Before entering into an agreement of purchase and sale for a pre-construction condominium unit, it is important to understand certain key provisions of the Condominium Act (Ontario) (the "Act"). This legislation stipulates that before the registration of a condominium plan, the construction of the development must reach a substantial level before the units are transferred to the prospective purchasers. The transfer of title to the units is prohibited until the condominium is officially registered. As a result, it is common for condominium units to be ready for occupancy well before they are ready for final closing. To bridge the gap, the Act allows the parties to enter into agreements wherein the purchaser may assume occupancy of the unit before registration and closing. This period of occupancy is known as "interim closing" or "occupancy closing". This agreement is commonly included in the provisions of the agreement of purchase and sale.

During occupancy, builders have the right to charge a monthly fee referred to as the "occupancy fee" in the Act. This fee is sometimes mistakenly seen as "rent." The Act does not specify a minimum or maximum occupancy fee. Builders have the discretion to set the fee, provided that it does not exceed the aggregate total of the following amounts:

Interest on the balance of the purchase price at a prescribed rate
- The Act mandates that this interest be calculated at the prescribed rate, regardless of the actual interest that could be earned if the amount were held in trust for the builder. The current prescribed rate is determined by the Bank of Canada's reported chartered bank administered interest rate for a conventional one-year mortgage at the beginning of the month when the purchaser assumes interim occupancy or is required to do so as per the agreement of purchase and sale.
A reasonable estimate of monthly property taxes attributable to the unit
- If the municipal tax component paid by the purchaser exceeds the actual municipal tax assessment against the unit, the builder is required to refund the difference to the purchaser. If the municipal tax component paid by the purchaser is less than the actual municipal tax assessment against the unit, the builder may request the purchaser to pay the difference. While it is mandatory for the builder to refund any overpayment to the purchaser, it is at the builder's discretion whether to request reimbursement for underpaid amounts. If a refund is due, it must be provided when the builder delivers the deed (on closing) or as soon as practical thereafter, depending on the timing of the municipal assessment.
The projected monthly common expense contribution for the unit
- The budget statement in the builder's disclosure package to purchasers should clearly outline the anticipated common expenses for the first year of the condominium's operation. Typically, the fee includes a contribution to the reserve fund of the proposed condominium corporation. While the entire occupancy fee belongs to the builder and not the condominium corporation, an exception is made for the portion representing reserve fund contributions.

These fees are paid between the occupancy date and the final closing date. Although the Act does not explicitly state that the occupancy fee consists of these 3 components, builders need to calculate them to ensure that the total occupancy fee does not exceed their sum. Therefore, accurate calculation of each component is necessary to determine the monthly occupancy fee.

Upon occupancy closing, the builder will likely request 12 post-dated cheques for monthly occupancy fees, a certified cheque for the pro-rated closing month's occupancy fee, a certified cheque for the additional deposit (if any), proof of insurance (contents, betterment, and third-party liability), and setup of utilities.

When you enter into an agreement of purchase and sale for a pre-construction condominium unit, keep in mind the following to make your occupancy closing smoother:

Cooling-Off Period: You have a 10-day cooling-off period to review your agreement of purchase and sale. It is advisable to consult with a real estate lawyer during this period to ensure a comprehensive understanding of the agreement. Additionally, obtaining a mortgage pre-approval from your bank is recommended if financing is needed. Any requested amendments from the builder must be signed back within the 10-day period.
1. Determining the 10-Day Period: The 10-day period is calculated according to the s. 73(2) of the Act. Written notice of rescission must be received by the declarant or their solicitor within 10 days of the purchaser receiving the disclosure statement, the applicable condominium guide, or the executed agreement of purchase and sale.
2. Rescinding the Agreement: If you decide not to proceed with the purchase within the 10-day cooling-off period, written notice must be provided to the builder or their solicitor. Failure to do so will result in the deal becoming firm. Directly contact the builder regarding the return of your deposit(s).
Election for Full Payment on Interim/Occupancy Closing: During the 10-day cooling-off period, you may choose to pay the entire balance due on occupancy closing. This eliminates the interest component of the monthly occupancy fees. Consult your real estate lawyer regarding deposit protection from the Tarion Warranty Corporation, as their coverage is limited to a specific amount.
Occupancy Closing and Deadlines: The terms "interim closing" and "occupancy closing" are used interchangeably. Retain a lawyer to assist with the occupancy closing process, as most builders do not close directly with purchasers. Adhere to deadlines mentioned in the agreement, such as deposit cashing dates, providing mortgage approval to the builder, and sharing lawyer information to avoid defaulting on the agreement of purchase and sale.
Delay Notices: Keep a record of notices received from the builder, including delay notices, to facilitate any potential delay compensation claims through the Tarion Warranty Corporation. Refer to Tarion's resources, including their blog and information on interim/occupancy closings and pre-delivery inspections.

If you have any questions about your pre-construction condominium property generally or your occupancy closing specifically, please get in touch with our real estate law department.