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Do You Need a Real Estate Lawyer When Buying a Pre-Construction Condo?

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Do you need a real estate lawyer when buying a pre-construction condo? What does a lawyer do? How much does it cost? What kind of a lawyer should you hire? In this week’s episode Andrew la Fleur gives his tips and advice for hiring a real estate lawyer to represent you when investing in a pre-construction condo.

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Andrew la Fleur: Do you need a lawyer when you’re buying a pre-construction condo? What does a lawyer do for you? How much does a lawyer cost and what kind of lawyer should you hire? We’re going to dive into all these questions on today’s episode.
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: Welcome back to the show. Thank you for listening. Once again, it’s Andrew la Fleur here from truecondos.com. Today, we’re going to get very practical and answer a common question that I often get asked from first-time investors and that is do you need a lawyer when you’re buying a pre-construction condo? There are lots of other questions around that that we’ll get into as well. Let’s jump right into it and look at that first question of do you need a lawyer? Well, the answer is no. Technically, you do not need a lawyer, upfront at least, when you are purchasing a pre-construction condo. It is not mandatory to have one at the moment that you are signing for the unit. Of course, yes, when the building is finally completed, usually three, four years down the road assuming you’re buying pre-construction, you will need a lawyer to close the transaction for you as it is, at that point in time, going to be just a regular real estate transaction.
We are in Ontario assuming. In Ontario, every real estate transaction needs a lawyer to close the deal. Interesting, this is not the case in all jurisdictions, especially in many areas of the United States. You can close real estate transactions without the use of a lawyer which has its pros and cons but certainly greatly reduces the closing costs when you are purchasing real estate. In Ontario, which is the assumption that we’re talking about in this podcast, investing in the Toronto condo market, you do need a lawyer when it comes to closing the deal. Of course, when you’re buying pre-construction, you’re just signing the contract upfront, you’ll often hear that you should take the agreement to a lawyer to review it for you during your 10-day cooling off period. That is not mandatory but I always recommend that you do it. Even I, myself, having bought many condos over the years from many different builders, I will always take my agreement to my real estate lawyer to review it for me.
Why should you do this? Well, first and foremost, it is a legal document. You have signed a contract that will become a binding contract after the 10-day cooling off period. You, of course, need to understand what it is that you’ve signed. Usually, when you’re signing a contract for a condo, it’s 40, 50, 60 page document. You don’t have time to read through the document and understand it all as you’re signing it. That’s what the 10 days are for. You want to take that agreement to a real estate lawyer and, first and foremost, have them look at that contract in greater detail from a expert legal perspective and advise you on what it is that you have signed and what it means.
What you should a good real estate lawyer do for you when you take that agreement to them whether it’s a physical copy or you scanned it and you emailed it to them? What should the lawyer be looking for or doing for you? What should you expect them to do? What is it that they do? Well, first of all, it goes without saying, but they have to read the contract. Again, you have no time to read it. In most cases, most people never actually read the contract. You want, obviously, your lawyer to read through the contract, read it from front to back and to understand everything that is in it even though 90% of these contracts are the same, standard from one building to the next.
Any real estate lawyer who’s done any number of pre-construction condo transactions will be familiar with 90% of what’s in the contract before even reading it, they still need to read it. They still need to go through, and look, and make sure that there’s nothing in there that is not supposed to be in there that is going to put you in a risky position as a buyer because you’ve agreed to it. You’ve signed for it. You’ve given your check and that’s a done deal.
They’re going to read the contract. They are going to point out the most important parts to you. Typically what the lawyers that I work with will do is they will read the contract. They will highlight and make notes on the actual contract itself. Send that highlighted and annotated version back to you, the purchaser. Then you’ll have either an in person or phone meeting where you go through it, and they will point out to you the pertinent pieces of the contract and what everything means. This is what you’ve signed, and this is what your obligations are as a purchaser. This is what the developer’s obligations are as the builder. They’re going to point out those important parts.
