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5 Things to Know About Occupancy Fees

occupancy fees - buying a condo in Toronto

I have a client who is in the middle of purchasing a new condo and we are currently in our 10-day rescission period. I am helping my client do their due diligence in reviewing their contract with a lawyer, making sure the financing is in place for the deposits as well as the mortgage, answering any questions that come up, and generally making sure they are totally comfortable before moving forward and finalizing the purchase.

In the course of our due diligence, this particular client had some concerns about occupancy fees or ‘phantom rent’ as it is also known. Whenever you purchase a new condo, there is a period of time between when you take occupancy of your unit and when you take ownership of your unit. This is known as the ‘occupancy period’ or ‘interim occupancy’.

You can’t own something that doesn’t exist, and in real estate in Ontario, a property does not exist until it is entered into the Land Registry system (until it is ‘registered’). This process takes some time in a new condo because there are often hundreds of units to register at the same time. 

Once your unit is ready and liveable, you take possession of it, but not ownership. You must pay the developer for the right to live in the unit (no free lunch). The amount of the occupancy fees is roughly equivalent to the interest on the amount outstanding on the purchase price. For example, a $300,000 condo with 25% down means you must pay monthly occupany fees roughly equal to interest payments on $225,000.

The occupany period ends when the building is registered, your mortgage kicks in, and you get the deed to your property.

So should you let the occupancy fees deter you from purchasing a new condo? Absolutely not! Here are 5 things to know about occupancy fees:

 

  1. Occupancy fees will have to be paid to the developer every time you purchase a new condo.  It is normal and there is no way around it. 
  2. The occupancy period is normally 3-6 months, but the higher up you are in the building, the shorter the occupancy period will be. So if you buy a unit on the ground floor, you can expect a long occupancy period. If you buy the penthouse, you will likely have a very short occupancy period.
  3. There is no way to say absolutely how long the occupancy period will be.
  4. There is often a relationship between the length of the occupancy period and the experience level of the developer. The more experienced the developer, the shorter the occupancy period. Experienced developers who are familiar with process and who have diligent lawyers working behind the scenes for them know how to build and how to register a building as quickly as possible.
  5. It is in the developer’s best interest to register the building as quickly as possible and to have the occupancy period as short as possible. This is because they don’t get their money from the banks until the building is registered and all the unit owners have their mortgages commence. 

I always appreciate your feedback. Leave a comment or send me a private message via my contact form.

Link to a recent Globe and Mail article on occupancy fees.






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30 Responses to “5 Things to Know About Occupancy Fees”


  1. Great blog!

    Why does it take so long to register the property at the Land Titles Office?

    Here in Vancouver it takes a day!


  2. Nice Blog..
    It really takes a long time for registering the property. But i think the period for registration can be shortened by doing it in a proper manner..

  3. liisa

    when a condo is “registered” how long do you have to wait to put it on the market for selling? we got word that the condo registered yesturday and it would be another 4 weeks for full registration. during this period can we advertise? or do we have to wait the full 4 weeks?

  4. Andrew la Fleur

    Hi Liisa. Thanks for the comment. You should be ok to list your property on the MLS immediately. By the time you find an buyer and close the transaction the registration process should be complete. But just to make sure your Realtor should always check with the developer first. Don’t want any surprises!

  5. Meemee

    What happens when your cooling period expires on the day the sales office is closed? Do you get an extra day(s). I’m in a situation wherein my lawyer has sent a few conditions to the builder regarding my condo two days before my expiration date. We have not yet heard from the builder.

  6. Andrew la Fleur

    As far as I understand it, by the letter of the law, you do not get any extra days unless explicitly agreed upon between buyer and builder. But in practice, *usually* you would be given more time if your lawyer has put in requests but not heard back. You should always ask for more time from the builder than 10 days if you still have outstanding issues at the end of the 10 day period.


  7. I am purchasing a new condo currently under construction.
    One of the major banks gave me a capped commitment of 4.44% for a
    4 year fixed rate mortgage back in January. The commitment is for 18 months.
    Yesterday I was offered a lower capped rate of 3.75% for 5 year fixed rate mortgage by another bank.
    Can I take the new committment or am I legally obligated to deal with the first bank.

  8. Andrew la Fleur

    @neilm
    If you haven’t signed a commitment letter with the first lender you are not obligated to go with them. It is most likely just a pre-approval you have with them. You should be able to shop around right up until closing day as long as you don’t sign a commitment with anyone.

  9. Zee

    I am an owner of a condo that is not yet registered though we have already had the interim closing. Is there any way I can sell the condo before it gets registered?

