What Condo Investors Need to Know About Renting During Occupancy

Andrew la Fleur: Hey, what's up condo investors? Before you rent out your condo during occupancy, you're going to want to listen to this podcast. Stay tuned.

Speaker 2: Welcome to the True Condos podcast with Andrew la Fleur, the place to get the truth on the Toronto condo market and condo investing in Toronto.

Andrew la Fleur: Hi there and welcome back to the show. Thanks again for tuning in. Today's show is one of those shows where I recorded the entire show and then when I went to save it, I accidentally hit delete so take two. Here we are. You'll never hear take one. You'll never know if the take two was better or worse than take one. You probably don't care. Let's get to the show. Okay, Andrew la Fleur here, your host. As always, truecondos.com. Thanks for tuning in. You can reach me, andrew@truecondos.com. You can call me or text me (416) 371-2333. And as I said in the intro on the teaser there, today's episode want to talk about renting out your condo during the occupancy period.

Andrew la Fleur: I wrote a big guide, official guide, ultimate guide, the Bible of renting out your condo during occupancy, if you will. I put that article together as a very long and detailed article, answering a lot of questions that people have asked me over the years. And especially recently as 2020 is a year where a lot of condo investors are getting their keys for the very first time on their new condos and going to rent out their units. Definitely check out that article on truecondos.com. Just go to truecondos.com, click on insights and you'll see the article there or just type in the search bar, renting out your condo during occupancy and it should pop up as well.

Andrew la Fleur: Not going to go over the entire article in this podcast, but I just wanted to sort of give a little bit of background about why I wrote the article and sort of what has sort of shifted and changed over the last 10 years or so. I've been in the game here selling condos and helping investors buy and sell their condos and rent out their condos since 2006. Truecondos.com has been a resource and there's articles going back to 2006, believe it or not, on truecondos.com and it's all free for you. Again, the idea is that it's going to be a resource, something valuable to you, something that you're going to get value from. And if you do, if you go ahead and share that with other condo investors that you know who could gain value from it too, that would be much appreciated.

Andrew la Fleur: Yeah, so wanted to, not so much rehash the article itself, but go more into the background. Let's about sort of how things have changed over the years with respect to renting out your condo during the occupancy period. Before we do that, what is the occupancy period for those who don't know? The occupancy period is the period of time when you have received the keys for your new condo that you purchased from a builder pre-construction most likely. Some years go by, three, four, five years and finally you get the keys and you have the right to occupy the unit, but you don't actually own the unit yet. Title has not transferred to you until the final closing takes place, which is usually some period of time later, around six months on average, but it could be anywhere from one or two months up until some buildings it might be a year between the time you get your keys, you occupy the unit and the time that you actually own the unit.

Andrew la Fleur: And so I've got articles about occupancy and occupancy fees and how that all works and you can dive into that in more detail. We're not going to get into that right now, but we want to talk about how the aspects of renting your condo out as an investor during the occupancy period, how that sort of evolved. Around 10 years ago, going back about 10 years or so, it was really like the Wild West and developers really didn't care what investors did with their units during the occupancy period. You could move into it, you could rent it out, put it on Airbnb, have parties in there, leave it empty, whatever you wanted as long as you paid your occupancy fees to the builder, they really didn't care. It was really a Wild West and developers just turned a blind eye and you'd see buildings finish and you'd see tons of rental listings going on the MLS and units would get rented out in a few months time. And then the building would close. Final closing would take place. The builder would move on and nobody really cared. And that's just how it was in those days.

Andrew la Fleur: I would say around five years ago, we started to see things start to change a little bit. We started to see some developers starting to suddenly care about what investors did during the occupancy period with their units. If they wanted to rent them out, some developers, a few started to sort of police it a little bit and say, "Okay, fine. You can do that, but you have to just be subject to our rules and conditions. You have to do it the way that we tell you." You might have to sign some paperwork. You might have to get an amendment. You might have to share your tenants' details on specific paperwork or forms. "You might be allowed to do it, but maybe we won't let you put it on MLS," we started to see some developers say and at the time, investors and agents were like, "Whoa, this is new. This Is a change. No one's ever cared before. Are you allowed to tell us what to do and dictate terms to us as investors in this building?"

Andrew la Fleur: And the answer of course was yes, legally. Again, you don't own the unit yet. It's the occupancy period. Once you own the unit and title transfer has taken place after final closing, of course you can do whatever you want with the unit and developer cannot stop you because it's your property. You own it. Title has transferred. But during the occupancy period, you don't own the unit. You just have the right to occupy it, subject to the conditions that are outlined in your contract. And most of the time contract will say something to the effect of, "You can't rent it out." Now again, in the old days, 10 years ago, nobody cared. Contracts were all written pretty much the same way and again, most of them would say something to the effect of, "You are not allowed to rent it out," but everybody did anyways and nobody cared and it was fine.

Andrew la Fleur: But again, about five years ago, we started to see a shift in that developers starting to crack down a little bit on it. Probably my guess and anecdotally, just from talking to different developers over the years, what happened was there were one or two bad apples that kind of just ruined it for the whole bunch and you had some cases probably where investors put their deposits down, then they got their keys, they rented out their unit and then subsequently they didn't close on the unit so the developer was the defaulted and the developer was stuck with a tenant in the unit that they had to somehow get rid of that tenant and resell the unit. And so, again, this was one out of a 1,000 units or something, but again, as things go, all it takes is one bad apple and things, we started to see things start to change. And we started to see more developers cracking down.