They’ll also, hopefully, going to give you a breakdown of your closing costs. Of course, whenever you’re buying pre-construction, you will have closing costs. They will vary slightly from one building to the next depending on what is and isn’t included. It’s not a standard thing in Ontario where you have the exact same closing costs on every single condo. That is not the case. Every building is slightly different. Every builder has slightly different contracts with regards to who is responsible for what closing costs, the purchaser, the developer.
Of course, you have things like capped … Some closing costs will be capped. That is they will be set in a maximum. Usually the big one would be the development levies, development charges. These are charges that the city imposes on every builder for any new housing that they’re building. It goes to pay for services, and schools, and infrastructure, and roads, and everything that is required when new housing is added to a particular area. The development charges will vary from building to building. The amounts that they will be capped at, or in some cases not capped at all, will vary from contract to contract.
A good lawyer will actually give you a detailed breakdown of all of your expected closing costs. Some of the lawyers that I work with will actually give you an Excel spreadsheet. You can see it line by line exactly what your closing costs will likely be. Now, it’s not possible to get it 100% exact because a lot of it will be determined at the final closing, the final numbers, but you do want to have a pretty good approximation of what to expect on closing and you want to be prepared for that of course.
Other things that a good lawyer should go over with you, that is the HST, how the HST works, especially when you’re buying for investment. You do have to understand the HST for new condos and what your obligations are for that. Of course, I have plenty of resources on truecondos.com. If you’re looking for more information about HST, I’ve got lots of podcasts, videos and articles about the HST and how it is handled.
Another thing is assignments, how assignments would work. Do you have the ability to assign the unit? That is do you have the ability to sell the condo before the building is actually complete? That will be a clause that you will want to make sure that is in your contract. You want to understand how assignments can be done, and under what conditions, and if there is a cost or fee associated with doing an assignment. They may also talk to you about the occupancy period and how occupancy works in new condos in Ontario and whether or not you are, by way of a contract, permitted to rent your unit out during the occupancy period or not and what the implications are if you do or don’t do that.
Finally, just looking for any surprises or any unusual things that are in your contract, again, to protect you, the purchaser, from any risks associated with the contract that you have just signed. There are certain developers sometimes, I won’t mention any names, who do get a little creative with the fees, and charges, and things that they are including in the contract for the purchaser to be responsible for. Sometimes, to be honest, some developers will simply throw things into a contract and put burdens onto the purchaser to pay for certain things that 99% of the time the purchaser is not responsible for. They’ll simply put them in the contract. If they don’t hear anything from the purchaser’s lawyer, then great. They’re happy they don’t have to pay those fees. They wait until you ask about them before they will remove them. If nobody asks, then nobody gets it removed. If you ask, then often those kind of fees can get removed.
It really depends. It really depends on the builder. It depends on the situation that you’re purchasing in whether the condo is a super hot condo and they’re flying off the shelves. If you don’t take that particular clause in your contract and you’re going to cancel, they’re not worried about it because the next person will buy it. It really depends. Some builders are fantastic and they really have very, very fair contracts. I should say the vast majority of developers are fair and certainly developers that I work with and that I recommend to my investors. The vast majority of them will have very fair contracts that are very standard and, yes, you will have some closing costs but it’s nothing sneaky or unusual that they’re trying to put into those contracts. In the very rare chance that is the case, you do want to protect yourself as the purchaser. Those are things a lawyer is looking for.
What else do they do? Sometimes they will actually negotiate on your behalf with the developer to get some of those fees and closing costs reduced or deleted from the contract altogether. This is not always the case. Sometimes they just inform you that these are the costs in there, and they say, “You may wish on your own accord or your agent may wish on your behalf to try to reduce or eliminate some of these fees,” but they don’t do that for you. Most lawyers who are any good will go ahead and initiate that process on your behalf, send a letter to the builder and say, “These are the items that we are requesting to be removed or changed from the contract.” Of course, it’s always up to the developer to decide if they will actually agree to those changes or not. Again, it entirely depends on the situation, the builder, the timing, the market, the particular unit that’s being purchased, the amount of demand that there is for it. It varies widely between what will and won’t be done, and which builders will do things and which builders won’t.
