As the price of detached and semi-detached homes continues to increase, many homebuyers are choosing to enter the housing market by purchasing brand-new preconstruction condominiums. Buying a preconstruction condominium has many benefits. However, the builder’s contract is very one-sided and in favor of the builder. This column will examine some of the important provisions that should be considered before buying a preconstruction condominium.
- Builder adjustments-virtually every builder contract will contain adjustments to the sale price. These are extra costs that the buyer will have to pay on closing. By having a lawyer review the offer during the 10 day cooling-off rescission period, many of these costs can be eliminated or can potentially save the buyer thousands of dollars. If the builder is unwilling to negotiate a reduction of some of these costs, the buyer still has the option of canceling the contract and getting its deposit back. In any event, if the buyer decides to proceed, it won't be surprised on the closing date with the additional adjustments.
- Floor plan of condominium unit-most Agreements of Purchase and Sale will contain a sketch or artist rendering of the property. Buyers must understand that what you see is not always what you get. There are provisions in the Agreement of Purchase and Sale which usually say that the floorplan, image, and finishes are subject to change or substitution without any reduction in the purchase price or other compensation. Verbal promises at the sales office are irrelevant and non-binding. If you want something, you should make it clear and get it in writing.
- Closing date-the closing date in the Agreement of Purchase and Sale is tentative and the builder has very liberal rights to extend the closing date if necessary. Compensation for delayed closings is payable in limited circumstances. Conversely, when the builder sets the closing date, interim or final, the buyer does not have the right to delay it. A buyer who is not ready to close on the closing date set by the builder may face extension costs, or worse, forfeiture of its deposit. In many cases, the buyer will be forced to close even if the unit or the common elements remain unfinished or if there is incomplete work. Buyers have to realize that they will not receive a completely finished unit and that unfinished work will be completed following closing based on the schedule of the builder.
- Parking/Locker spots-parking and locker spots are expensive and their location is assigned by the builder at its sole discretion. Without a provision in the agreement of purchase and sale, you have no choice as to the location of your parking spot or locker and have no recourse if you are unsatisfied.
- Right to Lease the Property- If you are buying the property as an investment, most builder Agreements do not allow you to rent the property until after the final closing date. Accordingly, you would have to pay interim occupancy fees to the builder from the date of the occupancy closing to the final closing without earning any rental income. The time period between interim and final closing varies and can be anywhere between 3 to 12 months. If you want to lease the unit after the interim occupancy closing, you should obtain a written Amendment to the contract.
- HST rebate-if you or an immediate family member will not be occupying the property as your principal residence, the builder will charge you the GST/HST rebate which you will have to pay on the final closing. This can be a $25,000 adjustment which you may not anticipate. Following closing, you can apply to recoup this from the government, however, certain conditions must be met.
Buying a preconstruction condominium can be exciting. However, there are many pitfalls in a builder’s Agreement of Purchase and Sale. Having an experienced lawyer review the contract during the 10 day cooling off/rescission period is critical so that the buyer can make an informed decision about the purchase going forward and to potentially reduce the costs to the buyer.
Article provided by Isenberg & Shuman