Purchasing pre-construction can be extremely exciting, but also pretty scary. It’s not like it is something that you do every day. At GTA-Homes, our sales agents are your first line of defence, your advocate, your therapist-- in many instances, and they are trained in all things real estate, especially legal implications that can affect a client's purchase.
Real Estate Lawyer David Young from Zinati Kay Barristers & Solicitors has been our prefered lawyer for years. As our sales team continues to grow, David has been an informed and accommodating professional in the ever-changing real estate industry.
A few weeks ago, he came in to conduct a presentation to refresh our agents on everything from interim occupancy fees, HST rebates, assignments and more. Here’s 5 of the latest tips and trends in pre-construction purchases and assignments, according to Lawyer David Young.
How To Calculate Interim Occupancy Fees (“Rent”)
One way to calculate and prepare for these fees is to consider the estimate for condo/maintenance fees which is based on a proposed budget plus potential inflation. Another fee to consider is property/realty taxes. The builder or their lawyer decides how much this tax is to be. It can be as high as 1% or 1.5% of the purchase price. These occupancy fees will also include interest on the outstanding balance of the purchase price. Currently, the Bank of Canada’s 1-year conventional mortgage rate is 3.64%-- when it comes to interest charges, the larger the deposit, the smaller the interest charge will be. It is important for us to note that the occupancy fee amount does not go towards the purchase price or count as a deposit. This is why occupancy fees are similar to paying rent.
HST Rebates - Here’s How They Work
There are two rebates that purchasers may be eligible for when it comes to buying pre-construction: The New Home Rebate (NHR) or the New Residential Rental Property Rebate. It is likely that a purchaser will fit into one of these three scenarios which will determine the type of rebate to apply for.
1. Primary Place Of Residence Purchaser
If the purchaser or a close, blood relative plans to occupy the condo as their primary place of residence, they do not have to do, pay or apply for anything. This is because the builder presumes that the purchaser will live there when signing the agreement. The purchase price will reflect the NHR rebate at the time of purchase.
2.Renting To Tenants Purchasers
These purchasers must pay the extra HST rebate amount in cash at Final Closing. The mortgage will not cover this so some purchasers seek alternative financing to cover the amount. Once the amount is paid, and the unit is closed, the purchaser can apply for it to be paid back through the New Residential Rental Property Rebate. The wait time for this return is approximately 1 to 4 months.
3. Multiple Purchasers But Only One is Living There
Many purchasers these days have to add additional parties to qualify for a mortgage. If the party is made up of close, blood family members, but only one will be living there, the party is treated like a Primary Place of Residence Purchaser. If the party is made up of distance relatives like an aunt or uncle, or a friend, the purchaser has to pay the HST Rebate amount and cannot apply for it back.
How To Calculate Your HST Rebate
If the purchase price is under $484,500, he will receive an HST Rebate return of $17,000 to $27,500 from CRA. At this time, CRA may determine that the property value has increased thus returning a reduced amount. The purchaser may receive most but not all of the amount paid in HST.
If the purchase price is over $484,501, the purchaser can expect a return of $24,000 no matter the purchase price. For investors intending to rent the unit, an HST amount of $24,000 is paid and CRA will return the full amount back to the purchaser.
HST Rebate On Assignments
This type of purchase comes with additional costs because assignments “breaks” the line of intention. These costs are not readily available until the Builder Consent arrives. If you are a purchaser who plans to rent out the unit, the same steps to final closing applies. In the event that the assignee/new purchaser plans to live in the unit, the process will be much more difficult especially if the unit is already in occupancy. This is where your lawyer tries to negotiate a level of protection with the assignor on your behalf.
Recent Update On Assignments
Builders are insisting on the removal of all “benefits” or “incentives by the original purchaser/assignor. Such incentives can range from development charge levies to common expense credits, for example, we’ve seen a developer delete the Development Charge cap, common expense credit and free leaseback provision. As a part of the builder consent document, they instead replaced the Development Charge cap at a significantly higher amount. We’ve also seen a builder delete the development charge cap (which was $0) and didn’t replace it. This means that the purchaser would be fully responsible for increases in development charge rates after the point of purchase, which may amount to $2,000 or more.
There are a few ways to protect clients when representing an assignee/new purchaser or seller in an assignment sale. It is important to always work with a lawyer who specializes in pre-construction real estate, as we do. There are many instances where the insertion of a few key clauses can protect and save clients from paying hidden fees and development charges.
To obtain further information with respect to real estate, please feel free to reach out to us. Our skilled sales team is here to help you.