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What Does “10 Day Cooling Off” Period Mean?
You are entitled to a "10-Day Cooling Off" period when you purchase a pre-construction condo unit. This means that once you and the developer sign the Agreement of Purchase and Sale and receive a copy of the agreement plus any other documentation that makes the agreement binding, you have ten calendar days when your unit is reserved. You can take the time to review the contract.
According to Section 73 of the Condo Act, entitled "Rescission of Agreement," the buyer is permitted 10 calendar days from receiving their disclosure statement to rescind the purchase agreement for any reason.
During this time, if the buyer chooses to cancel this agreement, they can do so without any financial penalties and without having to disclose their reasoning. You are 100% protected during this period, and the unit is on hold under your name for those 10 calendar days.
This is a significant advantage for pre-construction buyers as it allows you the time to perform your due diligence. In addition to condos, the Government of Ontario has proposed applying the 10-day cooling-off period to pre-construction freehold homes, including low-rise freehold homes. This new proposal will provide added consumer protection to the pre-construction market. This does not, however, apply to resale purchases.
It’s important to note that these are 10 calendar days and not business days which means they include weekends. During these 10 days, we strongly recommend that you meet with your pre-construction lawyer. Your lawyer will go through your Agreement of Purchase and Sale to review the clauses and to ensure that you are protected.
They will also ensure that your development charges and levies are capped, and they will review the contract in detail to identify any unfavourable terms. They will then review this agreement with you and answer any questions you may have. Your lawyer will also go over all of your potential closing costs with you so that you have an idea of how much you will be paying when that time comes.
We also recommend that you meet with your pre-construction mortgage agent to get your mortgage pre-approval letter or commitment letter in place with your financial institution. This is not a necessary step but it is better to be prepared as the developer will ask you to provide a Mortgage Pre-Approval letter as a condition of this new purchase.
What Is the 10-Day Cooling Off Period?
Key Points
When Does Your "10 Day Cooling Off" Period Begin?
The 10 day cooling off period is granted to every pre-construction condo buyer. This period starts when the buyer and developer have both signed the Agreement of Purchase and Sale and the buyer receives a copy of the Disclosure Statement, the HCRA for Buyers of Pre-Construction Condominium Homes, the Tarion Warranty Information Sheet, and the Condo Guide.
You then have ten calendar days, including weekends, to meet with your pre-construction lawyer and your mortgage broker to make sure you have all of your finances in place.
If you choose to rescind the agreement, you can do so by giving notice in writing to the Declarant (developer) or the developer’s lawyer within those 10 days. Once the notice of rescission is delivered, the developer must refund without penalty or charge, all money deposited toward the purchase price, along with any applicable interest.
Under Section 73 of the Condo Act, you have the right to cancel and have your deposit returned if one of the following applies to you:
- You are within the “10 Day Cooling Off” period.
- If there is a material change (i.e. an important change that would have caused a reasonable buyer to no longer want to proceed with the purchase, had that information been included in the disclosure received by the purchaser), then you may be able to rescind or cancel your purchase agreement during an additional “10 Day Cooling Off” period.
This “10 Day Cooling Off” period starts from the later of:
- The date that the declarant (developer) has delivered a revised disclosure statement or a notice to you confirming the material change;
- The date that you otherwise become aware of the material change; or
- The date that the Ontario Superior Court of Justice has determined that a material change has occurred.
The definition of “Material Change” is broad, however, an example of material change can include changes that would substantially affect a purchase from using and enjoying the condominium amenities or would substantially affect the value of the unit.
It is a lot trickier to get rescission on this basis because if a developer disagrees and in their view, the change is not material, the purchaser must apply to the court. At that point, time is crucial here because the application must be made within ten days of the purchaser receiving the revised disclosure document. It is also important to note that the Agreement of Purchase and Sale will contain many provisions stating that certain items of disclosure may be subject to change and therefore are not considered material under the Condo Act.
This is why it is important to review all of your rights with an experienced pre-construction lawyer as they specialize in this area and can help you with the “10 Day Cooling Off” period or any material change.
Consider Closing Costs During Your “10 Day Cooling Off” Period
When you meet with your pre-construction lawyer, they will also provide you with a spreadsheet that will list all of the potential closing costs due during the final closing phase of your condo journey.
