A client buying pre-construction is signing today for a unit that may not exist for two or three years, with rights and costs that a resale transaction simply does not have. The gaps between what buyers expect and what the Agreement of Purchase and Sale actually says are where most of the surprises live.
Key takeaways
Tarion’s own guidance for condo purchasers confirms a right unique to buying new: “under the Condominium Act you are entitled to a 10 business day ‘cooling off’ period to review your purchase agreement,” during which the buyer may choose to terminate for any reason. This period exists precisely because a builder’s Agreement of Purchase and Sale is long, drafted in the builder’s favour, and worth having reviewed by a lawyer before the buyer is bound — not treated as a formality to sign through quickly.
Tarion’s own explanation of deposit protection sets out a specific formula, not a blanket guarantee: for a freehold home priced at $600,000 or less, the deposit is protected up to $60,000; above that price, protection covers 10% of the purchase price, to a maximum of $100,000. A condo purchase gets two layers of protection — the trust provisions of the Condominium Act, which require the builder to hold the deposit in trust, plus a secondary $20,000 backstop under the new home warranty if the deposit was not actually placed in trust as required. Money paid toward upgrades and extras is covered within those same limits — but a payment made under a “reservation agreement” to hold a unit before the actual purchase agreement is signed is not covered at all.
Treadstone Law’s pre-construction guide describes the mechanic clearly: in a new condo building, a buyer often moves in before legally owning the unit, because the building has not yet been registered with the land registry and title cannot transfer yet. During this interim occupancy period, the buyer pays a monthly occupancy fee — commonly called “phantom rent” — that typically approximates interest on the unpaid balance of the purchase price, an estimate of the unit’s share of municipal property tax, and an estimate of monthly condo fees. None of it reduces what is owed at final closing, and the source is direct that interim occupancy “can last months — sometimes much longer — depending on how quickly the developer registers the building.” Some agreements also restrict a buyer from renting the unit out until final closing or registration — worth confirming for any client planning to lease immediately.
Final closing happens once the building registers as a condominium, and it is the point at which the buyer actually takes title and their mortgage funds. Because pre-construction purchases can run years from signing to final closing, a buyer’s original mortgage pre-approval may simply no longer reflect current rates or their current finances by the time final closing arrives — and a builder can set a final closing date on comparatively short notice once registration happens. Lining up financing well ahead of the actual registration date, rather than assuming the original pre-approval still holds, is worth raising with any client early in the process.
A resale buyer’s closing costs are relatively predictable. A pre-construction buyer’s agreement often passes through a longer, less familiar list: development charges and levies the municipality assesses on the developer and passes through to buyers (sometimes capped in the agreement, sometimes not); education, parkland or other government levies; utility and meter hook-up charges; and a Tarion enrolment fee to register the home in the statutory warranty program. Uncapped development charges in particular can be a genuinely large, unwelcome surprise if a buyer has not asked whether the agreement caps them before signing.
HCRA’s own guidance is direct that it is illegal to build or sell a new home in Ontario without an HCRA licence — confirming a builder and, where relevant, seller are properly licensed is a basic check before advising a client on timelines or warranty protection. See new build timelines and what can slip for how the Firm and Tentative closing-date framework, and the delayed-closing compensation rules, actually work once a date is missed.
Everything above describes an original purchaser buying directly from the builder through to closing. Buying or selling an assignment — where an earlier purchaser sells their contractual position before the building is even complete — is a related but genuinely different transaction, with its own builder-consent requirements and its own HST treatment. Treadstone Law’s guidance on assignment sales is explicit that whether HST applies to an assignor’s profit is fact-specific rather than a blanket yes or no — if a client is buying or selling an assignment rather than an original unit, do not carry over the rules described in this article without checking which transaction is actually in front of you.
A buyer signs an Agreement of Purchase and Sale for a $750,000 pre-construction condo unit, with a $75,000 total deposit paid in stages. Because the purchase price is above $600,000, the deposit is protected at 10% of the purchase price, capped at $100,000 — comfortably covering the $75,000 actually paid, provided it was properly held in trust as the Condominium Act requires. During the 10-business-day cooling-off period, the buyer’s lawyer flags an uncapped development-charge clause and negotiates a cap into the agreement before the window closes. Two years later, the building reaches interim occupancy nine months before final registration; the buyer moves in and pays an occupancy fee for those nine months that reduces nothing owed at closing, then closes and starts paying an actual mortgage, property tax and condo fees for the first time on the same day registration occurs.
Tarion describes the statutory cooling-off period specifically for condominium purchases under the Condominium Act. A freehold pre-construction Agreement of Purchase and Sale does not carry the same statutory right, which makes having a lawyer review a freehold builder agreement before signing, rather than after, especially important — see Tarion’s freehold guidance for the closing-date framework that applies instead.
No. Treadstone Law’s guide is explicit that an occupancy fee is not a mortgage payment and builds no equity — it approximates interest, estimated property tax and estimated condo fees for the period before the buyer actually owns the unit, and none of it reduces the balance owed at final closing.
No. This article covers an original purchaser buying directly from the builder. An assignment — buying or selling an earlier purchaser’s contractual position before the building completes — is a separate transaction with its own consent and tax rules; see Treadstone Law’s assignment guidance for how that differs.
Deposit protection, occupancy fees and closing costs all work differently than on a resale — worth walking through before an offer goes in.