Now, the costs. How much does it cost to have a lawyer do this for you during your 10-day cooling off period? Well, again, it depends. Some lawyers will do it at no charge with the assumption being that you will close the transaction with them three years down the road, and you will use them as your lawyer to do that so that the fee for reviewing the contract during the 10 days is already included in their closing fee that you will pay on closing a few years down the road. Some builders or some lawyers take a different approach and they just take a fee upfront for the contract review process. That fee could be anywhere between … I’ve seen a 150 to $300 depending on the lawyer. You want to actually find that out before you’re obviously initiating anything with your particular lawyer, what the cost is if there is one, if it’s included in the fee or not.
What are some of the biggest mistakes now to avoid when you’re looking at getting a lawyer to help you out with your pre-construction condo? Well, the number one mistake that I see is hiring an inexperienced or out of town lawyer. There are many, many real estate lawyers of course in Ontario and in the GTA just like there’s many, many real estate agents. Technically any real estate lawyer can do this service for you and review the contract for you, but you want to hire someone who is an expert in pre-construction condos. Hire a lawyer who does a large, large number of pre-construction condo purchases representing purchasers on the transaction every single month on a regular basis. They are closing and reviewing many contracts in the pre-construction condo world.
Just like myself, I’m an expert in the pre-construction condo market as a realtor and that’s why you want to hire someone like me to represent you as a buyer and not your mother’s agent, or your aunt’s friend, or somebody from Oshawa, or Hamilton, or Barrie, or somewhere to represent you buying a condo downtown who’s never sold a condo downtown in their life. The same thing. You want to hire a real estate lawyer who is an expert and who can give you expert advice, somebody who’s familiar with the contracts, familiar with the different builders and familiar with the different lawyer, law firms that represent the builders that write these contracts. That is major advantage to have on your side. You don’t want to hire certainly somebody who’s never looked at a pre-construction condo contract before because they are very different from resale transactions and resale contracts. They’re very different from commercial properties as well. You want to have somebody who is an expert in pre-construction condos.
I see that all the time. People hiring, again, their mother’s lawyer or they might have a corporate lawyer, something that technically could also do real estate transactions but they never do real estate, and so that’s not their area of expertise as a lawyer. You might even have somebody who’s an absolutely fantastic, topnotch, hit it out the park every time real estate lawyer for resale transactions but they’re not experienced at all with pre-construction condos. Again, they’re two different things. You want to have different lawyers for those different transactions. That’s the biggest mistake that people often are making that I see.
The second mistake is leaving it until the last minute. Once you signed your contract, you have a 10-day cooling off period. Again, it’s human nature. I get it. Procrastination, you put things off. We all do. You got the 10 days. You want to make sure that you get the contract to your real estate lawyer as soon as possible, ideally, within the first couple of days. Get it to them asap so they have time to review it for you. If there are any changes or questions for the contract that they can do that in a timely manner. You don’t want to bringing it to them on day nine of your 10 days and say, “Hey, can you take a look at this for me, Bob? It’s firming up tomorrow. I want to make sure it’s all good.” You just run into problems. It becomes a lot more stressful for you. Sometimes builders’ offices are closed. It just can get quite messy if you’re not doing it in a timely manner.
The third mistake that I see people doing is not doing it at all. Again, you do want to make sure that you always have your contract reviewed by a lawyer even if you think everything is fine. It is always recommended that you do that. I will always recommend that all my clients who are purchasing pre-construction will take their agreement to a lawyer because it is your right to do so during the 10-day cooling off period.
There you have it. That is today’s episode. I hope you enjoyed it. I hope you learned something. If you did, I hope you will share this episode with a friend who is investing in the market or thinking about investing in a pre-construction condo. Hopefully this was useful information for you. Until next time. Have a great week and we’ll talk to you soon.
Speaker 2: Thanks for listening to the True Condos Podcast. Remember, your positive reviews make a big difference to the show. To learn more about condo investing, become a True Condos subscriber by visiting truecondos.com.
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