Buying a Pre-construction Condominium: Pretty much everything you need to know!

admin | Feb. 7, 2019

There are a number of steps when purchasing a Pre-construction Condominium. It is important to know these steps and when they take place. Also, it is essential to know how to handle some of the variables that can be thrown your way during the process.

First, you have to decide on a project and unit.

You must do the math on a Pre-construction condo unit: does it financially makes sense? Are you buying to occupy the unit yourself or will this be an investment property? How much rent can I get and what will my costs be (mortgage payments, utilities, condo fees, taxes, repairs & maintenance)?

You need to decide on whether the timelines work: the deposit payments are usually 15% of the purchase price and split into a number or payments at future dates – does the payment and dates for these payments work for you? Does the approximate close date work for you – your unit can take months or years to complete.

Once you decide to move forward the next step is to reserve your unit.

You will need to supply ID and you will need to sign the Agreement of Purchase and Sale. A small initial deposit is also required – usually $2000 to $5000. Your agreement will be standard, and it is very rare for Developers to make changes to the document – however if there is something you want changed this is the time to make the request. Also, this is the time when you may want to try to negotiate some bonuses. Typical bonuses are: free upgrade credits, upgraded appliance packages, an extended deposit payment structure, development fee caps, the right to assign the sale of your unit, no cost assignments and additional parking spots and/or lockers.

A typical deposit structure looks like this (example is a $325,000 condo in brackets):
  1. $2000 when you reserve
  2. 3% of the purchase price 30 days from the date the deal is firm ($9,750)
  3. 3% at 90 days ($9,750)
  4. 3% at 180 days ($9,750)
  5. 3% at 270 days ($9,750)
  6. 3% less the $2000 at 365 days ($7,750)

It is important to know that you will have 10 days to “cool down”. During this period, you will want to have your lawyer look at the Agreement of Purchase and Sale to point out anything that looks suspicious and to explain any additional fees that may apply on closing. If you don’t feel comfortable you can cancel the deal within the 10 days and any monies will be returned to you in full.

Once the 10 days is up your deal is firm and binding. Congratulations!

You will then be required to provide two things: post-dated deposit cheques and a letter from your lender showing that you have pre-approval to borrow necessary funds or a letter from a Wealth Manager or Bank stating that you have enough funds to close on the deal.

At some point you will be asked to select finishes for your unit. There will be standard options and there will be options to upgrade finishes like flooring, appliances, counter top material, faucets, lighting, kitchen cabinets, bathroom tiles, vanities and sinks, optional kitchen island, window coverings and wall paint. Depending on the Developer you may have to pay a portion or all of the cost for the upgrades as soon as you finalize your selections.

Next you will be kept up to date on your occupancy date.

You will have a tentative occupancy date in your Agreement of Purchase and Sale. You will also find an outside occupancy date.

Your tentative occupancy date is the date that you expect the unit to be finished however it will likely change as the Developer gets a better idea on when the unit will be safe to occupy. You may get one tentative occupancy change date or you may get 10 or more. Expect delays – they happen. Tentative occupancy happens once the building has been inspected and is safe and your unit has doors that lock, running water, heat, a functional kitchen, etc, but there will likely still be finishing work required in the unit.

The outside occupancy date is the absolute latest date that the Developer can get you into the unit. If they do not there are penalties for the Developer.

You will then get a notice for your Final Occupancy Date. This is the date that you will get keys and you will be able to occupy the unit. If you get a Final Occupancy Date letter and that date comes and the Developer does not supply you with the unit you are entitled to Delayed Occupancy Compensation. This compensation is $150 per day to a Maximum of $7500. There are some other compensation amounts you can claim related to alternate accommodation and other associated costs as well. At occupancy you will likely go through the unit with a Developer representative that will mark down any items that need to be completed/addressed. Take your time and make sure you record every single item – it doesn’t matter how small – this is the time to get picky!

