Occupancy Fees Explained – Ontario New Condos

When you’re looking to purchase a pre-construction condo one of the biggest questions is “when will it be completed?”.

And the date that the builder or their sales rep will tell you is what’s called the “occupancy date”. Most people assume this is the day that they will get their condo. And they’re right…there’s just one issue. You don’t actually own your condo when you first receive your keys.

In pre-construction condos there are two important dates to understand: 1) Interim Occupancy; and 2) Final Closing.

Let’s take a look first at interim occupancy and everything that’s involved in that process.

And, if you prefer video, you can check out the one I made below:

Interim Occupancy

Let’s say that you bought on the 5th floor of a 30-storey condo. Typically, when a building is approximately 60% sold, construction begins. After awhile (let’s say four years), the building is almost entirely complete including your unit.

The builder, not wanting to let the units sit empty until the entire building is completed, will call you up and tell you that your unit is ready and you can schedule a time to sign some paperwork and get your keys.

You will receive your keys from the builder and in exchange you will give them post-dated cheques to cover your “occupancy fees”.

Ok, so what are occupancy fees?

Occupancy fees (sometimes referred to as phantom rent) are fees that a buyer will pay monthly until final closing.

I’m sure you have a couple of questions. First, how much are occupancy fees and, second, when do I actually get title to my unit?

Let’s break down occupancy fees in more detail first.

Occupancy fees will be detailed in your Purchase of Agreement and Sale when you first sign your deal. It can include any of the following but cannot be greater than them:

1. interest calculated on a monthly basis on the unpaid balance of the purchase price at a prescribed rate;
2. an amount reasonably estimated on a monthly basis for municipal property taxes attributable to the unit; and
3. the projected monthly common expense contribution for the unit.

Ok, so in plain english that means that occupancy fees will be made up of the interest portion on the balance of your purchase price, the estimated monthly taxes, and the estimated monthly maintenance fees.

A Few things to mention:

• The prescribed rate is based on the Bank of Canada’s reported chartered bank administered interest rate for a conventional one-year mortgage. ^[1]
• The occupancy period normally lasts anywhere from 6-12 months (but can be more or less)
• On occupancy, and before receiving your keys, the builder will likely ask for a certain amount of post-dated cheques for the monthly occupancy fees (typically 12), a certified cheque/bank draft for any additional deposits, proof of insurance and that utilities have been set up.
• With your Agreement of Purchase & Sale you will receive what are often referred to as “Condo Docs” or the “Condominium Declaration”. In this document, the common expenses for the first year will be laid out, so you will understand exactly what proportion you need to pay for “estimated maintenance fees”.
• Vendors/Developers are strictly prohibited by the Condominium Act, 1998, section 80(4), from profiting off of these fees. They are meant to only cover the carrying cost of the development during Interim Occupancy.

How Long Exactly Will My Occupancy Period Last?

On that last point, it’s impossible to tell how long the occupancy period will last exactly. It will depend on a few factors like which floor you purchased on and how long it takes for the building to pass inspection and for all city approvals to be in place and processed.

So, in our example, you bought on the 5th floor of a 30-floor condo which means that your occupancy period would last longer than someone who bought on the 28th floor.

And, of course, if you bought on the 28th floor you would have a much shorter occupancy period than someone who bought on the 5th floor.

So, I don’t own my unit during occupancy?

I can imagine you’re not too thrilled right now.

So, you’re telling me that I’ve put down 20%, waited 4 years for my condo and when I’ve finally gotten my keys the unit still isn’t mine but I have to pay what basically amounts to a mortgage payment for anywhere from 6-12 months???

Unfortunately, yes…

You will not receive title to your condo until the building passes site and city approval. This process can take awhile. 

So, what happens to the occupancy fees? Do they go towards my mortgage?

Unfortunately they do not.

One thing to keep in mind is that the builder has incentive to close as quickly as possible. They want their money so they can move onto future projects.

So, to reiterate, you will be paying a monthly fee to the builder that is pretty close to what you can expect to pay for your mortgage.

Want to avoid huge occupancy fees?

leasing services

Our team has helped hundreds of clients avoid carrying huge monthly occupancy fees by helping them find a tenant to lease during (and after) occupancy.

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lease during occupancy services

Avoid huge monthly carrying costs by leasing out the unit during (and after) occupancy. Also, make sure to ask us about the HST Rebate. 

Final Closing

This process is pretty straightforward. Once the building has passed inspection and all city approvals are in place and processed, the builder will prepare everyone for final closing.

They will notify everyone and send out mortgage and final closing instructions. They will give you a date for final closing and arrange for signing of your paperwork. Once that is completed, title is officially transferred to you and then you will begin your monthly mortgage payments.

Get Your Agreement Reviewed

It’s super important to have your Purchase of Agreement and Sale reviewed by a lawyer that specializes in pre-construction condos. In Ontario, you have a 10-day cooling off period when you purchase a new condo.

The lawyer will be able to lay out the details of the occupancy fees and tell you what the builder has included as part of them. 

If you skipped this step and have already purchased your unit, I’d still recommend having it reviewed to help you prepare for the future.

Possible Adjustments on Final Closing

It’s possible that your portion of property taxes can be overestimated during occupancy. If you pay too much, it’s up to you (and your lawyer) to request a credit. Always speak with your lawyer to help advise on any possible adjustments on final closing.

Final Notes on Occupancy Fees

It’s possible to reduce your occupancy fees by putting down a further downpayment on occupancy. Speak to your lawyer about this process.

It’s also important to keep interim occupancy in mind when choosing which floor to purchase on. The lower the floor that you purchase on the longer your occupancy period will last.

However, that doesn’t mean that you should just purchase on the highest floor because builders will include a per floor premium on top of the listed purchase price. There can easily be a $30,000 difference between the same unit on the 5th floor and 20th floor (at a $2000/floor premium). 

The most important thing is to understand that interim occupancy exists and everyone has to go through it. You just have to do your research and hope that the occupancy period is short!

If you have any questions about the occupancy period that I didn’t go over please leave a comment below or contact me directly!