Cooling-off period for new condo purchases can reduce sting of closing adjustments

Brand new condo buyers can avoid a nasty shock on closing day by visiting a real estate lawyer during the cooling-off period.

Unlike resales, new-build condo purchases have a whole host of extra steps and adjustments that can easily catch a normal consumer off guard.

Luckily, provincial law accounts for the unique nature of these transactions, building in a 10-day rescission period that allows nervous buyers to walk away from a deal, even after signing an agreement of purchase and sale with the developer.

Possibly the most significant difference comes on closing day, when a series of extra charges and fees known as “closing adjustments” are immediately due, often pushing the final price of a brand new condo well above what you expected to pay to take possession of the unit.

You can find details about closing adjustments in the paperwork that comes with your purchase agreement, but many buyers – especially first-timers – can struggle to make any sense of the documents.

That’s why the 10-day rescission period is the perfect time to visit a lawyer for a full review of your proposed purchase. That way you can be fully prepared for what to expect on closing day, or pull out of a deal you won’t be able to complete – without suffering any penalty.

The size of the closing adjustments vary depending on who you’re buying from, where your property is located and whether there is a cap on individual levies. But in general, new condos inside the City of Toronto tend to have the most costly closing adjustments. Education levies typically account for the largest portion, but other amounts are added on to pay for things like utility connections and Tarion fees.

And these are not trifling costs we’re talking about – closing adjustments can range anywhere from $2,000 to as much as $30,000, as was the case in a recent purchase I handled for a client. At the top end of that scale, the closing costs can make or break a deal, since many stretched buyers will already have used up any spare cash to fund a deposit.

Buyers of new condos should also be aware that their deals essentially have an extra closing date. After the first date, a period of “interim occupancy” begins until final closing, when the condo board is incorporated and the purchase price money can change hands.

In the period between the two closing dates – which can sometimes drag on – buyers take possession of the unit, but do not own the unit and need to pay monthly to the developer, which does not get credited toward the purchase price.

In addition, HST is an extra expense for new-build condo purchasers. While buyers may be eligible for rebates, if you are not occupying the unit, the full amount is typically payable upfront.

Even with condo resales and regular freehold purchases, buyers will still need to have extra cash on hand for closing costs not covered by their mortgage lender – including provincial and municipal land transfer taxes, title insurance and other expenses they may not have accounted for.

Disclaimer: The content on this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. Users of this website are advised to seek specific legal advice by contacting members of Laredo Law (or their own legal counsel) regarding any specific legal issues.