When buying a new builder's pre-construction condominium, it is important to know about the occupancy fees.
The Condominium Act requires the condo developments to be constructed to a substantial level prior to registration of the condominium plan. Title to a unit cannot be transferred until the condominium is registered.
Thus, with newly built condominium apartments, there are two "closings". The "interim closing", occurs at the time of occupancy and the "final closing", occurs at the time of final registration.
The process works something like this; the developer undertakes to build a condo development by submitting a site plan with the Municipality. When the Municipality registers this site plan it becomes a "Registered Site Plan", setting out exactly what the developer is promising to deliver.
The developer then sells the suites as "pre-sales"; based on floor plans, brochures etc. Once the developer sells enough units, say 60% or more, they start the construction while continuing to sell the units.
Upon completion, the municipality verifies the building to be in accordance with the registered site plan and issues the "Occupancy Certificate".
Since the buyer's down payment is deposited into the lawyer's trust account, the developer does NOT receive any monies until the building registers (final closing). The developer borrows the construction financing from his bank until such time.
Upon receiving the occupancy certificate the developer contacts all the buyers notifying them of their occupancy date, starting from lower to higher floor, spread over a few months. This is the first closing/ interim closing.
At this juncture, the developer cannot give the purchasers titles to their properties. The municipality still has to inspected the premises to ensure that developer has delivered exactly what the original "Registered Site Plan" represented. The process normally takes 4-6 months.
Upon completing its due diligence, the municipality registers the building, this is the second closing, final closing, at which time purchasers will receive title to their property, their mortgage payments starts, and the developer gets his money.
During this occupancy period the buyers undertake a portion of the developer's mortgage with his bank, also called "Phantom Mortgage", which is equal to their proportionate share of the overall condo.
The "Occupancy Fee" is made of three components and is roughly equivalent to the:
1. Interest calculated on monthly basis on the unpaid balance of the purchase price (the rate is protected under the Condominium Act); 2. The monthly maintenance fee contributed for the unit; and 3. A factor for property tax (in total it will be about the same as if you took a mortgage but you cannot get a mortgage because there is no "Title" to the property, thus banks cannot issue a mortgage).
The purchaser can avoid paying the interest portion of the occupancy fee should he/she elect to pay the full balance of the purchase price owing on the date of occupancy. However, in order to do this, the purchaser or his lawyer must request this during the 10-days rescission/ cooling off period.
In all the cases it is left to the developer to include or exclude any of the above components in the occupancy fee, as long as, this is made clear in writing and disclosed in the developer's disclosure documents.
This occupancy fee does not accrue to a mortgage thus it is frequently interpreted as "Rent" however the first few months of a mortgage is pretty much to cover interest, tax and condo fees.