Purchasing any property from a builder is signficantly more complicated than purchasing a resale property, especially when it comes to condomniums. In contrast to a regular Agreement of Purchase and Sale for a resale property, a Builder’s Agreement for a newly constructed Condominium has many clauses that are not regularly included in a typical residential Agreement of Purchase and Sale. In addition to the more complex nature of Builder Agreements, there is no standard for said Builder Agreements and the terms in each and every Agreement can vary greatly between different Builders and even different projects with the same Builder. It is of utmost importance that you have your Agreement reviewed by a real estate lawyer prior to the end of the Conditional Period for your Agreement.
1. Your Cooling-Off Period
When you enter into an Agreement of Purchase and Sale to purchase a Newly Built Condominium with a Builder, there is a 10 day cooling off period from the date both parties sign the Agreement of Purchase and Sale. Please keep in mind that you are required to take active steps to rescind your Agreement during that cooling off period and that if that period lapses, your Agreement of Purchase and Sale automatically becomes a firm and binding contract. It is important that you are mindful of when this cooling off period starts and ends, so that you should provide the Agreement to a real estate lawyer to review immediately when the period starts.
Unlike a regular Agreement of Purchase and Sale, a Builder Agreement has a section for Adjustments. Adjustments are charges that will be paid on top of the purchase price at the time of closing. Depending on the builder, these adjustments can be substantial. These adjustment charges can include sewer’s charges, hydro meter, education development charges, any increases in development charges and levies, energization charges, property taxes for full year, etc. Prior to firming up your Agreement with a builder, it would be prudent to speak to a real estate lawyer to review the costs and to negotiate with the builder to propose a cap on these adjustment costs to limit the increase in the final closing amount due.
3. HST New Housing Rebate
In most residential Builder Agreements, the Builder will assume that the purchaser is buying the property for personal use and will be eligible for a HST New Housing rebate. The builder will in most cases include the HST New Housing Rebate amount in the purchase price you have agreed to. This HST Rebate is then assigned to the builder as a part of your Agreement of Purchase and Sale and the Builder will apply for it after closing. This will not be an issue if you are in fact purchasing the property with the intention of moving in and using it as your primary place of residence after closing, where you meet the requirements for the rebate.
If you are buying for investment and are not moving in to the property, you will not be eligible for this rebate. As the builder has already placed the rebate in the Purchase Price as part of the Agreement, if you are not eligible for the rebate, the builder will require that you pay them the rebate amount as an adjustment on closing. This amount could be an amount in a range between $20,000 to $30,000. While you won’t be eligible for the HST New Housing Rebate if you buy for investment purposes, you could be eligible for an alternate HST Rental Rebate after closing to recover the costs. It would be advisable to speak to a real estate lawyer to discuss HST Rebates that pertain to a transaction of this type prior to finalizing your Agreement with the Builder.
4. Sizes, Plans, Square Footage
When you step into the sales offices of a builder, you are greeted by a plethora of handcrafted models, studio lit photographs and concept designs of the new project, and brochures that provide information on square footage, individual room dimensions, layout plans and floor plans. It is important to be mindful of the fact that these are promotional materials and most Builder Agreements include a clause that stresses the fact that any items depicted in the concept drawings, brochures, models, or any other promotional material do not form a part of the Agreement of Purchase and Sale.
In many Agreements of Purchase and Sale, the builder will stipulate that they have the right to make changes and variations to and plans and designs during the course of completing the project, inclduing but not limited to substituting materials for items of equal or better quality, to build a mirror image of the original floor plan, and to make any changes as required to conform to legal requirements.
It is becoming very common for investors to sell their builder agreement properties before the project is even completed. The process of selling the interest in the property prior to closing is called an Assignment, where the purchaser investor assigns their interest in the Builder Agreement of Purchase and Sale to an assignee or new buyer. While this is becoming common practice, not every builder would allow the purchaser investor to do an assignment as the assignment would require the Builder’s prior written consent and in most Builder Agreements, this can be unreasonably withheld as per the terms of the Builder Agreement.
For non-investors, an assignment clause is also important to provide some flexibility closer to the closing date where you may need to assign to a family member to obtain final approval on a mortgage or if you want to get out of the transaction due to changes in financial situations.
Whether you are buying for investment or you plan on moving into the property, it is crucial to have your Agreement reviewed by a real estate lawyer to determine what your options for Assignment are and to ask for an amendment to the Agreement of Purchase and Sale to allow for the possibility of assignment later on.