Pre-Construction, Honestly: Occupancy Fees, Closing Costs and What You Are Actually Buying

You are buying a contract, not a home

In a resale purchase you are buying a specific property you have stood inside. In a pre-construction purchase you are signing an agreement with a builder to buy a home that will exist later, described by a floor plan, a set of finishes and a schedule that is an estimate. Everything that follows comes from that difference.

The agreement is written by the builder’s lawyers and it is long. It is also more negotiable than most buyers believe — particularly on the items covered below — but only before it is signed.

The cooling-off period is for your lawyer, not for second thoughts

Ontario’s Condominium Act provides a statutory rescission period for the purchase of a new condominium unit from a builder: a defined window, commonly described as ten days, during which the purchaser may cancel the agreement. New freehold homes are not covered by the same provision.

The right use of that window is not to reconsider. It is to have a real estate lawyer who reviews builder agreements read yours and tell you what is in it — the deposit schedule, the caps or absence of caps on closing adjustments, the assignment terms, the occupancy provisions and the builder’s rights to change things. A few hundred dollars of legal review inside the rescission period is the highest-return spending in the entire transaction.

The deposit structure is nothing like a resale deposit

Pre-construction deposits are substantially larger than resale deposits and are paid in instalments over months — commonly an amount on signing, then further instalments at defined intervals, with a further amount at occupancy. Deposits on new condominium units are protected under Ontario’s warranty framework up to a prescribed limit, and beyond it a builder may be required to provide other security.

Budget the whole schedule, not the first cheque. The instalments arrive on their dates whether or not your circumstances have changed.

Interim occupancy: the single most misunderstood part

When a condominium unit is ready but the building has not yet been registered as a condominium corporation, you move in without owning anything. This is interim occupancy, and during it you pay the builder a monthly occupancy fee.

The occupancy fee is not a mortgage payment. It is broadly made up of an interest component on the unpaid balance of the purchase price, an amount for estimated property taxes, and an amount for estimated common expenses. None of it pays down principal. You are not building equity during interim occupancy — you are, in effect, paying to live in a unit you have already agreed to buy.

Interim occupancy can last months. In some buildings, particularly for lower-floor units in a large tower, it lasts considerably longer. Ask, before you sign, what the builder’s estimated occupancy and registration dates are, and budget for the fee as a real monthly cost over a real number of months.

Closing adjustments are where the money is

At final closing — when the corporation is registered and title actually transfers — a set of adjustments is charged on top of the purchase price. These are not small, and they are the reason a pre-construction purchase can cost meaningfully more than the price on the agreement.

• Development and education levies charged by the municipality and passed through to you. These can be capped in the agreement, and negotiating a cap before signing is one of the most valuable things a buyer can do.
• Utility connection, meter installation and hydro enrolment charges.
• Enrolment in the Tarion new home warranty program.
• Legal fees, plus the builder’s own administrative and law-firm charges.
• Land transfer tax — provincial, plus the municipal tax if the building is inside the City of Toronto.
• HST treatment on the purchase, which depends entirely on how you will use the home.

HST: whether you live in it changes everything

New homes in Ontario are subject to HST, and the advertised price from a builder normally assumes the purchaser will occupy the home as their primary residence and that the new housing rebate will be assigned to the builder — so the rebate is already reflected in the price you were quoted.

If you instead rent the unit out, that assumption fails. In that case the rebate assigned to the builder typically has to be paid, and the purchaser applies separately for the rental property rebate afterwards, which requires meeting its own conditions and having a qualifying tenancy in place. The practical effect is a substantial amount of cash required at closing that a buyer planning to rent may not have budgeted for.

This is genuinely the item that catches investors, and it is not an edge case. If there is any chance you will rent the unit rather than live in it, raise it with your accountant and your lawyer before you sign, not in the closing week.

Your financing is approved three years from now, not today

A pre-approval today does not commit any lender to funding a purchase that closes years later. At final closing the lender assesses your income, your debts and your credit as they are then, and orders an appraisal of the finished unit. If your circumstances have changed, or if the appraised value comes in below the price you agreed years earlier, you have to make up the difference in cash.

That is the core risk in pre-construction and it is worth stating plainly rather than being discovered. It does not make pre-construction a bad decision — it makes it a decision that requires a margin, and a clear view of what you would do if the appraisal disappoints.

Delays, Tarion and assignment

Delays are normal. Ontario’s warranty framework sets out how closing dates may be changed and provides for compensation in defined delayed-closing circumstances, subject to notice requirements and limits — your lawyer can tell you what your agreement actually provides.

Assignment — selling your contract before final closing — is governed entirely by your agreement. Some builders prohibit it, some permit it with consent and a fee, some restrict when it may be marketed. If assignment is part of your plan, it must be confirmed in the agreement before you sign, because it cannot be added afterwards.

Robin walks first-time buyers through builder agreements before they sign them, in Gujarati, Hindi or English, and is direct about when a resale home is the better decision for a household that needs to move within a year.