What Does A Condo 'Occupancy' Closing Mean? I Know All The Details You'll Need To Know!

If you're buying a brand new condo, the paperwork and entire process can be overwhelming and confusing.  In addition to the complexities of signing the actual Agreement of Purchase and Sale which can be 50 to 60 pages long, many Buyers aren't aware of the unique aspects of closing a pre-construction condominium purchase. And....there are actually two (2) different kinds of closings. One of them is called the 'Occupancy' or 'Interim' closing and one is called the 'Final/Closing Date' closing.

The 'Occupancy' closing comes first. It's when the condo building is finished enough to allow people to occupy the units, but it is a far cry from actually owning it outright .... yet.  'Final' closing is when the condo building has been registered with the City of Toronto, establishes a Condominium Corporation Code and Number, you actually become the owner, pay the balance owning and (if applicable) your mortgage is applied and you're now paying the mortgage payment, plus the maintenance fee and utilties. This can actually take from 3 months up to one year after the Occupancy closing. Or in some unique cases in as little as one month or after Occupancy or even on the same day. Since the Occupancy closing takes place prior to the final closing there are some crucial things to know:

1.   Both the Occupancy and Final Closing dates are set by the Builder. And the Builder has the right to extend the Occupany date first by 6 months and then even another 6 months.  The Builder has the right to set the Closing date and most will give the you, the Buyer and your lawyer sufficient notice so that you can prepare for it. However, in some cases, very little notice of Occupancy closing is given. And often the Builder doesn't reach out to you to let you know of any changes to either of these closings - you need to check regularly with the Builder! 

2.  Many Buyers are frustrated to learn that when the Builder sets the Occupancy closing you can be required to close even if the building or the unit is not 100% finished.  However, provided that the property is fit for occupancy, you can't refuse to close. Buyers are given an opportunity to do a Pre-Delivery Inspection called the PDI. Normally the Builder's representative accompanies you to look at every single thing in the condo: from how the kitchen cabinets are aligned, to any irregularities in the flooring, walls, tiling, door hinges/handles to whether the appliances are properly installed. Plus during the PID you make sure that your condo contains everything that you assured you were getting when you signed the Agreement of Purchase and Sale at the onset of construction (even if it was a few years prior). However, due to Covid, many Builders are now doing these PDI inspections on behalf of the Buyer or they are being done virtually, at which time any unfinished or incomplete items will be noted on the Tarion Warranty Form. Every condo builder offers the Government Tarion Warranty to  the Owner. (My next Blog will be  "What Is A Tarion Warranty?")

3.  During the Occupancy phase the Builder charges you an Occupancy Fee made up of the estimated property taxes, the monthly maintenance fee and the interest component of the outstanding amount of the total purchase price owing to the Builder. You need to give the Builder post-dated cheques representing these monthly Occupancy Fees.  These Occupancy payments are similar to rent and no, they do not get credited towards the final purchase price.  Once the Final closing takes place, the builder won't cash any remaining Occupancy fee cheques.

4.  The Buyer also must a copy of insurance for the property for the Occupancy closing.  Depending on the deposit structure in the Agreement, the Buyer may also have to pay a further deposit on the interim Occupancy closing.  Also, the Buyer will need to set up and open various utility accounts - such as hydro, gas, water and any personal choices such as cable TV, internet etc.  

5.  The time period between Interim/Occupancy and Final closing varies, but it is typically 3-12 months.  In some rare cases, the builder will combine the closings so that the interim occupancy and final closing take place at the same time.  This is an anomaly, but Buyers should be know this could happen. A benefit of combining the two, is that no Occupancy fees are levied. the Builder has legally registered the documents creating the condominium corporation, a notice will be sent out advising the Buyer and their lawyer of the final closing date.  The Buyer will need to arrange his or her mortgage financing for the final closing.

6.  Many Buyers who purchase the condo as an Investment Property will be eager to rent out the property following the Interim/Occupancyclosing. But this isn't always allowed by the builder. (And rarely will the Builder allow the Buyer to advertise that it's for rent, even on the Toronto MLS system)  If the builder does not allow this, then the Buyer must pay the occupancy fees without any rental income.  It's  therefore critical for the Buyer to have the Agreement reviewed by an experienced Real Estate Lawyer at the inital time of signing. I always include a condition that the sale is contingent upon my Buyer's Lawyer's review. Sometimes the lawyer might be able to negotiate a clause into the Agreement which would allow the Buyer to rent out the property following the Interim Occupancy closing.  In some cases, the Builder will allow this. Something to note: Some builders such as Tridel demand that you use their own Del Rental company to rent out your condo during occupancy so you have no control over who the Tenant is. I recently discovered that another builder is charging the Buyer over $4500 to allow them to rent out their condo during the Occupany period. I'd never heard of this before! 

7.  Finally, if the Buyer plans to occupy the condo following the Interim Occupancy closing, I always recommend that the Buyer move their identification documents such as their driver’s license to reflect this new address .  Many Builders will require photo I.D. confirming that the Buyer is actually living in the property.  This is so the Builder knows the Buyer is not responsible for paying HST (13%) which is levied on all new construction. Sometimes the Builder has already paid the HST and the will ask the Buyer to sign a form allowing the Builder to claim it back. But sometimes, and I have to make sure I find this out, the Buyer has to pay the HST and then apply, themselves, to get it back. If the Buyer is renting out the condo, they Buyer may apply to the Government for an HST rebate, along with the signed one year lease, for a maximum rebate of $24,000.

I know this is a lot of information to absorb all at once so I'm very happy to break it down even further for you. But since I know all the ins and outs/details/computations of the process you are assured of a smooth and stress free purchase and (both) closings. Knowing the difference between an Interim Occupancy closing and a Final closing is important so that you, as the Buyer can be prepared.