April 29, 2011
A note from one of our expert guest bloggers, Marc Kemerer: Tammy and I are delighted to participate as regular guest bloggers on BuzzBuzzHome. Our firm, Blaney McMurtry LLP, has particular expertise in the areas of land development, construction and municipal law and we look forward to sharing our insights in these areas with the BuzzBuzzHome readership.
This week we are writing on the topics of Planning Law Updates (posted yesterday) and on Occupancy Closing terminology. Our next posts will be on the land development approvals process and common element condominium interests. We hope you enjoy the posts and we welcome your comments. Should you have any other areas you would like us to write about please let us know.
From your BBH staff: The following post is courtesy of Tammy Evans. As mentioned, Tammy is a partner with the law firm of Blaney McMurtry LLP in Toronto, advising developers across Ontario in the area of land development and construction with her primary focus on condominium and mixed use developments. She also co-edits a monthly bulletin, Blaneys on Building, which focuses on legal aspects of the development industry.
What is an occupancy and why do I care?
Confusion may arise when reviewing his or her agreement of purchase and sale for the purchaser of a condominium, and sees the use of the words “tentative occupancy date”, “outside occupancy date”, “closing date”, and the like. With this article, I hope to clarify generally what the importance is of these terms.
For all new home sales on or after July 1, 2008 (for condominiums, where the first unit sold in the project is on or after July 1, 2008) the use and significance of these terms must comply with Tarion’s Statement of Critical Dates and Addendum to Agreement of Purchase and Sale (collectively, the “Tarion Addendum”) which must be attached to all new home (whether condominium or single family dwelling) agreements as mandated by the Ontario New Home Warranties Plan Act (the “Act”).
By way of general information, as in most home sales (whether new or resale), for ease of reference, the fundamental terms of the condominium agreement of purchase and sale are typically located on the first page of the agreement – these will include the identification of the seller and buyer (vendor and purchaser); the property being purchaser (the dwelling unit and its appurtenant interest in the common elements, which also may include a parking unit and/or storage unit); the purchase price (usually inclusive of HST); the amount and date of deposits required to be given; the tentative occupancy date (or the first tentative occupancy date), and the date of offer and acceptance and signing of the parties to the agreement.
Effective July 1, 2008, Tarion requires that the Tarion Addendum be attached to all new sales, including condominium sales. The Tarion Addendum sets out the “critical dates”, which are, as the term implies, of utmost importance from the purchaser’s perspective in that these dates provide the timing details to closing for the purchaser that were not always clearly set out in the typical form of condominium agreement prior to introduction of the Tarion Addendum. As a further measure of consumer protection, Tarion imposes certain mandatory notice requirements under the Act on the vendor in relation to the critical dates set out in the condominium agreement, with compensation consequences for failure to comply. The balance of the agreement sets out the more in depth details of the closing transaction. Purchasers should always review the entire agreement along with the condominium disclosure documentation with their lawyer to ensure they are aware of all of the terms of the agreement.
So, what exactly is an occupancy date (whether tentative or confirmed or extended)?
It is the date on which the purchaser obtains possession of the unit, the day he or she gets the keys and has access to move in and use the unit, and starts paying occupancy fees. This is not to be confused with the final closing date, which is the date upon which the purchaser will obtain title to the unit, will use its mortgage funds (if needed) to pay the balance of the purchase price, and starts paying maintenance fees (common expenses) and realty taxes directly. It is only from the final closing date that the purchaser actually owns the unit, prior to that, and during the occupancy period, the vendor still owns the unit, but grants the purchaser the right to occupy and use the unit until final closing can take place.
Final closing can only occur when the property has been registered as a condominium and title to the unit can be legally transferred to the purchaser. So in essence, with new condominiums, there are usually two closings – the first is the occupancy closing, which happens prior to registration of the condominium, and the second is the final closing, which happens after registration of the condominium.
Why do I care whether I will have an occupancy closing or only a final closing?
During occupancy closing, the purchaser will be required to pay his share of the maintenance and operation (common expenses) of the building, property taxes and interest on the unpaid purchase price. This payment is made to the vendor on a monthly basis, and is pursuant to the Condominium Act, 1998. This is reasonable because the purchaser has use of the unit and the building and grounds – the entire condominium property, and there are costs associated with same. Similarly, taxes are payable on the land and building, and the vendor is paying interest and lender’s costs for his construction loan and development security for the construction of the building until those are paid out through closing proceeds received from purchasers on final closing, therefore the vendor is entitled to charge a prescribed interest rate which is set by the Bank of Canada to the purchaser on his or her unpaid balance of purchase price (the total purchase price less the deposits paid).
Depending on the critical dates set out in the agreement, where the condominium is registered before the purchaser closes his unit, the vendor will likely not require an occupancy closing, but may proceed straight to a final closing with the purchaser. For the purchaser, this avoids the occupancy period and the occupancy payments, but may also result in a delay to moving into the unit.
How are occupancy dates set and what factors affect the final occupancy date?
Occupancy dates are set by the vendor in accordance with his proposed construction schedule. The vendor is required to estimate to the best of its ability when you will be permitted to occupy the unit typically long before it ever breaks ground! There are many factors that impact this date. It is based on projected construction scheduling, meeting condominium and development approval conditions, municipal approvals and occupancy clearances. Municipal occupancy is typically granted on a floor by floor basis, accordingly, it is possible that lower floors may be occupied before higher floors are completed and cleared for occupancy.
As there are so many factors that might impact the actual date of occupancy, and the developer sets this date typically one to two years in advance of construction start, delays are not uncommon for construction issues, strikes, weather conditions, and even disputes with trades. As such, Tarion allows for extensions of the occupancy date, provided that such extension and notice of same are done in accordance with the Tarion Addendum.
Purchasers of new condominiums should take the time to review the agreement and the condominium disclosure documentation thoroughly. The disclosure documentation is mandated by statute and is intended to ensure that the purchaser has sufficient details to make an informed purchase decision. Engage your lawyer early on in your purchase to review and advise you on the terms of the condominium agreement and disclosure documentation. Purchasers may also visit Tarion’s website to review the applicable Tarion warranties for new condominiums.
All information provided in this article is of a general nature for information purposes only and is not intended nor to be construed as legal advice. Please contact the writer for specific legal advice.