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Navigating Ontario’s real estate market: Key insights on new-build house and condo purchases

McKenzie Lake Lawyer Kyle Hampson says there are things every buyer should know before signing an Agreement to Purchase

Buying a newly built home or condominium is a significant investment and a complex process that requires careful consideration, especially in Ontario’s dynamic real estate market.

Kyle Hampson, a partner at McKenzie Lake Lawyers in Guelph has extensive experience in real estate law, including the acquisition or sale of various types of properties. Hampson says, “From hidden fees to buyer restrictions to potential issues with rising interest rates and falling property values, buyers need to be aware of many potential pitfalls and how they can be avoided. The devil can be in the details of the purchase agreement.”

The purchase agreement is a legally binding contract that outlines the terms and conditions of the transaction that buyers need to review and understand before signing. Hampson points out, “For new-build condominium units there is a provision in the Condominium Act that allows for a 10-day “cool off” period in the event that buyers reconsider. They’re free to back out of the deal within the first 10 days. They must notify the builder in writing within that period and if they do, they are then free and clear and they can get their deposit refunded in full.”

However, that’s only for condominium units. For freehold homes, unless there is an express written conditional aspect in the purchase agreement stipulating 10 days or some other number, the purchaser can be locked-in immediately.

An important question for condo buyers to ask is if the deal is conditional for the benefit of the builder, for instance: depending on the number of units sold. Hampson says, “It could be that the seller must sell a certain number of units before a certain date, and if they don’t, the builder may be able to terminate the agreement, but they’re required to give the buyer their full deposit back.” Having a real estate lawyer review the purchase agreement while it’s still conditional will help buyers fully understand and comprehend all the aspects of the transaction, protect the buyer’s interests, and ensure there are no surprises.

Additional fees & Adjustments

Ontario has a law that bans builders from increasing the purchase price because of rising construction costs, but Hampson warns, “There are creative ways in which the builders can alter the purchase price. If you have a lawyer review the purchase agreement in advance, you will be made aware of the potential increases. A novice new home buyer may not be aware of the potential increases on a simple review of the document.”

Individuals buying a new-build home or condo unit need to be aware of adjustments that will occur on closing and potential additional fees which can include fees for extensions, assignments (if permitted) or amendments to the purchase agreement development charges, utility installations, levies, registrations, and even legal fees of the builder.

There are two sections in the Tarion addendum, one for known costs and the other for costs that are not yet known. If a builder does not lay out the potential adjustments in the Tarion addendum, they cannot pass them along to the buyer.

For example, a builder likely won’t know the exact amount of the real estate taxes when the home or condo unit transfers, but they must advise the buyer that they will adjust for real estate taxes. Hampson says, “There can be larger costs, such as increases in development charges, which cover the cost of municipal services imposed by the municipality. Given that a large volume condo development may not close for three years, the development charges could and likely will change.”

For condo units, builders will adjust for the monthly condo expense fees and may have buyers “kick-start” the reserve fund of the condo corporation. Some builders will combine all the additional costs and adjustments into a larger gross price, while others will use a net price that appears to be lower and then properly put the adjustments in the document. A lower net price makes the property more marketable, but buyers will need to pay a larger amount on closing due to all the adjustments. Sometimes builders will offer caps or ceilings on adjustments, but they are not obligated to do so. These are items that could be negotiated during a conditional phase.

A new build is a bit of speculation

When interest rates were at all-time lows, buyers were able to speculate that, if they signed an agreement in 2015, when the deal closed in 2018 everything would be fine. Kyle Hampson says, “What we’re seeing now is that people who signed agreements in 2020/21 are struggling as the real estate market has slowed. Appraisals may not come in as high as they need to for those buyers to qualify for financing.” Higher interest rates have decreased the buying power of home purchasers, but they’ve still signed a binding agreement.

Hampson stresses, “Some builders are willing to be flexible, but they’re not obligated to grant an extension or an assignment. They’re fully within their rights to keep the buyer’s deposit and terminate the agreement if the buyer can’t close on the scheduled closing date.”

People need to be aware that because of supply issues related to construction materials or labour shortages or disputes, builders can often be delayed on closing. The first closing date is very rarely the actual closing date. Hampson says, “At some point, a new home buyer is entitled to compensation, but it is capped. At some point, a new home buyer could terminate the agreement but it’s likely significantly later than they would prefer.”

Buyer restrictions

If buyers are struggling, some may look to assign the agreement to purchase and sale to another buyer, possibly a family member or friend. Hampson says, “If the agreement is silent on assignment, a buyer is free to do so. However, most purchase agreements expressly state that the builder does not have to permit an assignment. And if they do, a buyer should be aware that there will be fees.” There could be additional legal fees of the builder that a buyer will have to pay. Even if an assignment is approved by the builder, the original buyers are likely to still be responsible if the assignment fails to close.

Buyer restrictions can vary depending on the type of property. Condos may have specific rules and regulations imposed by the condominium corporation. These can include limitations on certain renovations and rental restrictions, specifically bans on short-term rentals. Hampson says, “An experienced real estate lawyer can review the purchase agreement and offer valuable advice before a buyer commits to the biggest purchase of their life.”

Contact a lawyer

Conferring with a real estate lawyer is one of the most important steps in the home buying process. Hampson says, “I think that it is worth speaking to a lawyer before a buyer signs a purchase agreement for a new-build home or condo unit to learn more about what they should be aware of and questions they should ask. The first question should be, will they have time to review the purchase agreement and back out if they do not want to proceed. If they have that conditional period, they should feel free to sign the agreement to lock up the property. Then they should be contacting a lawyer immediately as a lawyer will need time to review the documents.”

Hampson adds, “I would recommend that buyers get new-build agreements reviewed so they go in with their eyes open and are fully aware of their obligations and restrictions. A lawyer will make it clear to a buyer what they can or can’t do with the property.” A lawyer will help buyers navigate the potential pitfalls of the largest personal investment of their lives. With professional advice, buyers can make informed decisions, protect their interests, and sleep a little easier at night.

Contact Kyle Hampson at (519) 826-4333, via email at [email protected] or online here.