Why You Should Have a Lawyer Review Your Agreement of Purchase and Sale When Buying a Pre-Construction Condo
When purchasing a pre-construction condo, especially for the first time, you should always have your contract reviewed by an expert real estate lawyer. Find out in this episode why this step is necessary not only to protect you from the developer, but also from yourself!
1:55 2 Main reasons why you should take your agreement to a real estate lawyer.
4:20 Normal closing cost to be expected when purchasing pre-construction condo.
5:27 Making sure that development charges are capped.
5:57 Making sure that you have an assignment clause.
7:21 A little bit of information is a dangerous thing.
10:31 Advice for anyone purchasing pre-construction in terms of what lawyer you use.
Speaker 1: So you just signed a contract and you now purchased a pre-construction condo. Your 10 day cooling off period has begun. Find out why you should have a lawyer review your agreement on today’s episode.
Speaker 2: Welcome to The True Condo Podcast with Andrew LaFleur, the place to get the truth on the Toronto condo market and condo investing in Toronto.
Speaker 1: Hi and welcome back to the show. Today’s episode I want to talk to you about why you should have a lawyer review your agreement of purchase and sell, your contract when you’re purchasing a pre-construction condo. Just to recap, with every pre-construction condo in Ontario you do have what’s called a 10 day cooling off period, or a 10 day conditional period, also known as a rescission period. During this time, it’s 10 calendar days not 10 business days, during this time after you have signed the contract you are for any reason, if you change your mind and you do not want to go ahead with the purchase, you’re able to do so. You’re able to cancel the agreement and get your deposit checks back. This is by law in Ontario when you’re purchasing a new condo.
That’s a good thing and it’s something that’s always been there. It’s something that is obviously for your protection as a buyer and as a consumer in Ontario. Now, what do you want to do during that 10 day period? The main idea is obviously that you want to make sure that you’re comfortable with your decision and you want to go ahead with it, but the number one way that I recommend that you help yourself to make that decision if you haven’t already is to take your agreement to a real estate lawyer and have them review it for you and with you.
There’s two main reasons why you should do that. Number one is to protect you from the developer, and number two is protect you from yourself. The first one might be somewhat obvious what it means, the second one we’ll get to that in a minute. The first one is as I said, protect you from the developer. What I mean by that is you want to make sure that the developer that you’re purchasing from and who has written the contract that you have just signed, 40, 50, 60 pages of contract that you probably signed in a matter of five or 10 minutes at the condo sales office, and then you were on your way.
Obviously you didn’t sit down and read the 50, 60 pages, which would take many hours to do. That’s what the 10 days are for, it’s to review all the contract in detail. Reality is that 95% of these contracts from one building to the next are pretty much the exact same. There’s really nothing 95% of the time and there’s really nothing to worry about or to be concerned about, but you do want to be educated and you do want to understand what it is you signed. It is a legal legally binding contract with consequences, so I always recommend to my clients to go through that process, especially if you have never done it before, if it’s your first time purchasing a pre-construction condo.
You really want to go through that educational experience of having a expert lawyer in pre-construction condos review that contract with you, walk you through it and help you understand what it means, what you’ve signed and what the terms and conditions are and what the closing costs are that you can expect, what risks are inherent to the contract itself and so on.
Again, the number one thing, the number one reason you want to do it is to protect you from the developer, so you want to make sure that the developers hasn’t put in any unusual or out of the ordinary or onerous clauses into the contract. For example, there’s time occasionally where a developer may try to pass along certain closing costs to you as a purchaser or certain costs associated with building the building to you as a purchaser that are not considered normal. There’s always normal closing costs, that are to be expected when you’re purchasing a pre-construction condo. They are in every building, they’re unavoidable, but there are maybe certain items that developers will try to slip in and basically hope that nobody notices.
You could be hit with a surprise obviously on closing, even if you are seasoned condo investor who bought many condos, there could be a case where a developer could do something like that. Again, like I said, 95% of the time this is not going to be the case but it’s a very big purchase when you’re purchasing real estate, biggest purchase of most people’s lives when you’re doing a real estate transaction, so you might as well get good professional advice on what it is that you signed and what’s all in the contract.
Of course without getting into every detail of the closing costs in this episode I will include a link to an article about closing costs and what to expect, but the two big ones that you want to make sure that you are protected from a consumer standpoint is, you want to make sure that your development charges are capped, that is they have a maximum amount they could be at closing, because development charges are constantly increasing from the city and if they are not capped they could theoretically be any number. They could $20,000, $30,000, $40,000, theoretically on closing, as opposed to having them capped at say $5,000 or $10,000 or $12,000, and then you know that’s the maximum amount that they could ever be. That’s the first thing.
