By Dan Flomen
Empire Communities
Buying a new condominium is the largest investment anyone will make in his or her lifetime. It’s a purchase that will come with almost a lifetime of mortgage payments and monthly maintenance and tax bills.
So why is that most people spend less time reviewing the paperwork on this buy than the paperwork when purchasing a television or car? In fact, countless people buy new condominiums and never take the paperwork to a lawyer. An equal number of people don’t even take the time to read the paperwork themselves.
It is of no surprise to many on the building side that on closings so many of these people are surprised by what they deem the hidden costs of buying and the surprising terms that they “never knew.” The truth of the matter is that almost all builders fully disclose all closing costs and terms in the agreements. In fact, the new home warranty program (Tarion) has regulations specifically calling on builders to outline all the closing costs a buyer will have to pay. Where this is a fixed number, that amount is disclosed. Where there is a possibility of an unknown cost — such as the exact amount of realty tax — the method of calculation is also spelled out for buyers. To fully understand where to look, a buyer must first understand the major sections of any Agreement of Purchase and Sale.
A condominium purchase in Ontario comes with an automatic conditional period. Known as the “cooling off” period, this 10-day time frame in which the buyer can cancel starts from the date at which the buyer acknowledges receiving both an executed and accepted Agreement of Purchase and Sale along with the condominium document and disclosure material. The 10-day period allows the buyer to familiarize themselves with both these agreements.
The condominium documents will have a section called the budget, which is critical for a buyer to review. It will spell out the maintenance fees specific to both the subject unit — and all units in the building — and lays out how the fees were calculated. A buyer should read this section carefully as it will show potential future issues, such as escalation rights of the maintenance fees if the building is not completed by a certain date. It will also indicate how the builder and property manager intend to maintain the building. If this number seems low you should ask the builder how this cost would not escalate.
The other important items are to understand is the rules and regulations, which will help you understand your rights towards leasing if bought as a long-term rental investment. Very few buildings allow short-term rentals, yet more and more we are seeing Airbnb listings contrary to the rules. If you are caught doing things contrary to the rules you should be aware of the condominium’s right to a forced sale.
The Agreement of Purchase and Sales will almost always have a section called Adjustments. This will outline many of the extra costs that a buyer will have to come up with on closing. These include items such as meter installations, law society fees, increases in development charges and parkland levies, taxes that are not included and the cost per deposit cheque for the solicitor to deposit in their trust account.
It is rare for a builder to waive these but many will put an upper limit on any variable ones. This is more of a personal decision than a legal one.
Take the time to understand all these costs and speak to your accountant for a better. Above all, it is also important that you speak to your accountant to understand the HST implications upon buying a new condominium. HST is often not included in investment properties but the government has some programs to refund most of the money once the unit is leased. On closing, however, you may be hit with a large HST bill.
This all may seem scary but in the long run the condominium markets, especially in the GTA, has provided returns that makes good business sense. Take the time to read your paperwork. Understand the downsides, but when weighed with the potential upside, take a leap of faith if you feel the buy is right.
Dan Flomen is senior vice president, sales, at Empire Communities. https://empirecommunities.com/