Andrew la Fleur: That was about five years ago, but majority of developers still were just like, whatever, go ahead. Do whatever you want. I'd say around about two years ago, that's when we started to see sort of the tipping point where it really went to most developers, the majority of developers were policing and caring and insisting on amendments in your contract or to your contract to allow you to rent during occupancy. We started to see the occasional fee pop up where a developer said, "Yes, you can do it, but you have to pay a fee to us in order to rent out your unit." And that was probably about two years ago. That's when things really started to shift, but there's been another change, another few changes over the last, I'd say 12 months or so, we've seen multiple developers do this where they're asking, not just for an amendment to say, "Yes, you can do it, rent out your unit."

Andrew la Fleur: They're also saying, "You have to pay us a fee for the permission to do so." To permission to rent it out. There's one fee. You have to pay us another fee for permission to advertise the unit on MLS. You can advertise it off MLS for no fee but if you want to put it on MLS, which is of course the place where everybody wants to have their rental listing because that's where the most exposure comes through the MLS system. If you want to put it on MLS, then you have to pay us a second fee, so multiple fees there. We're also seeing the biggest potentially, depends on every situation is different. Every building's different, but the biggest impact, potential impact you could say for investors that we've seen over the last year or so and multiple builders we've started to see do this, which is you also have to waive your rights to the delayed occupancy claim through Tarion.

Andrew la Fleur: If you don't know, Tarion, the home warranty corporation that all new builders in Ontario are subject to, they have a provision for delayed occupancy. You as the purchaser of a condo, you sign the contract. It says, it's going to be given to you by this date. If the developer doesn't meet their dates in the proper manner or if they change their dates but they don't notify you in the exact prescribed way that they must notify you, then they have to pay you a delayed occupancy fee for your trouble. As a purchaser of the property, you're not getting what they said they would give you are not giving it to you in the exact way that Tarion says they have to do it. That potentially is a value of up to $7,500. That's the maximum compensation that purchasers can get through Tarion delayed occupancy. Not many people know about this. And again, 10 years ago, nobody knew about this. This wasn't really a thing at all.

Andrew la Fleur: It was always sort of there, but it was just not a widespread thing. Sometime in the last five years or so, developers started getting massive, in some cases, multimillion dollar three, four, five, six, seven, I've heard as much as $7 million charges that they have to pay to purchasers in their projects at the end because they didn't meet the Tarion guidelines. Developers in the past year or so, we started to see some developers put this clause in there as well to say, "Yep, you can rent it out, but you must pay us a fee and you must also waive your rights or your claim, any right to a claim of delayed occupancy if there is one." There may or may not be, but you're waiving your rights to that if you want to rent out your unit during the occupancy period.

Andrew la Fleur: That's a big one. That's something definitely you need to be aware of and understand. You need to do some basic math and some calculus when you're deciding if you're going to rent out your unit or not, whether it is financially better to do so or better to actually wait. If you have a big delayed occupancy claim coming your way and you potentially are looking at having to pay fees for renting it out, depending on how long your occupancy period is. It's different for every unit, but you need to really sit down and make a plan and understand the numbers to see if it's worth doing or not in your case. All that being said again, there are some builders who still are not doing any of this. They're not charging you any fees. Some builders are now giving As an incentive, as a clause upfront in contracts, the right to rent out your unit during occupancy.

Andrew la Fleur: Just again, be careful and understand maybe you have the right to do that, but do they also have the ability to charge you a fee to do so that definitely consult your lawyer and make sure you have good advice on that so you understand that part of it. Because a lot of people are getting surprised at the time of occupancy with these fees and these and these amendments that they're being asked to sign in order to rent out their units. Again, the whole purpose of this guide and this podcast is to once again, just help educate and inform you the condo investor as to what is happening in the market right now. How did we get to where we are? Again, hopefully understand that a little bit better with the history, sort of a little quick history lesson there and where things potentially could go in the future because this could all change.

Andrew la Fleur: It's an ever changing and ever moving landscape and contracts are constantly evolving and market conditions and many different things are going to factor into where things are going to go in the future. But again, the main lesson is, be informed, understand what you're signing always when you're signing contracts, try to get the right to lease with no fees included in every contract if possible. Developers may or may not agree to that clause, but that's something you definitely want to try to get in your contracts all upfront, if you can or if you're, most importantly understand the track record and the history. If you're buying from a builder, talk to your agent, whether it's me or whoever your agent is and say, "When it comes to renting out this unit on occupancy, what can I expect? What does this builder typically do? How do they approach it? What's been the history so far with investors buying from this builder?"

Andrew la Fleur: Reality is that in 99% of cases and I go into this in the article, you're going to be allowed to rent out your unit during occupancy. I have actually never seen a case in my entire career where a builder has completely, 100% disallowed or forbid investors to rent out their unit during occupancy. You're always going to be allowed to do it, it's just how you do it. What conditions are around doing it? If there's fees or not, those are all the X factors are going to be different with every project, every builder. And just because it's one way with a builder this year on this project, next year or three years from now, it may be different. Just be aware of that and understand that.

Andrew la Fleur: There you go. Hope you found this podcast useful. This take two podcast of renting out your condo during occupancy. Of course, make sure you go back and take your time. Check out that article on truecondos.com, which goes into much more detail about all the different aspects of renting out your condo during occupancy. If there's things that I missed, I'd love to hear from you. Let me know what other questions or things that I can answer about this subject to make the guide even better and more useful for you and other condo investors who are using that. And as always, love to hear from you again, andrew@truecondos.com, (416) 371-2333. Text me or call me. And until next time, have a great week and happy investing.

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