Looking at floor plans and picking custom finishes when purchasing a brand-new property is an exciting time. However, the size and complexity of an Agreement of Purchase and Sale for a pre-construction property, commonly referred to as a “new build”, can be daunting and intimidating for prospective purchasers. Prior to entering into a binding Agreement of Purchase and Sale for a new build, it is of the utmost importance that you understand exactly what you are signing, as the majority of the clauses in the agreement are drafted to be advantageous for the builder.

Below are 5 items to watch out for when executing an Agreement of Purchase and Sale with a builder.

(1) Adjustments on Closing

When you enter into a pre-construction agreement, there will often be provisions relating to “adjustments”. These adjustments are costs that are in addition to the purchase and are payable to the builder on the closing date. These additional charges may contain, but are not limited to, the following:

• Tarion Enrollment Fee
• Cost associated with utility meters and installation
• Realty taxes
• Levies and Development Charges (charges imposed by the Municipality)
• Miscellaneous Builder Fees (i.e. builder’s mortgage discharge fee)

If left uncapped, adjustments on closing can exceed tens of thousands of dollars. Note that the exact amount of adjustments payable will not be known until shortly before closing. Your lawyer may be able to negotiate reasonable caps and deletions to these adjustments. This can provide clarity for purchasers when budgeting for the final closing date.

(2) Restrictions Relating to Assignments and Leasing

If you intend on assigning an Agreement of Purchase and Sale or leasing the unit during a potential occupancy period, you should be mindful of any restrictions contained in the agreement. Builders will often incorporate a provision stating that all assignments, leases, and sales are prohibited until after the final closing date and that you are prohibited from advertising the unit on any platform. For example, a clause of such nature would prohibit you from advertising or listing on Multiple Listing Services (MLS). These provisions also usually contain a clause stating that if the vendor consents to a request for an assignment or lease, you will be required to pay the vendor’s “administrative fee”, in addition to their lawyer’s legal cost. Note that these assignment and lawyer fees can exceed $10,000.00.

(3) Harmonized Sale Tax (HST)

When purchasing a newly constructed property, the transaction will be subject to HST (13% of the purchase price). Some builders will incorporate the HST into the purchase price, while others will make it payable in addition to the purchase price. If HST is included in the purchase price, the builder will usually insert a provision stating that you will qualify for all HST rebates and that you agree to assign the benefit of same to the builder. To qualify for the HST rebates, you will need to occupy the property as your principal residence. If you do not meet the requirements for these HST rebates, you may have to pay the equivalent of same on closing. Note that this amount can be approximately $24,000.00.

(4) Tarion Statement of Critical Dates

When entering in to a pre-construction agreement, it is important to be mindful of the Tarion Statement of Critical Dates and the vendor’s ability to extend such dates with proper notice. The Tarion Statement of Critical Dates provides purchasers with tentative closing dates, in addition to the “Purchaser’s Termination Period”.1

In certain circumstances, you may be entitled to delayed occupancy compensation, however, it is important to note that the maximum delayed occupancy provided under Tarion is $7,500.00 ($150.00 per day up to this amount). Therefore, if a delay exceeds 50 days, you will not be entitled to further compensation under Tarion’s delayed occupancy regime.2

(5) Occupancy Fees (if applicable)

Some pre-construction properties may be subject to an occupancy period (i.e. an interim or occupancy closing). During this period, you will effectively rent and occupy the dwelling from the builder until the final closing can take place. You will often be required to pay a monthly occupancy fee, which is usually comprised of interest on the unpaid balance due to the builder, condominium fees (if applicable), and property taxes. Outside of the occupancy fee, you will often usually be responsible for the payment of all utilities. It is important to note that these monthly occupancy fees are not credited towards the purchase price.

Importance of a Real Estate Lawyer’s Review

Prior to finalizing a pre-construction agreement with a builder, it is imperative to have a real estate lawyer review your agreement. Your real estate lawyer will be able to highlight any concerning provisions and may be able to negotiate favourable amendments with the builder’s lawyer on your behalf.

If you are looking for a lawyer to review your pre-construction agreement or act on your behalf in a real estate transaction, please do not hesitate to contact Jason Lane, lawyer at Woitzik Polsinelli LLP at 289-220-3241 or at jason@durhamlawyer.ca.

“This article is intended to inform. Its content does not constitute legal advice and should not be relied upon by readers as such. If you require legal assistance, please see a lawyer. Each case is unique and a lawyer with good training and sound judgment can provide you with advice tailored to your specific situation and needs.”

This blog was co-authored by Articling Student, Jaimin Panesar.