If you have bought or sold before and are looking to buy a newly-constructed single-family home or condominium, the potential pitfalls and unique features may not be obvious: 

many parts of the transaction will seem routine, and will be no different from any other real estate purchase, whether new or resale.   

However, when it comes to Condominium Builders’ Agreements of Purchase and Sales, in many ways the similarities to other kinds of real estate agreements come to a screeching halt!  As a potential buyer you should be aware that, the builder’s form of Agreement of Purchase and Sale has been tailored to the proposed development, drafted by the condo builders’ lawyers and heavily tilted in the builder’s favour.

Furthermore, the condo builder’s so-called “standard” Agreement is often only uniform with respect to the particular development, especially after numerous specific project-related Schedules are added.  In fact, it is not too far-fetched to speculate that no two builder’s agreements are the same, and even a single builder’s own Agreements may be modified from one development or construction phase to the next.

The problem is further compounded with the addition of the Disclosure Statement, which is intended to give an overall picture of some of the features and financial aspects of the project, and the obligations imposed on buyers.   Even though the contents of these documents are generally mandated by legislation, in a practical sense they always vary in significant respects as well.

What is particularly problematic for the average potential buyer is that the potential pitfalls and areas of concern are hard to spot; even experienced real estate lawyers may have difficulty picking them out at first glance. One often-raised area of concern is the nature and extent of hidden fees and extras that are woven throughout the documentation, and which can cost the unsuspecting buyer thousands of dollars that were not initially budgeted-for.

Here is a list of some of the kinds of unexpected charges that may appear in the builder’s Agreement of Purchase and Sale and its related documentation:

• common expenses attributable to the unit;
• monetary contribution to the Reserve Fund (the amount can vary by development, and is usually between 1 and 3 months’ contribution);
• occupancy fees for the Interim Occupancy Period, which are comprised of the following components (none of which are credited to the purchase price of the unit):
• interest on the balance of monies owing to the builder;
• the estimated monthly common expenses; and,
• 1/12th of the estimated annual property taxes.
• all utility costs including electricity, gas, energy and water starting from the agreed Occupancy Date;
• the Law Society of Upper Canada transaction levy payable by the Builder’s lawyer;
• the cost of possibly obtaining the builder’s consent to the assignment of the Agreement of Purchase and Sale by the original purchaser to a 3rd party whether before or after the Interim Occupancy, but before the Final Closing;
• the cost of excess deposit insurance for deposits of over $20,000;
• realty taxes (including any local improvement charges levied by way of statute), and estimated amounts for realty taxes for the next calendar year;
• lot levies, developmental charges, education development charges, and park donation levies;
• provincial sales tax on the value of appliances included in the deal;
• the cost of all utility meters (water, hydro, gas, and heating/cooling), the cost of all meter installations and connections, a sewer service connection charge;
• the enrolment fee required by Tarion under the Ontario New Home Warranty Program;
• legal fees incurred by the Builder in obtaining and registering a partial discharge of the Builder’s construction financing;
• “administrative charges” for cheques that are returned NSF in connection with the buyer’s payment of the deposit, fees for extras or upgrades, or occupancy fees;
• a “general administrative charge” payable to the condo developer to cover various items such as:
• the cost to provide a status certificate on final closing;
• the handling of deposit cheques provided by the buyer, in accordance with the provisions of the Agreement of Purchase and Sale; and,
• the sending out of the required Acknowledgment of the deposit receipts;

• extra legal fees payable to the builders’ lawyers for items such as:
• preparing and delivering a revised interim or final closing package;
• corresponding with the buyer in connection with his or her pre-closing default of some kind;
• changing the name that title to the condominium unit will be taken in, if it differs from what appears on the Agreement of Purchase and Sale; and,
• performing extra administrative tasks (such as photocopying and couriering of documents) in a case where the buyer’s lawyer refuses to use the electronic closing system;
• public art contribution levies;
• the builder’s lawyer’s fees and costs for electronic registration;
• GST/HST on extras and upgrades; and
• any other taxes imposed or increased by federal, provincial, or municipal governments.

The list goes on.   Again, as a buyer you should attempt to have these fees capped, if not deleted from the Agreement entirely.

Next, many condo builder’s agreements will also contain clauses that are heavily – one might say outrageously – skewed in the builder’s favour.  

For example there may be clauses:

• allowing the builder to make substitutions and changes of materials and finishes at its own discretion;
• allowing the builder to make changes to the final finished unit, including the size (within certain limits), or building the unit in the reverse image of what the buyer agreed to purchase, provided these do not amount to “material” changes that diminish the value or substantially alter the property (since that would otherwise give the buyer the right to terminate the agreement);
• giving the builder discretion in determining on what level of the building the unit will be located, the location and level of the parking and locker units which are assigned by the builder.

In addition – and often to the surprise of the unwary buyer – the condo builder may also insert conditions in the agreement that must be satisfied before construction will commence, such as:

• achieving a certain level of sales of the development, or otherwise achieving a specified level of economic viability for the development (i.e. enough sales to satisfy the builder and the builder’s lender);
• being granted all necessary applications for re-zoning by the relevant municipality;
• obtaining all necessary permits in relation to the construction of the development; and,
• securing the needed financing for the development of the project.

These conditions tie the buyer up until the date of expiry of these conditions – which may not expire for at least one, two or more years from the signing of the Agreement.

It is important to note that even new single-family homes have a number of additional adjustments in the builder’s agreement of purchase and sale.

Does all of this sound complicated and worrisome?  If you are a potential new condo or new home buyer, it can be.  That’s because these kinds of pitfalls are hard to spot, can give rise to unpleasant surprises, and can amount to major unexpected expenditures on closing.   

But such unhappy surprises are easy to avoid: 

always have a builder’s form of Agreement of Purchase and Sale reviewed in a timely manner by a lawyer experienced in condominium and new home purchases, as soon as you sign an offer, or even before if possible.  For condominiums, you only have 10 days to withdraw from the deal if you change your mind – and with new single-family home agreements there is no mandatory cooling-off period at all!!