October 31, 2017
The builder’s/developer'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.
1.
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.
2.
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.
3.
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.
4.
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.
5.
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.
6.
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.
There are many pitfalls in a builder’s Agreement of Purchase and Sale. Having an experienced lawyer & real estate agent 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 b
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