5 CRITICAL ITEMS IN PRE-CONSTRUCTION PURCHASE AGREEMENT IN TORONTOBy CondoWong Friday, December 13, 2019
When you purchase a pre-construction condo, you sign a 30-50 page agreement with the developer.
The long agreement can be a little overwhelming.
Today, I’m going to share with you 5 critical items that you should look for in a pre-construction agreement.
#1 Basic Information
The Purchaser - that’s you. Make sure your name is spelled correctly.
The Unit - you will see the unit being described as the suite, level and unit. For example Suite 908, Level 8, Unit 7.
Hold on...it looks like there’s a mismatch. Shouldn’t it be Level 9, Unit 8?
The suite number is set by the developer and the developer may choose to skip numbers like 4, 13, 14 etc.
The unit and level numbers are legal numbers and no skipping is allowed.
In the case of Suite 908, the developer has decided to skip the number 4.
Since there’s no skipping in the legal description, the numbers are 1 down, Level 8, Unit 7.
The Purchase Price - make sure the prices for the unit, the locker and the parking are all correct.
The Deposit Structure - typically it’s 20% paid within a year. Make sure the amount and the timeline is according to your expectation.
Upon final closing of your unit, the developer is going to send you a bill with the remaining balance of your purchase price, plus any other extra charges.
This bill is called the “Final Statement of Adjustments”.
The “adjustments” section of the purchase agreement details all the extra charges that you may have to pay on closing.
The biggest adjustment that you need to be aware of are charges that are related to the Development Charges Act, the Education Act and the Planning Act.
These fees are not charged by the developer, but rather the government, for building parks, schools, transit systems and so on in the neighbourhood.
Some developers may put a cap on these government charges.
For example, the maximum amount you need to pay will be $18,000 and the developer will cover anything else on top of that.
In general, you should budget around 3-4% of the purchase price to cover these government charges on final closing.
If you like me to do a video to walk you through each of the items on the final bill, you can leave a comment in this YouTube Video.
These are the add-ons to the standard purchase agreement.
For example, if the developer provides some purchase incentives, they are often added as amendments.
Some typical amendments include:
- Caps on the government charges
- Free assignment
- Permission to lease during the interim occupancy period
Another example would be an add name amendment.
Say you want to add your son’s name onto the purchase a year later, he would be added by amendment.
#4 Tarion Completion Window
As we discussed before, every developer in Toronto must enrol in the Tarion new home warranty program prior to construction.
So you will notice that there are around 12 pages of Tarion statements and schedules attached to the end of your purchase agreement.
The 1st page is the Statement of Critical Dates and there are 4 important dates that you need to pay attention to.
Let’s say you sign a purchase agreement today and the First Tentative Occupancy Date is set to May 2, 2022.
If there’s any delay and the date can’t be met, the developer must provide written notice 90 days prior to the original date.
The developer may delay the occupancy date for multiple times.
Is there a limit?
Yes, that’s called the Outside Occupancy Date.
If the developer fails to provide occupancy by the Outside Occupancy Date, then you may terminate the agreement within 30 days and get your deposit money back.
#5 Zoning Approval
The 2nd Tarion page confirms whether the developer has obtained Formal Zoning Approval and when construction is expected to start.
Reputable developers typically obtain zoning approval first, then they start selling.
You may choose to purchase a project without formal zoning approval at the time of purchase, but you need to understand the risk.
There’s a chance that the city does not approve the project, in which case, the project would have to be cancelled and deposit money returned to you.
So those are the 5 critical items you should look out for in a pre-construction purchase agreement.
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