  10. Lauri

    Your blog is so helpful. I just bought my first condo at the top of one of the ICE towers and I want to thank you– your blog has answered many of my questions and brought my attention to my new home!

  11. DC

    Hello, we have lived in our new condo for 13 months now this November 2009 and we are still paying the occupancy fee. What is the maximum no of months the builder can ask for occupancy fees? Will it be no limit until the building is fully registered? Is there any claim we can get from them regarding this delay aside from the first Delayed Occupancy Claim we filed before we reach our first year in our condo? Many thanks in advance for your advise. – DC


  12. When buying a condo for investment purposes, how does a purchaser get around the owner-occupied requirements that most builders have in the APS (for gst purposes). Also, do vendors typically allow the unit to be rented during the occupancy phase?

  13. Andrew la Fleur

    Great question: best advice is to talk to a lawyer and and accountant with all tax-related matters.

    No, typically builders do not allow it, however, in practice, very few enforce this rule.

  14. Andrew la Fleur

    Wow. 13 months is a long time. What building is this? Consult your agreement of purchase and sale and talk to your real estate lawyer.

  15. AL

    I understand the concept of Occupancy Fees, but how do you know at what rate interest will be charged? The Condominium Act of Ontario refers to a “prescribed rate”, but which rate is the “prescribed rate”? Is this the CRA’s monthly rate, Bank of Canada rate, or something else entirely?

    Thanks for your comments.

  16. patrick david

    These tips about occupancy fees are very informative. Thanks for sharing

  17. Shyam Tanna

    Hi there,

    What if we pay in full for the conodo? Would there be an occupancy fee?

    Tks

  18. Andrew la Fleur

    Great question Shyam. Reality is you will never pay in full for the condo in advance. you can’t buy something that doesn’t exist. has to be registered to pay in full. deposits go to the developer’s lawyer and sit in a trust account.

  19. Shyam

    Thanks Andrew! What happens to money in Trust? I assume there is interest accruing? Does this go to the developer/lawyer?

  20. Andrew la Fleur

    Yes, you will collect interest on your deposits. It is payable to you at closing

  21. Andrew la Fleur

    To add to my response to Shyam’s question: you may be allowed in some cases to pay for the unit in FULL on the occupancy date. Usually to do this you need to tell the developer you intend to a month or two in advance of your occupancy date. You would have to pay using cash as it is impossible to get a mortgage because the building will not be registered.

  22. Kevin

    Can I delay occupancy until the registration date, thereby avoiding the occupancy fees?

  23. Andrew la Fleur

    Kevin,
    no you can’t. you can sometimes pay the complete balance owing on the condo thereby avoiding all occupancy fees, but that is the only way to avoid.

  24. Arthur Lu

    I just had my condo closed. The builder is charging ridiculous occupancy fees. Here is the break down.

    the occupancy period is between May 17 – Oct. 27 2011.

    Occupancy fee: $1236.88 /mo total: $5546.01
    Common Expense: $359.07 /mo total: $1969.09
    Interest: $3282.76 / 163days total: $3282.76
    Realty Taxes: $1661.98 /229days total: $1661.98

    For a total of $12,459.84. and that’s average of $2,293.22 per month of expense during occupancy period. I believe this is excessive.

    Is this reasonable, or it’s something that I can do? Thanks.

    Arthur

  25. Andrew la Fleur

    @Arthur, can you email me a copy of your statement of adjustments that shows the breakdown?

  26. kiddo

    Do you think it is fair if you have to pay “rent” to someone for your own property?! Developers can get the whole process done before letting people to move in, in that case, the buyers will start paying what it is really belong to them. So the sooner the building is done, the sooner the developer can get the money (from the bank) and the buyers can also move in without paying the non-sense fee. I always question why there is no consumer law to protect the buyer from this B.S.??

    I can see if it is fair when the occupancy fee will go toward to the price of the unit….

    This is my 5 cents.

  27. Laurie

    What happens if I cannot afford the occupancy fees?

  28. Vishal

    I have a question, but my condo is in quebec. Anyhow, the builder is late in delivering the unit, he took an extended vacation and it seems the whole condo process is being delayed but I still have to move in. Do I still need to pay the builder this occupancy fee if its because of his faults in delays. I don’t mind paying for electricity and taxes, but “renting”?

  29. Carrie

    I purchased a pre-construction condo for investment which will start interim occupancy in jan 2014. Can condos be rented out during the interim occupancy? Can the occupancy fees be applied as “expenses” for rental purposes if I cannot rent out the condo during the interim occupancy period?
    Thanks,

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