The second thing is you want to make sure that you have an assignment clause. You want to make sure that you have the ability, just in case, to sell the property before the project is complete, because usually when you’re buying pre-construction that building’s not going to be ready for three, four, five, in some cases six or seven years, if something goes wrong. That’s a long period of time, you want to make sure that as a buyer you’re protected in case it does take longer than expected, in case your life changes between when you purchase and when the building is finished. You want to be able to have the ability to assign the unit, to sell the unit before the project is complete if you’re not able to or you do not want to close on the property for some reason.
Those are the two big ones there. Again, why should you have your lawyer review your agreement of purchase and sale? Number one is to protect you from the developer who you signed the contract with, and make sure that there’s nothing unusual or untoward or onerous or strange in the contract. Number two, as I said, is to protect you from yourself, protect you from yourself.
What I mean by that is that, especially for first time buyers, a little bit of information, you may have heard the expression, I don’t it exactly but basically this idea that a little bit of information is a dangerous thing. If you only have part of the picture and not the whole picture, it’s a dangerous thing because you could be making a decision whether to go ahead with the purchase or to cancel the purchase during your 10 day cooling off period without having the full and proper information in front of you.
Obviously whenever you’re making a big decision like this you want to make sure that you have all the necessarily information in front of you to make that decision. I’ve seen so many times, time and time again over the 10 years of doing this, of selling pre-construction condos, people making decisions, whether like I said to keep the condo or to cancel the condo after they’ve purchased it during their 10 days, based on incomplete information. You’re doing yourself a disservice when you’re making a decision without having all the information.
Make sure you do go through that process and have your lawyer review it with you, walk you through the contract, explain everything to you, so that you have the full spectrum of information at your disposal and then you can make a proper decision with that information. Again, so many times I’ve seen people just glancing through a contract themself or worse, just talking to a friend or someone in their family who they trust or think they should trust about real estate matters, and that person might for example say something like, “Oh you bough a pre-construction condo, you’re crazy. Didn’t you know there’s X dollars or X thousands of dollars in hidden closing fees? Therefor you should never buy a pre-construction condo, only fools would buy pre-construction condos, where did you get the idea?”
But basically they’re getting bad advice, they’re getting misinformation or partial information, or just flat out incorrect information, from various sources without going to a professional, an expert, a real estate lawyer who deals with pre-construction condos, to actually go through their contract, not a theoretical contract, not talking about the building nextdoor or the building last year or the building from this builder or that builder or in general condos are like this. No. We want to get exact, specific advice and information from a professional expert real estate lawyer about our specific contract that we just signed.
I know it sounds ridiculous probably to most of you listening but this is something I see all the time, is people not taking that step or again, people making decisions based on impartial or incomplete or uneducated or uninformed information or opinions from other people without actually hearing from the proper source, which again is a expert lawyer who deals with pre-construction condos.
On that note, my advice for anyone purchasing a pre-construction condo in terms of what lawyer do you use, there’s a temptation to use the family lawyer that your family has used or the real estate lawyer on the corner down the street next to your house or your office, because they’re close by to you and you feel like that’s convenient. They may be great. They may be a excellent resource, but chances are they are not experts in pre-construction.
There’s real estate lawyers all over the place, just like there are real estate agents all over the place, but just like I am an expert and I am a specialist in the pre-construction condo world, you also want to have a lawyer who is an expert in the pre-construction condo world, somebody who’s been through not five or six or 10 contracts, but hundreds and hundreds of contracts. They know what to look for, they know what’s to be expect in there. They know the different lawyers representing the different developers and what they include in their contracts and what they don’t, what they may change in their contracts when requested or what they won’t, and so on.
The latest government rules and regulations around handling closings and assignment and CRA and SHT. There’s so many issues that you want to have an expert who’s a specialist in the area that you’re purchasing in, which is pre-construction condo. If you want to go ahead and choose your own lawyer or use a lawyer that you’ve used in the past, that’s fine, I just recommend that you ask them first how many pre-construction condos purchases have you done? How many contracts have you reviewed? If the number is in my opinion less than say 50 or 100, they are probably not to be considered an expert in this area. If they say, “Yeah, we do one or two a month,” kind of thing, obviously not as good as somebody who says, “We do dozens or hundreds of contracts a month.”
Again, that’s the lawyers that I work with personally for my own purchases and the lawyers that I recommend to my clients to use. That’s the type of lawyers that they are, they are experts in this area. They do hundreds and hundreds of pre-construction condo contract reviews and pre-construction condo closing every year, and so they are experts in this area and they’re going to give you professional, expert, top, top advice so that you can make the best informed decision on your condo purchase.
Okay, so there you have it. I hope you enjoyed today’s episode and I hope that it was useful to you. Maybe you’re, like I said, in the middle of purchasing a condo right now and you’re wondering what lawyer to use or how to go about this, go ahead and email me anytime, [email protected] I can hook you up with the lawyers that we recommend or you can always text me 406-371-2333. I look forward to hearing from you soon. Until next time, have a great week.
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