Rachel in Condo Buying, Legal, Money
A HomeBuyer can decide to buy a new condo at any point that units are available for sale – meaning from the time the sales office is open all the way through to when the units are registered. Typically, the lowest prices are available to consumers before any construction has commenced, and this is largely what drives so many people to sign up early. The downside for the consumer is that there is more risk; for any number of reasons, the project may not be completed.
Where a HomeBuyer decides to buy a new condo while it is being constructed, they will be required to pay a deposit to the developer in order to secure the unit, and quite frequently, the developer will try to negotiate a schedule for further deposits. Depending on the developer and a HomeBuyer's preference, there will be more or less of a deposit made during the construction phase of the project.
The amount that the developer is holding on deposit will be credited towards the purchase price on closing. The amount that you deposit will also reduce the amount of interest that you are responsible to pay during your period of interim occupancy. In a previous post, the interim occupancy period was described as a time that generates a great deal of anxiety for HomeBuyers. Part of the anxiety comes from the fact that the HomeBuyer is making ‘rent-like’ payments to the developer and the amount is the unpaid balance of the purchase price.
As an example, if you agree to buy a $200,000 condo, and you place $20,000 on deposit, your interim occupancy payments will be calculated on the outstanding $180,000 that you still owe to the developer. This means that if you were to increase your deposit by an additional $20,000, you would reduce the interim occupancy payments – they would be calculated using the lower amount of $160,000.
While the funds are on deposit, they do earn interest, however the interest is nominal (Bank of Canada rate minus 2%). This amount will be credited to you when the transaction closes.
Condominium purchasers are protected for the loss of a deposit up to $20,000 through Tarion, however you will need proof of payment, so remember to keep a photocopy or a scanned copy of all cheques that you send out. HomeBuyers who wish to make a deposit claim must do so in writing. They should mail or fax any request to the Tarion corporate office and include a copy of the first page of their Agreement of Purchase and Sale.
Rachel Loizos is an associate lawyer at Sotos LLP in Toronto. She practices in the area of real estate law.
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