The legal aspects of buying a new home can ensure your sale goes smoothly
This article is intended as general information only; for legal advice, consult a licensed lawyer.
Buying a new home can be one of the most exciting and rewarding experiences in life. Before you take the leap, however, be aware there are legal aspects you'll have to navigate.
Some but not all builders, especially in a hot market, allow you to reserve a certain home or lot for a short period. You pay a reservation fee that will be applied to your deposit if you decide to proceed with the home purchase. If you decide not to go ahead, the fee will be returned, but some costs may be deducted.
The process differs between purchasing a new condominium or a traditional freehold home. When you buy a pre-sale condominium, you have a 10-day cooling off period to determine whether you want to proceed or rescind your offer of purchase. This is your right under the Ontario Condominium Act (Section 73).
The condominium lifestyle is more complex than a detached house and there are rules you have to abide by and aspects you do not have control over. A condominium is governed by a Condominium Corporation and a Board of Directors, which collects the condo fees, look after the maintenance and repair of the building and enforce the rules and regulations.
During the 10-day cooling-off period, thoroughly review your sales agreement. It's important to have a lawyer review it, too, as this document can be complicated or may not leave you in a good place if certain situations arise. This is the time when you can request changes, and if the builder doesn't consent, you can get out of the agreement. This is the time you should arrange mortgage pre-approval, if you haven't already done so, so you know you'll be able to afford the condo. If you decide you want out of the agreement for any reason during the 10-day cooling off period – maybe you signed hastily in the heat of the moment or the costs will be more than anticipated – you can cancel and will get a full refund of your deposit.
What you should also know is that when your unit is habitable and you move into the building, there may be an interim occupancy period. This is the time between when residents start moving in and when the building is registered with the municipality. As condos can have many floors, this period allows a builder to finish construction and coordinate move-in for dozens, or hundreds, of people. For typically six months to a year, you will be paying an interim occupancy fee, which is similar to rent, until you have legal title to your unit. This does not apply to your mortgage or to your closing costs.
Some freehold homes may have some condominium elements attached – for example, interior roads, laneways or a parking garage – that you will have to pay condo fees for, but there won't be a 10-day cooling-off period.
Cancellations of condo buildings and large townhouse projects do occur occasionally, so it's important to look into a builder's reputation and track record for completing projects before you sign. If you buy into a project that gets cancelled, even if you get your deposit back, you may have lost out on equity gains between when you signed the agreement and when the project is cancelled.
Let's anticipate all has gone well and your project will be completed. As your new home's closing date approaches, there are many adjustments and you may be required to pay for things such as property taxes, HST, land transfer taxes, Tarion (new home warranty) enrolment and utility set-up. The municipality may also charge for things such as tree planting. All of this should be laid out for you.
Once you sign an agreement of purchase and sale, it is a legal, binding contact. In most circumstances, if you try to back out, you will lose your deposit and any interest and could be on the hook for damages for any costs the builder incurs, plus legal fees and interest. Usually, a builder won't allow you to re-assign your unit, either – selling it to someone else before closing. However, there may be exceptions, such as if a builder has sold more than 90 per cent of the units in a condominium building. In most cases, you will have to follow through with the sale and close.
All of this may sound intimidating, but if you do your due diligence, carefully review any documents and consult a real estate lawyer before you sign, you can feel confident about your decision. Then you can relax and look forward to life in your new home.
Luke Johnston is currently the General Counsel for Dunpar Homes. He began his legal career in the litigation group at a national, full-service law firm in Toronto. He subsequently spent several years as Legal Counsel and Corporate Privacy Officer for the Tarion Warranty Corp. in Ontario.