A large portion of your Agreement of purchase and sale is made up of Tarion Warranty information. It is important to understand what this warranty does for you and how to take advantage of the warranty. The warranty ensures that you get the unit when you are supposed to and that you get a unit that is acceptable to you – if something is not right, not finished, broken, cracked, scratched, not opening or closing correctly, poorly installed, or anything that is generally not acceptable, you have the opportunity via Tarion Timelines to report these items. You will have a few times (30 days, 1 year, 2 year and 3-7 years) that you can report deficiencies; Tarion has made it fairly easy via their individual portal sites to upload pictures and provide details of the issues. If issues are not resolved you can request a conciliation. Tarion will want a couple hundred bucks. They will send someone out to inspect the issue(s). If they agree with anything you are concerned with they will refund your payment to them in full and will pursue the Developer to resolve the issue.

During Occupancy, you do not own the unit but, you can occupy the unit. Or you can get a tenant in and start cashing rent cheques. As per your Agreement of Purchase and Sale you will be required to pay occupancy fees. The occupancy fee is a combination of costs primarily made up of interest on the remaining balance of your purchase price (takes out your deposit amount) plus estimated property taxes and estimated costs for common element maintenance. The Developer or your lawyer will usually ask you to provide them with post-dated occupancy fee cheques.

At some point you will be given a Possession Date. This is the date that you pay for your unit and title/ownership is transferred to you. This is when you visit your lawyer. Please, please, please use a lawyer that does a lot of Real Estate business. Please, please, please use a lawyer that does a lot of pre-construction condo business. And please, please, please always read what you’re signing and ask questions. I’ve had lawyers shove papers in front of me for my signature; I ask them what it is, they take it back and it’s the first time they’ve read it – you can see their eyes get big, and then all of a sudden this piece of paper is a problem – your lawyer works for you, so make them work. Also, if they screw up, realize that now you need to get a lawyer to sue a lawyer. Sounds expensive and sounds like a terrible idea. So help your lawyer – ask what you’re signing.

HST is also a consideration. This will hopefully be something that was previously explained to you. There are three paths based on how/why you are purchasing the unit:

  1. You will occupy the unit yourself or must be occupied by a qualified relative*
  2. You will be renting the unit as an investment property
  3. You will be using the unit as a secondary residence

*(qualified relative: Grandparents, children, grandchildren, siblings or marriage/common law spouse)

If you (or a qualified relative) will occupy the new condo the HST rebate gets assigned to the Developer and they will claim the credit on your behalf. The price on the Agreement of Purchase and Sale assumes the credit will be assigned to the Developer so that is the price that you pay on closing/possession.

If you will be renting out the unit the Developer cannot claim the HST credit on your behalf. You will be responsible for the remaining HST amount on closing/possession in addition to the purchase price outlined in your Agreement of Purchase and Sale.

Here are some examples of how much HST we are talking about:

Properties with a price of $325,000 on the Agreement of Purchase and Sale:

HST rebate amount: $22,433.63

Properties with a price of $425,000 on the Agreement of Purchase and Sale:

HST rebate amount: $27,221.68

Properties with a price of $525,000 on the Agreement of Purchase and Sale:

HST rebate amount: $24,000.00

You will have to pay the amount on the Agreement of Purchase and Sale PLUS the HST amount that the Developer cannot claim on your behalf. However, because it is a rental unit you can apply for an HST rebate. This usually takes about 6 weeks from the time you send it in to the CRA.

Here is what you will need in order to apply for the HST credit:

  1. A Copy of your Agreement of Purchase and Sale
  2. A copy of the signed 1 year (minimum) lease agreement for the unit
  3. A copy of the lawyer statement of adjustments for the purchase showing you paid the HST
  4. Form GST524 E (GST/HST New Residential Rental Property Rebate Application)
  5. Form RC7524-ON E (GST524 Ontario Rebate Schedule)


If the unit is a secondary residence you will be responsible for the additional HST and unfortunately you cannot claim any rebate.

After you pay for the unit the building will likely still be under construction. Lots of finishing work, parking, landscaping and completion of amenities will still happen.

So, you bought a pre-construction condo and you want to sell it.

Timing of the sale is important. There are 3 different scenarios: a sale before you take possession, a sale right after you take possession and a sale a fair amount of time after you take possession (about a year or more).

