WHAT IS A CONDOMINIUM OCCUPANCY CLOSING? - Isenberg & Shuman

If you are buying a brand new condominium, the paperwork and entire process can be confusing and overwhelming.  Aside from the complexities of signing the actual Agreement of Purchase and Sale which can be 50 to 60 pages in length, many Buyers are not aware of the unique aspects of closing a pre-constructions condominium purchase.  In particular, they are not aware that when a brand-new condominium is purchased from a builder, there are actually two closings.  The first closing, which I will discuss in more detail in this column, is the occupancy or interim closing.  The second closing is the final closing and this is when the Buyer becomes the registered owner of the property and begins making its mortgage payments. 

The occupancy closing takes place prior to the final closing and here are some important points to be aware of:

1. Both the occupancy and final closing dates are set by the builder.  The builder has the right to set the closing date and most builders will give the Buyer and its lawyer sufficient notice so that the Buyer can get prepared. However, in some cases, very little notice of occupancy closing is given. It is therefore important for the Buyer to check regularly with its builder so that it is prepared for the closing date. 
2. Many Buyers are frustrated to learn that the builder can set the occupancy closing and require the Buyer to close even if the building or the unit is not finished.  However, provided that the property is fit for occupancy, the Buyer cannot refuse to close. Buyers are given an opportunity to do a pre-delivery inspection. However, due to Covid, many builders are now doing them 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.
3. The builder will require the Buyer to provide a series of post-dated cheques representing monthly occupancy fees.  These occupancy fees are comprised of the estimated property taxes , the monthly common expenses and the interest component of the outstanding amount of funds owing to the builder.  Builders will typically require post-dated cheques for the occupancy fees.  These payments are similar to rent and do not get credited towards the final purchase price.  Once the final closing takes place, the builder will no longer cash the occupancy fee cheques.
4. The builder will also require the Buyer to provide 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 for the property.
5. The time period between interim and final closing varies, but it is typically 3-12 months.  Once the builder has legally registered the documents creating the condominium corporation, a notice will be sent out advising the Buyer and its lawyer of the final closing date.  The Buyer will need to arrange its mortgage financing for the final closing.
6. Many Buyers who purchase the property as an investment will be eager to rent out the property following the interim closing.  This is not always permitted by the builder.  If the builder does not allow this, then the Buyer must pay the occupancy fees without any rental income.  It is therefore important for the Buyer to have the Agreement reviewed by an experienced real estate lawyer at the time of signing.  The lawyer made 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.
7. 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 usually does not happen, but Buyers should be aware of this possibility.
8. Finally, if the Buyer is plans to occupy the property following the interim occupancy closing, I always recommend that the Buyer change its identification documents such as its driver’s license to reflect the address of the property being purchased.  Many builders will require confirmation in the form of photo identification confirming that the Buyer is actually living in the property.  Without this, the builder can take the position that the Buyer does not qualify and will have to pay for HST rebate on the final closing which will result in the the Buyer having to pay the additional HST on the final closing.  This amount is usually approximately $24,000.00.

Knowing the difference between an interim occupancy closing and a final closing is important so that Buyers can be prepared and helps ensure a smooth and hassle free transaction.