more experienced the developer, the shorter the occupancy period. Experienced developers who are familiar with process and who have diligent lawyers working behind the scenes for them know how to build and how to register a building as quickly as possible.
- It is in the developer’s best interest to register the building as quickly as possible and to have the occupancy period as short as possible. This is because they don’t get their money from the banks until the building is registered and all the unit owners have their mortgages commence.
I always appreciate your feedback. Leave a comment or send me a private message via my contact form.
Link to a recent Globe and Mail article on occupancy fees.
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Assignment advantages for Sellers | Toronto Condo Assignments | TrueCondos.com - The Best Source for Toronto Condos Says:
April 17th, 2009 at 9:42 am[...] occupancy fees. There has been a lot of talk about occupancy fees (or phantom mortgage) lately as horror stories have emerged of some buyers paying fees to the [...]
December 18th, 2008 at 3:13 am
Great blog!
Why does it take so long to register the property at the Land Titles Office?
Here in Vancouver it takes a day!
January 29th, 2009 at 7:38 am
Nice Blog..
It really takes a long time for registering the property. But i think the period for registration can be shortened by doing it in a proper manner..
April 29th, 2009 at 10:25 am
when a condo is “registered” how long do you have to wait to put it on the market for selling? we got word that the condo registered yesturday and it would be another 4 weeks for full registration. during this period can we advertise? or do we have to wait the full 4 weeks?
April 29th, 2009 at 4:32 pm
Hi Liisa. Thanks for the comment. You should be ok to list your property on the MLS immediately. By the time you find an buyer and close the transaction the registration process should be complete. But just to make sure your Realtor should always check with the developer first. Don’t want any surprises!
April 30th, 2009 at 9:50 pm
What happens when your cooling period expires on the day the sales office is closed? Do you get an extra day(s). I’m in a situation wherein my lawyer has sent a few conditions to the builder regarding my condo two days before my expiration date. We have not yet heard from the builder.
April 30th, 2009 at 10:17 pm
As far as I understand it, by the letter of the law, you do not get any extra days unless explicitly agreed upon between buyer and builder. But in practice, *usually* you would be given more time if your lawyer has put in requests but not heard back. You should always ask for more time from the builder than 10 days if you still have outstanding issues at the end of the 10 day period.
May 6th, 2009 at 1:57 pm
I am purchasing a new condo currently under construction.
One of the major banks gave me a capped commitment of 4.44% for a
4 year fixed rate mortgage back in January. The commitment is for 18 months.
Yesterday I was offered a lower capped rate of 3.75% for 5 year fixed rate mortgage by another bank.
Can I take the new committment or am I legally obligated to deal with the first bank.
May 7th, 2009 at 4:48 pm
@neilm
If you haven’t signed a commitment letter with the first lender you are not obligated to go with them. It is most likely just a pre-approval you have with them. You should be able to shop around right up until closing day as long as you don’t sign a commitment with anyone.
June 1st, 2009 at 11:18 am
I am an owner of a condo that is not yet registered though we have already had the interim closing. Is there any way I can sell the condo before it gets registered?
September 11th, 2009 at 12:42 pm
Your blog is so helpful. I just bought my first condo at the top of one of the ICE towers and I want to thank you– your blog has answered many of my questions and brought my attention to my new home!
November 3rd, 2009 at 1:01 am
Hello, we have lived in our new condo for 13 months now this November 2009 and we are still paying the occupancy fee. What is the maximum no of months the builder can ask for occupancy fees? Will it be no limit until the building is fully registered? Is there any claim we can get from them regarding this delay aside from the first Delayed Occupancy Claim we filed before we reach our first year in our condo? Many thanks in advance for your advise. – DC
November 5th, 2009 at 12:48 pm
When buying a condo for investment purposes, how does a purchaser get around the owner-occupied requirements that most builders have in the APS (for gst purposes). Also, do vendors typically allow the unit to be rented during the occupancy phase?
November 9th, 2009 at 12:14 pm
Great question: best advice is to talk to a lawyer and and accountant with all tax-related matters.
No, typically builders do not allow it, however, in practice, very few enforce this rule.
November 9th, 2009 at 12:15 pm
Wow. 13 months is a long time. What building is this? Consult your agreement of purchase and sale and talk to your real estate lawyer.
January 8th, 2010 at 10:33 pm
I understand the concept of Occupancy Fees, but how do you know at what rate interest will be charged? The Condominium Act of Ontario refers to a “prescribed rate”, but which rate is the “prescribed rate”? Is this the CRA’s monthly rate, Bank of Canada rate, or something else entirely?
Thanks for your comments.