If you are looking to sell you unit prior to possession you are simply selling your deal to someone else; you are selling your Agreement of Purchase and Sale paperwork.

If you haven’t assigned a unit previously or aren’t in the business of selling units prior to taking possession then the sale will be taxed as a Capital Gain. If you do this a lot then the CRA could deem this business income and you could be taxed on the full gain. HST is also a major consideration when assigning a deal. HST is payable on the return of the deposit to the original buyer and on the lift (difference in price between the original Agreement of Purchase and Sale and the new price you sold the assigned deal for).


Agreement of purchase and Sale posted price: $325,000

15% deposit on the deal with the Developer

Sale price for the Assignment to the new Buyer: $375,000

You as the Seller are getting your deposit back (15% x 325,000 = $48,750) and the lift (375,000 – 325,000 = $50,000). You are responsible for collecting HST on the product you supplied which the CRA deems to be ($48,750 + $50,000) $98,750. 13% HST on $98,750 is $12,837.50

You must also consider that you will have to pay legal fees and real estate fees and tax on the gain.

Legal fees are likely around $1,500

Real estate fees are typically 4%: $15,000

And your marginal personal tax rate on 50% of the gain


If you are looking to sell your unit after you take possession

In this scenario there is a little bit of gray. There is no one year rule – but more of a reasonable sale rule: as in you sold it because of factors other than trying to flip the unit.

>>>If you bought the unit as owner occupied and then sell is shortly after you take possession there can be a case for why you sold: you decided you hate condos, the unit took too long for you to occupy, you have a child and a one bedroom condo doesn’t work anymore, you have to move for a new job, etc. In this scenario you have paid legal ($1500), you have paid Land transfer tax ($3350 – unless you are a first time buyer and got a LTT credit), and you have paid occupancy fees. You received the HST credit directly through the Developer so you don’t have any HST rebates to chase. If you sell the unit for $375,000 and bought for $325,000 and this was your first home purchase and it was a private sale then you have costs of $1500 and you just made $48,500 tax free!!! Unless the CRA deems it to be something else then you may be on the hook for HST and Capital gains…augh!!! And if you used a real estate agent there goes another $15,000.

>>>If you bought the unit as a rental property then you have paid HST on the purchase: $22,433.63. You are going to want to get that back. So you need to get a tenant into the unit and you need to submit your HST rebate claim. You have paid Land transfer tax of $3350, you’ve paid Legal fees of $1500 and you’ve probably paid a real estate agent $15,000.  And you’ll get taxed on 50% of the gain (Capital Gains). Your costs to sell are ($1500 + 3350 + 15,000) $19,850. And even if you get your HST rebate back there is the risk that the CRA asks for it back with interest and penalties: $22,433.63 +++ That means the total cost in this scenario could be more than $42,283.63. Tax on 50% of the remaining gain would be about 30% – lets say, so you end up with about $6500 after tax. After occupancy fees and interest on a mortgage loan that money may also disappear. The amount of time that this usually takes, it is probably best to wait a bit longer: see below.

>>>If you bought your condo unit and decide to sell it a year or more later then you are going to end up in a pretty good position. If you are an investor, you would have received your HST rebate back and the CRA is not going to come hunting for you. You’ve paid land transfer tax of $3,350, paid legal fees of $1500 but, you have also had a tenant paying down your mortgage for a year or more. The market is up more than in the previous scenarios so you can sell the unit for $400,000. Your mortgage has been reduced by about $700/mth or $8,400 after a year. So at this point you are up ($400,000 – $325,000 – $3,350 – $1500 +$8,500) $78,650. Real Estate fees would be about $16,000 and you would be responsible for Capital gains (marginal tax rate on 50% of the money you made). One year later after taxes you walk away with about $43,000.

If you bought and owner occupied and then sold after a reasonable amount of time you are in a similar position as above except that the sale is tax free and you walk away with about $63,000.


I hope this information helps. Of course there are many variables that come into play but what I’ve outlined covers about 95% of what happens out there.


If you have any questions, want help or just want to talk about how purchasing pre-construction condominiums works, please feel free to contact me.
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