Meeting with your lawyer will help you understand all of your rights as a buyer, what you can expect to pay during final closing and more importantly, it will give you peace of mind about your financial investment. The last thing you want is to be blindsided by the closing costs at the time of closing, especially since you cannot cancel your agreement at this time.
Not only is it your lawyer’s responsibility to outline the closing costs for you before your “10 Day Cooling Off” period is over, but it is also a time to reflect on your financial situation. Ask yourself, “is buying a condo truly a possibility right now and will you have the funds you need to close on the unit in 3 - 4 years?”
As professionals in the industry, we also recommend that you meet with a pre-construction mortgage agent during this time. When you sign your Agreement of Purchase and Sale, the developer will ask you to provide a Mortgage Pre-Approval letter as a condition of this new purchase.
This is the best time to get your Mortgage Pre-Approval letter ready so that you are prepared to submit this letter to the developer when the time comes, and it’s also helpful for you as the purchaser to know what your monthly mortgage payments will be.
Breakdown of Potential Closing Costs
Below is a rough estimate of what you could pay at final closing for a pre-construction condo priced at $600,000 in Toronto, which is usually around between 8 to 10% of the purchase price. (Please note that these costs vary based on your contract):
- Common Expenses/Maintenance Fees/Condo Fees - Approximately $600 to $1200.
- Reserve Fund - Usually equivalent to two months of condo fees, which could be approximately $1200.
- Realty Taxes/Property Taxes - This can vary, but our estimate for the City of Toronto is 0.75%, which would total approximately $5,000 in this case.
- Miscellaneous Costs including utility hookup fees, Tarion Warranty Enrollment Fee, Deposit Administration/Letter Charges, Discharge of Construction Mortgage, Site review by Tarion, Electronic Registration Fee, HST on Appliances -These costs can add up to approximately $4,000 or $5,000.
- Park Levies, Community Improvement Fees, Art and/or Education Levies - When a new space is developed, the developers are required to pay the municipality a certain amount for new park space, community resources or public art projects, if applicable. In turn, this is worked into the buyer’s closing costs. For a unit of our estimated price, this could be approximately $6,000.
- Development Charges - Approximately $12,000.
- Buyer’s Legal Fees - $1900.
- Land Transfer Tax (Municipal) (Provincial) - This is based on the purchase price.
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Can You Cancel Your Agreement After Your “10 Day Cooling Off” Period is Over?
The short answer is no. Although, there are ways to reassign the property to someone else, and you don't have to wait for the property to be complete to do so. Now, let's first understand that this is a very tricky topic, and we urge you to consult your real estate lawyer about your options. However, here is some information about assignments, which is what it is called to reassign your unit to someone else.
If you are past your “10 Day Cooling” period and at a point where you are thinking of selling your unit before you take possession, participating in an assignment sale might benefit you. An assignment is a sales transaction where the original buyer of a property (the “assignor”) allows another buyer (the “assignee”) to take over the buyer's rights and obligations of the Agreement of Purchase and Sale before the original buyer closes on the property.
By agreeing to the assignment, a new buyer will be purchasing the original purchaser’s (your) agreement to complete the final sale with the developer.
You might be wondering why you need an assignment and why you cannot just sell the property directly to a new buyer. The answer is, you do not own the property until it is built, you’ve closed on the purchase, and the ownership has formally transferred to your name. Our sales agents are equipped to help you through this process if you find yourself wanting to reassign your APS.
Still, your real estate lawyer is essential in reviewing your agreement to let you know if an assignment sale is even an option for you. Although assignment sales are very prevalent in the industry, some developers do not allow them. In that case, you will have to wait until the unit is officially yours to sell. And, in very few cases, developers allow assignment sales at a cost.
Assignment sales also come with an HST dilemma to consider. For example, suppose you are an investor, and you decide to participate in an assignment sale. You can potentially be required to pay HST (13%) on the deposit you have already paid to the builder and the net profit of your sale.
Example
If you paid a $100,000 deposit to your builder and sold the property for $100,000 net profit, you can potentially have to pay $26,000 in HST. That is a net loss of $26,000. In addition to this, you run the risk of being deemed a trader rather than an investor in a quick sale, which means that the government can charge 100% of your gains as income rather than 50%.
An assignment sale can be attractive for some and not so attractive for others. What's for sure, though, is that unforeseen circumstances come up, and assignment sale gives buyers an out, especially if you have passed your "10 Day Cooling Off" period.
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